08 Tax 2 Finals (Lgc Totcc)

8/10/2019 08 Tax 2 Finals (Lgc Totcc)

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1 TAXATION2 FINALS | maru.mhealler | 404

LOCAL TAX

(Sections 128 to 196 of R.A. No. 7160)

I. LOCAL GOVERNMENT UNITS & SCOPE OF

LOCAL TAXATION

Territorial jurisdiction:

1. Provinces

2. Cities

3. Municipalities

4. Barangays

II. POWER TO CREATE SOURCES OF REVENUE

Power to tax of the LGUs is NOT an inherent power. It isa delegated power from direct authority of the

Constitution and not by Congress. Without the

Constitution, LGUs have no power to tax.

Local Government Code is a product of an enactment by

Congress of a law for local taxation as authorized by the

Constitution.

Reason for giving LGUs power to tax:

Pursuant to LOCAL AUTONOMY provision of the

Constitution specifically to safeguard the viability and

self-sufficiency fo each and every LGU by directly

granting them the power to raise its own sources of

revenues

LGUs only have RESIDUAL TAXING POWERS

- Only those taxes not imposed by the National

Government through the Bureau of Customs (BOC)

and the BIR may fall within the taxing power of the

LGU. It cannot overlap generally because of the

principle of avoidance of double taxation.

SEC. 186. Power To Levy Other Taxes, Fees or Charges . - Local

government units may exercise the power to levy taxes, fees or

charges on any base or subject not otherwise specifically

enumerated herein or taxed under the provisions of theNational Internal Revenue Code, as amended, or other

applicable laws: Provided, That the taxes, fees, or charges shall

not be unjust, excessive, oppressive, confiscatory or contrary to

declared national policy: Provided, further, That the ordinance

levying such taxes, fees or charges shall not be enacted without

any prior public hearing conducted for the purpose.

LIMITATIONS of the residual taxing power of LGUs:

1. Constitutional Limitation

2. Fundamental Principles

3. Public Hearing requirement

4. Principle of Pre-emption or Exclusionary Rule

5. Common limitations on the taxing power of LGUs

Exclusionary Rule

- Where the Natl govt elects to tax a particular area,

the delegated power of the LGUs to tax the same

field is impliedly limited.

- Where the Natl govt elects to tax a particular area

(subject matter of taxation), impliedly withholding

form the local government the delegated power totax the same field.

- Example: The Natl govt already subject AAA Corp

to income tax, the LGU could no longer subject it to

income tax. However, the LGU can still impose

business taxes (different subject matter of taxation)

Natl govt > LGU

III. AUTHORITY TO GRANT TAX EXEMPTION

PRIVILEGES

SEC. 192.Authority to Grant Tax Exemption Privileges. - Local

government units may, through ordinances duly approved,

grant tax exemptions, incentives or reliefs under such terms and

conditions as they may deem necessary.

LGUs can grant:

a. tax exemptions

b. tax incentives

c. tax reliefs

Requisite: Duly approved Ordinance

Note: LGUs can grant tax exemptions however,

this is not an inherent power. Since the power to tax of

LGUs is not inherent, the authority to grant tax

exemption is also not inherent.

Tax exemption, relief or incentive does NOT extend to

exemption of REGULATORY FEES. These fees are under

the police power of the LGUs.

IV. WITHDRAWAL OF TAX EXEMPTION

PRIVILEGES

SEC. 193. Withdrawal of Tax Exemption Privileges. - Unless

otherwise provided in this Code, tax exemptions or incentives

granted to, or presently enjoyed by all persons, whether natural

or juridical, including government-owned or -controlled

corporations, except local water districts, cooperatives duly

registered under R.A. No. 6938, non-stock and non-profit

hospitals and educational institutions, are hereby withdrawn

upon the effectivity of this Code.

Entities exempt from Local taxation (Categorical

Exemption):

1.

Local water districts

2. Cooperatives duly registered under R.A. No. 6938


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It is one of the differences between local

taxes and national taxes. In local taxation,

both RP and local taxes, the collection of

taxes cannot be delegated to any private

firm, including banks.

Public funds cannot be used to hire private

lawyers

4. The revenue collected shall inure solely to the

benefit of and be subject to disposition by the LGUlevying the tax, fee, charge or imposition unless

otherwise provided in the LGC

5. Each LGU shall, as far as practicable, evolve a

progressive system of taxation.

VI. LOCAL TAXING AUTHORITY

VII.

LOCAL TAX ORDINANCE Procedure forApproval and Effectivity

It must observe:

a. Substantive due process

- must observe the fundamental principles provided

in Section 130

- Local tax ordinance must be within the confines of

the LGC. Any provision that is beyond the scope of

authority granted by the LGC makes such

provision void. (meaning those that are provided

in the LGC should be followed, i.e. maximum ofprofessional tax is P300 per profession, LGU

cannot impose 400)

b. Procedural due process

B.1 Approval of the ordinance by the Sanggunian

concerned

SEC. 54. Approval of Ordinances. - (a) Every ordinance

enacted by the sangguniang panlalawigan, sangguniang

panlungsod, or sangguniang bayan shall be presented to

the provincial governor or city or municipal mayor, as the

case may be. If the local chief executive concerned

approves the same, he shall affix his signature on eachand every page thereof; otherwise, he shall veto it and

return the same with his objections to the sanggunian,

which may proceed to reconsider the same. The

sanggunian concerned may override the veto of the local

chief executive by two-thirds (2/3) vote of all its members,

thereby making the ordinance or resolution effective for

all legal intents and purposes.

(b) The veto shall be communicated by the local chief

executive concerned to the sanggunian within fifteen (15)

days in the case of a province, and ten (10) days in the

case of a city or a municipality; otherwise, the ordinance

shall be deemed approved as if he had signed it.

(c) ordinances enacted by the sangguniang barangayshall, upon approval by the majority of all its members, be

signed by the punong barangay.

SEC. 55. Veto Power of the Local Chief Executive. - (a)

The local chief executive may veto any ordinance of the

sangguniang panlalawigan, sangguniang panlungsod, or

sangguniang bayan on the ground that it is ultra vires or

prejudicial to the public welfare, stating his reasons

therefor in writing.

(b) The local chief executive, except the punong barangay,

shall have the power to veto any particular item or items

of an appropriations ordinance, an ordinance or resolution

adopting a local development plan and public investment

program, or an ordinance directing the payment of moneyor creating liability. In such a case, the veto shall not affect

the item or items which are not objected to. The vetoed

item or items shall not take effect unless the sanggunian

overrides the veto in the manner herein provided;

otherwise, the item or items in the appropriations

ordinance of the previous year corresponding to those

vetoed, if any, shall be deemed reenacted.

(c) The local chief executive may veto an ordinance or

resolution only once. The sanggunian may override the

veto of the local chief executive concerned by two-thirds

(2/3) vote of all its members, thereby making the

ordinance effective even without the approval of the local

chief executive concerned.

Local Chief executive may approve or veto the

ordinance. (Note: Barangay captain has no veto

powers)

- If vetoed, the Sanggunian may override the

veto by 2/3 vote of all its members

B.2 Mandatory Public Hearing

- to afford due process to the oppositors

SEC. 187. Procedure for Approval and Effectivity of Tax

ordinances and Revenue Measures; Mandatory Public

Hearings. - The procedure for approval of local taxordinances and revenue measures shall be in accordance

with the provisions of this Code: Provided, That public

hearings shall be conducted for the purpose prior to the

enactment thereof

B.3 Publication of ordinances

SEC. 188. Publication of Tax ordinances and Revenue

Measures. - Within ten (10) days after their approval,

certified true copies of all provincial, city, and municipal

tax ordinances or revenue measures shall be published in

full for three (3) consecutive days in a newspaper of local

circulation: Provided, however, That in provinces, cities

and municipalities where there are no newspapers of local

circulation, the same may be posted in at least two (2)

conspicuous and publicly accessible places.

Publicationpublished in FULL

- meaning the Entire Ordinance

- after approval there must be

dissemination to the local treasurer of

the respective LGU for them to have it

published within 10 days from date of

approval

- published in newspaper of LOCAL

circulation for 3 consecutive days


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- If there are no such newspaper, then post

in at least 2 conspicuous and public

accessible places

Question on the constitutionality or legality

Section 187. Provided, further, That any question on the

constitutionality or legality of tax ordinances or revenue

measures may be raised on appeal within thirty (30) days from

the effectivity thereof to the Secretary of Justice who shall render

a decision within sixty (60) days from the date of receipt of the

appeal: Provided, however, That such appeal shall not have the

effect of suspending the effectivity of the ordinance and the

accrual and payment of the tax, fee, or charge levied therein:

Provided, finally, That within thirty (30) days after receipt of the

decision or the lapse of the sixty-day period without the

Secretary of Justice acting upon the appeal, the aggrieved party

may file appropriate proceedings with a court of competent

jurisdiction.

- Raise on appeal to Secretary of Justice within

30 days from effectivity

- SOJ given 60 days after receipt of appeal to

give decision

- After SOJ, appeal to RTC

o 30 days after adverse decision

o

30 days after end of 60 days fromreceipt of SOJ without decision

Void or Suspended Tax Ordinances

Effect of appeal:

- Does not suspend the effectivity of the

ordinance nor the accrual and payment of the

tax, fee or charge levied. Hence, the ordinance

remains valid until adjudged unlawful or

unconstitutional.

Refund of taxes from a void tax ordinance

- allowed only if declaration of nullity of the

ordinance is based on the ground of void ab

initio

SEC. 190. Attempt to Enforce Void or Suspended Tax

ordinances and revenue measures. - The enforcement of any

tax ordinance or revenue measure after due notice of the

disapproval or suspension thereof shall be sufficient ground for

administrative disciplinary action against the local officials and

employees responsible therefor.

Administrative cases may be filed against an erring local

government official who continues to enforce the ordinance

that has been declared as void.

Penalties for Violations of Tax Ordinances

SEC. 168. Surcharges and Penalties on Unpaid Taxes, Fees, or

Charges. - The sanggunian may impose a surcharge not

exceeding twenty-five percent (25%) of the amount of taxes,

fees or charges not paid on time and an interest at the rate not

exceeding two percent (2%) per month of the unpaid taxes, fees

or charges including surcharges, until such amount is fully paid

but in no case shall the total interest on the unpaid amount or

portion thereof exceed thirty-six (36) months.

SEC. 516. Penalties for Violation of Tax ordinances. - The

sanggunian of a local government unit is authorized to

prescribe fines or other penalties for violation of tax ordinancesbut in no case shall such fines be less than One thousand pesos

(P=1,000.00) nor more than Five thousand pesos (P=5000.00),

nor shall imprisonment be less than one (1) month nor more

than six (6) months. Such fine or other penalty, or both, shall be

imposed at the discretion of the court. The sangguniang

barangay may prescribe a fine of not less than One hundred

pesos (P=100.00) nor more than One thousand pesos

(P=1,000.00).

LIMIT25% surcharge

Interest 2% per month of the unpaid taxes, fees or

charges includingsurcharges (up to 36 months interest

only)

i.e. unpaid taxes of 1Million in 2007

Surcharge limit is 250,000

Interest is 2% of 1,250,000 up to 36 months only

VIII. COMMON LIMITATIONS ON THE TAXING

POWER OF THE LGUs

SEC. 133. Common Limitations on the Taxing Powers of

Local Government Units. - Unless otherwise providedherein, the exercise of the taxing powers of provinces,

cities, municipalities, and barangays shall not extend to

the levy of the following:

(a) Income tax, except when levied on banks and other

financial institutions;

- Income tax is already imposed by the Natl

govt (Principle of Pre-emption / Exclusionary

Rule)

- Banks and other financial institutions

(including money chargers, pawnshops etc.)

are imposed income taxes since they arehighly profitable institutions (not a high-risk

business)

(b) Documentary stamp tax;

- already covered by the NIRC

(c) Taxes on estates, inheritance, gifts, legacies and

other acquisitions mortis causa, except as otherwise

provided herein;

- already covered by NIRC.

-

Except those subject to taxes on transfer orreal property by provinces and cities (Sec. 135

and 151)

Tax Ordinance No. 7988 is null and void as said ordinance was

published only for one day in the 22 May 2000 issue of the Philippine

Post in contravention of the unmistakable directive of the Local

Government Code of 1991 to publish it for 3 consecutive days. Also any

amending ordinance to Tax Ordinance No. 7988 is null and void. If an

order or law sought to be amended is invalid, then it does not legally

exist, there should be no occasion or need to amend it. (Coca-ColaPhilippines, Inc. vs. City of Manila)


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(d) Customs duties, registration fees of vessel and

wharfage on wharves, tonnage dues, and all other

kinds of customs fees, charges and dues except

wharfage on wharves constructed and maintained by

the local government unit concerned;

- wharfage on wharves constructed and

maintained by the local government unit

concerned still taxable

(e) Taxes, fees and charges and other impositions upongoods carried into or out of, or passing through, the

territorial jurisdictions of local government units in the

guise of charges for wharfage, tolls for bridges or

otherwise, or other taxes, fees or charges in any form

whatsoever upon such goods or merchandise;

(f) Taxes, fees or charges on agricultural and aquatic

products when sold by marginal farmers or fishermen;

(g) Taxes on business enterprises certified to by the

Board of Investments as pioneer or non-pioneer for a

period of six (6) and four (4) years, respectively from

the date of registration;

A domestic corporation certified by the Board of

Investments is not absolutely tax exempt.

If pioneer enterprise6 years exempted

If non-pioneer enterprise4 years only

Pioneer enterprise - first to establish such kind of

business in the Philippines

(non-pioneeralready existing)

(h) Excise taxes on articles enumerated under the

National Internal Revenue Code, as amended, and

taxes, fees or charges on petroleum products;

- For petroleum products there is a Blanket

exemption, meaning it is tax exempt on the

business and the product itself

- For other business subject to excise taxes, only

the article or product itself is exempt, the

business can still be taxable either as

manufacture, retailer, exporter, wholesaler

etc.

(i) Percentage or value-added tax (VAT) on sales,barters or exchanges or similar transactions on goods

or services except as otherwise provided herein;

- already covered by the NIRC

- However, for local business taxes, if you reach

the maximum amount, that can already be

equated to percentage taxes (i.e. 37.5% of 1%

of gross receipts for manufacturers if 6.5M or

more)

(j) Taxes on the gross receipts of transportation

contractors and persons engaged in the transportation

of passengers or freight by hire and common carriersby air, land or water, except as provided in this Code;

- already covered as percentage taxes in NIRC

- However, gross receipts of tricycle operators

are still subject to local taxes

(k) Taxes on premiums paid by way of reinsurance or

retrocession;

- Hence, premiums on insurance are as a rule

covered

-

Only the reinsurance is exempt since theyhave already been previously subjected to

local taxes

(l) Taxes, fees or charges for the registration of motor

vehicles and for the issuance of all kinds of licenses or

permits for the driving thereof, except tricycles;

- already covered by special laws

- Taxes, fees or charges for the registration of

tricycles and the issuance of licenses for

tricycles belong to the LGUs, including the

power to tax on their gross receipts

(m) Taxes, fees, or other charges on Philippine products

actually exported, except as otherwise provided herein;

- Local tax on every product exported is not

allowed

- However, exporters are subjected to local

taxes on their business of exporting

Petron Corporation vs. Mayor Tobias M. Tiangco, et.al. SCGR No. 158881, April 16, 2008

A tax on a business is distinct from a tax on the article itself, or for

that matter, that a business tax is distinct from an excise tax.

However, such distinction is immaterial insofar as the latter part of

Section 133(h) is concerned, for the phrase "taxes, fees or charges on

petroleum products" does not qualify the kind of taxes, fees or

charges that could withstand the absolute prohibition imposed by

the provision. The language of Section 133(h) makes plain that the

prohibition with respect to petroleum products extends not only to

excise taxes thereon, but all "taxes, fees and charges."

Land Transportation Office vs. City of Butuan, SC GR No.

131512, January 20, 2000

The newly delegated powers to the LGU pertain to the franchising

and regulatory powerstheretofore exercised by the LTFRB and not

to the functions of the LTO relative to the registration of motor

vehicles and issuance of licenses for the driving thereof. Clearly

unaffected by the Local Government Code are the powers of LTO

under R.A. No. 4136 requiring the registration of all kinds of motor

vehicles "used or operated on or upon any public highway" in the

country.

The devolution of the functions of the DOTC, performed by theLTFRB, to the LGUs, is aimed at curbing the alarming increase of

accidents in national highways involving tricycles. It has been the

perception that local governments are in good position to achieve

the end desired by the law-making body because of their proximity

to the situation that can enable them to address that serious

concern better than the national government.


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(n) Taxes, fees, or charges, on Countryside and

Barangay Business Enterprises and cooperatives duly

registered under R.A. No. 6810 and Republic Act

Numbered Sixty-nine hundred thirty-eight (R.A. No.

6938) otherwise known as the "Cooperatives Code of

the Philippines" respectively; and

(o) Taxes, fees or charges of any kind on the National

Government, its agencies and instrumentalities, and

local government units.

- It contravenes the existing govt policy or

violative of the fundamental principles of

taxation

IX. COMMON REVENUE-RAISING POWERS OF

LGUS

1.

Service Fees and Charges

2. Public Utility Charges

3. Toll fees or charges

SEC. 153. Service Fees and Charges. - Local government

units may impose and collect such reasonable fees and

charges for services rendered.

Ex. For whatever type of basic services (i.e. parking fees,

garbage collection)

SEC. 154. Public Utility Charges. - Local government

units may fix the rates for the operation of public utilities

owned, operated and maintained by them within their

jurisdiction.

- As long as it is the LGU that owns the public

utility (i.e. LGUs except barangays can operate

bus operations and impose common charge to

passengers)

SEC. 155. Toll Fees or Charges. - The sanggunian

concerned may prescribe the terms and conditions and

fix the rates for the imposition of toll fees or charges for

the use of any public road, pier or wharf, waterway,

bridge, ferry or telecommunication system funded and

constructed by the local government unit concerned:

Provided, That no such toll fees or charges shall be

collected from:

a. Officers and enlisted men of the Armed Forces of the

Philippines (AFP) and members of the Philippine National

Police (PNP) on mission,

b. Post office personnel delivering mail,

c. Physically-handicapped, and

d. Disabled citizens who are sixty-five (65) years or older.

e. When public safety and welfare so requires, the

sanggunian concerned may discontinue the collection of

the tolls, and thereafter the said facility shall be free and

open for public use.

Toll fee a charge for the use of public road, pier or

wharf, waterway, bridge, ferry or telecommunication

system funded and constructed by the local government

unit concerned

Reason for charging toll fees recovery of the costs of

these public roads and other infrastructures

Not all are subject to toll fees. There are individuals who

are exempt as stated above.

X. SCOPE OF THE POWER TO TAX

4 LGUS can tax: Province, city, municipality and

barangay.

Least taxing powerBarangay

Most taxing power Cities because it may levy taxes,

fees and charges which the province or municipality may

impose. It can also impose up to 50% higher than what

the province or municipality may impose.

Taxing power of Province and municipality is mutuallyexclusive. One pre-empts the other. Whatever is taxable

by the province can no longer be taxed by municipality

and vice-versa.

The city pre-empts the municipality and the province.

When the city taxes a specific subject, the municipality

and the province can no longer tax them.

A. Province (Secs. 134-141)

1. Tax on Transfer of Real Property Ownership or

Local transfer tax (LTT)

SEC. 135. Tax on Transfer of Real Property

Ownership. - (a) The province may impose a tax on

the sale, donation, barter, or on any other mode of

transferring ownership or title of real property at

the rate of not more than fifty percent (50%) of one

percent (1%) of the total consideration involved in

the acquisition of the property or of the fair market

value in case the monetary consideration involved

in the transfer is not substantial, whichever is

higher. The sale, transfer or other disposition of real

property pursuant to R.A. No. 6657 (CARL

Comprehensive Agrarian Reform Law) shall be

exempt from this tax.

(b) For this purpose, the Register of Deeds of the

province concerned shall, before registering any

deed, require the presentation of the evidence of

payment of this tax. The provincial assessor shall

likewise make the same requirement before

cancelling an old tax declaration and issuing a new

one in place thereof. Notaries public shall furnish

the provincial treasurer with a copy of any deed

transferring ownership or title to any real property

within thirty (30) days from the date of

notarization. It shall be the duty of the seller, donor,

transferor, executor or administrator to pay the tax

herein imposed within sixty (60) days from the date

of the execution of the deed or from the date of thedecedent's death.


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Any mode of transfer of RP ownership, such

as sale, donation, barter, succession, exchange

(whether mortis causa or inter vivos, onerous

or gratuitous)

Exceptions:

a.) Transfers pursuant to CARL (transfers from

the landlord to the tenant or the farmer)

b.) Sale of socialized housing.

c.) Transfer of personal property

RATE: At of 1% (50% of 1%) based on the

total consideration or the FMV if the total

consideration received is not substantial,

whichever is higher

Example: A religious institution donated a

parcel of land to a non-stock non-profit

foundation. Subject to LTT?

YES. The provision of the LGC is clear that all

modes of transfer of RP ownership, regardlessof who the owner is subject to LTT.

LTT is taxed on TRANSFER regardless of

ownership (whether transferee or transferor is

religious institution, non-stock, non-profit

foundation) It is a privilege of transferring the

RP ownership to another person. It is an excise

tax.

The exemption provided by the Constitution

for religious institutions only relate to real

property taxes. It does not include local

transfer tax.

Constitutional exemption only relate when it is

actually, directly and exclusively (ADE) used for its

purpose. Transferring property cannot be

considered ADE use.

RPT vs. LTT

RPT LTT

property tax directed

against the property itself

excise tax; a tax on the

privilege of transferring RPownership

Is Capital gains tax (CGT) and LTT valid for the

same transfer?

Yes. This is not considered direct double

taxation in its strict sense. It is only indirect

double taxation which is allowed. They have

different taxing authority (natl govt and LGU)

BURDEN to pay LTT

It is the duty of the seller, donor, transferor,

executor or administrator (source of the RP) to

pay the LTT.

However, the parties may agree among

themselves that the transferee will pay it to

the taxing authority. Nonetheless, this is only

biding between the parties. If the transferee

fails to pay, the LGU will still go after the

transferor who is the statutory taxpayer.

Time of Payment

Within 60 days from:

a.) Date of the execution of the deed /

notarization (i.e. deed of sale/donation)

or

b.) Date of the decedents death (for

transfer through succession)

c.) Date of execution of final deed of sale

if property sold through public auction (if

not redeemable)

d.) Date of lapse of redemption period ifforeclosed

Register of Deeds will not transfer ownership

of the RP in the new owners name unless

theres clearance from both agencies of the

governmentthe BIR and the LGU.

There are 3 persons who are instrumental in

the collection of LTT:

1. Registrar of Deeds

2. Local treasurer

3. Notary public (NP)

Every notarization of a deed of sale or deed of

conveyance of RP, the NP is required to inform

the office of the local treasurer within 30 days

in order to put into record that theres a

collectible in favor of the government.

2.

Tax on Business of Printing and Publication (Sec.

136)

SEC. 136. Tax on Business of Printing and

Publication.- The province may impose a tax on the

business of persons engaged in the printing and/or

publication of books, cards, posters, leaflets,

handbills, certificates, receipts, pamphlets, and

others of similar nature, at a rate not exceeding

fifty percent (50%) of one percent (1%) of the gross

annual receipts for the preceding calendar year. In

the case of a newly started business, the tax shall

not exceed one-twentieth (1/20) of one percent

(1%) of the capital investment. In the succeeding

calendar year, regardless of when the business

started to operate, the tax shall be based on the

gross receipts for the preceding calendar year, orany fraction thereof, as provided herein. The

receipts from the printing and/or publishing of


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books or other reading materials prescribed by the

Department of Education, Culture and Sports, as

school texts or references shall be exempt from the

tax herein imposed.

Tax on the business of printing and publishing

NOT on the business of selling

Includes persons engaged in the business of

printing and/or publication of books, cards,

posters, leaflets, handbills, certificates,receipts, pamphlets, and others of similar

nature

Except: Printing and/or publishing of books or

other reading materials prescribed by the

Department of Education as school texts or

references

RATE: In case of a newly started businesstax

shall not exceed 1/20 of 1% of the capital

investment

In case of a business operating for more than a

yeartax shall be of 1%of the gross annual

receipts for the preceding calendar year

Example:

Start of operationsFebruary 2011

Capital investment2M

Gross annual receipts for 20110

Gross annual receipts for 20122M

Tax due:

2011 tax shall not exceed 1/20 of 1% of

the capital investment

So 1% of 2m = 20k

20k/20 = 1,000 business tax for 2011

2012 0 tax liability (base it on the

preceding calendar years gross annual

receipt)

201310k (1/2 of 1% of 2M)

1.

Franchise Tax (Sec. 137)

Franchise - is a right or privilege, affected with

public interest, which is conferred upon private

persons or corporations, under such terms and

conditions as the government and its political

subdivisions may impose in the interest of public

welfare, security, and safety.

SEC. 137. Franchise Tax. - Notwithstanding any

exemption granted by any law or other special law,

the province may impose a tax on businesses

enjoying a franchise, at a rate not exceeding fifty

percent (50%) of one percent (1%) of the gross

annual receipts for the preceding calendar year

based on the incoming receipt, or realized, within

its territorial jurisdiction. In the case of a newly

started business, the tax shall not jhexceed one-

twentieth (1/20) of one percent (1%) of the capital

investment. In the succeeding calendar year,

regardless of when the business started to operate,

the tax shall be based on the gross receipts for the

preceding calendar year, or any fraction thereof, as

provided herein.

Local franchise tax (LFT) is different fromnational franchise tax imposed under the

NIRC.

Notwithstanding any exemption granted by

any law or other special law

If one is already subject to franchise tax (as

percentage tax under NIRC), it will still be

subject to local franchise taxes.

Tax upon those businesses enjoying a

franchise at a rate not exceeding of 1% of

the gross annual receipts for the preceding

calendar yearbased on the incoming receipt,

or realized, within its territorial jurisdiction.

Includes receivables for consummated sales

even if no payment has been received

However, in case of a newly started business,

the tax shall not exceed 1/20 of 1% of the

capital investment.

Franchises covered include those engaged in

telecommunications, television, broadcasting,

water, electricity franchises granted by the

National Government.

EXAMPLE: VECO, PLDT, and other public utility

companies.

Taxicabs, and other transportation contractors

are not subject to local franchise taxes

because under the common limitations

provided in Sec. 133, LGUs are pre-empted or

prohibited from imposing taxes on

transportation contractors

Holders of Certificate of Public Convenience

(CPC) are not considered franchise holders,

hence, not subject to LFT

EXAMPLE:

A telecommunications company in 2012 had

gross receipts of 100M and had 50M in

accounts receivable. What is subject to the

LFT?

150M (100 + 50)

All throughout the LGC, basis of taxes is usually the

gross receipts of the preceding calendar year

except LFT which includes incoming receipts or

uncollected gross receipts so long as there was a

consummated sale.


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This is one instance thats different. LFT is not only

imposed on the gross receipts of the preceding

calendar year but it also includes as well

uncollected gross receipts or incoming so long as

its realized receipts from the customer.

If the franchise holder is operational in many LGUs

(i.e. PLDT operating nationwide), each LGU will

claim its own stake in every operational business

within the unit.

Apportion the gross receipts coming from

every LGU and pay thereon the taxes to which LGU

it belongs. You have to determine the tax for each

LGU concerned.

PLDT vs PROVINCE OF LAGUNA

In sum, it does not appear that, in approving 23 of R.A. No. 7925

(equality of treatment n the telecommunications industry), Congress

intended it to operate as a blanket tax exemption to all

telecommunications entities. Applying the rule of strict construction of

laws granting tax exemptions and the rule that doubts should be

resolved in favor of municipal corporations in interpreting statutory

provisions on municipal taxing powers, we hold that 23 of R.A. No.

7925 cannot be considered as having amended petitioner's franchise

so as to entitle it to exemption from the imposition of local franchise

taxes.

Exemptions from taxation are highly disfavored, so much so that they

may almost be said to be odious to the law. He who claims an

exemption must be able to point to some positive provision of law

creating the right. The tax exemption must be expressed in the statute

in clear language that leaves no doubt of the intention of the

legislature to grant such exemption. And, even if it is granted, the

exemption must be interpreted in strictissimi juris against the

taxpayer and liberally in favor of the taxing authority.

Sec. 137 of the LGC provides for PLDTs liability to pay LFT despite of

the special exemption granted under the charter of PLDT. In lieu of

all taxes exemption does not make it not be liable to local franchise

taxes.

The withdrawal of all exemption privileges except for the 4 already

mentioned (local water district, non-stock non-profit hospitals, non-

stock non-profit educational institutions, cooperatives registered

under the CDA) supports this principle. Only exception would be

when a special ordinance granting an exemption for special cases or

circumstances.

NPC vs PROVINCE OF ISABELA

Section 193 of the LGC withdrew, subject to limited exceptions, the

sweeping tax privileges previously enjoyed by private and public

corporations. Contrary to the contention of Napocor, Section 193 of

the LGC is an express, albeit general, repeal of all statutes granting tax

exemptions from local taxes.

It is a basic precept of statutory construction that the express mention

of one person, thing, act, or consequence excludes all others as

expressed in the familiar maxim expressio unius est exclusio alterius.Not being a local water district, a cooperative registered under R.A.

No. 6938, or a non-stock and non-profit hospital or educational

institution, petitioner clearly does not belong to the exception. It is

therefore incumbent upon the petitioner to point to some provisions

of the LGC that expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly

states that the LGUs can impose franchise tax "notwithstanding any

exemption granted by any law or other special law." This particular

provision of the LGC does not admit any exception. x x x

Franchise tax may still be imposed despite any exemption enjoyed

under special laws

Nonetheless, petitioner seeks to avoid paying the franchise tax byarguing further that it is not liable therefor under Section 137 of the

LGC because said tax applies only to a "business enjoying a franchise."

It contends that it is not a private corporation or a business for profit.

Again, we do not agree.

In section 131 (m) of the LGC, Congress unmistakably defined a

franchise in the sense of a secondary or special franchise. This is to

avoid any confusion when the word franchise is used in the concept of

taxation. As commonly used, a franchise tax is "a tax on the privilege

of transacting business in the state and exercising corporate

franchises granted by the state." It is not levied on the corporation

simply for existing as a corporation, upon its property or its income,

but on its exercise of the rights or privileges granted to it by the

government. Hence, a corporation need not pay franchise tax from the

time it ceased to do business and exercise its franchise. It is within this

context that the phrase "tax on businesses enjoying a franchise" in

Section 137 of the LGC should be interpreted and understood. Verily,

to determine whether the petitioner is covered by the franchise tax in

question, the following requisites should concur: (1) that petitioner

has a "franchise" in the sense of a secondary or special franchise; and

(2) that it is exercising its rights or privileges under this franchise

within the territory of the respondent city government. Napocor fulfills

both requisites.

Although as a general rule, LGUs cannot impose taxes, fees or

charges of any kind on the National Government, its agencies and

instrumentalities, this rule admits of an exception, i.e., when specific

provisions of the LGC authorize the LGUs to impose taxes, fees or

charges on the aforementioned entities. Section 137 of the LGC is one

of those exceptions. It authorizes the province to impose a tax on

business enjoying a franchise, at a rate not exceeding fifty percent

(50%) of one percent (1%) of the gross annual receipts for the

preceding calendar year based on the incoming receipt, or realized,

within its territorial jurisdiction.

In enacting the LGC, Congress empowered the LGUs to impose certain

taxes even on instrumentalities of the National Government.

NPC is characterized as a private enterprise for profit in the

generation and sale of electricity, thus, purely private and a

commercial undertaking, which is not usually a sovereign function of

the government. Therefore, NPC cannot invoke the last provision

under Sec. 133 on common limitations against the taxing power of

the LGU. NPC is still liable to LFT.


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2.

Tax on Sand, Gravel and other Quarry Resources

(Sec. 138) or Sand and Gravel Tax (SGT)

SEC. 138. Tax on Sand, Gravel and Other Quarry

Resources. - The province may levy and collect not

more than ten percent (10%) of fair market value in

the locality per cubic meter of ordinary stones,

sand, gravel, earth, and other quarry resources, as

defined under the National Internal Revenue Code,

as amended, extracted from public lands or from

the beds of seas, lakes, rivers, streams, creeks, andother public waters within its territorial jurisdiction.

The permit to extract sand, gravel and other quarry

resources shall be issued exclusively by the

provincial governor, pursuant to the ordinance of

the sangguniang panlalawigan. The proceeds of the

tax on sand, gravel and other quarry resources shall

be distributed as follows:

(1) Province - Thirty percent (30%);

(2) Component city or municipality where the

sand, gravel, and other quarry resources are

extracted - Thirty percent (30%); and

(3) Barangay where the sand, gravel, and

other quarry resources are extracted - Forty

percent (40%).

Sand and Gravel tax - tax imposed on ordinary

stones, sand, gravel, earth and other quarry

resources extracted from public landsor from

the beds of seas, lakes, rivers, streams, creeks,

and other public waters within the territorial

jurisdiction of the LGU concerned.

RATE: Not more than 10% of FMV in the

locality per cubic meter of the quarry resourceextracted

This refers to the FMV as of the moment that

youve made the extraction and not the FMV

when you sell it or deliver it for sale to an end-

user.

"Quarry resources" shall mean any common

stone or other common mineral substances as

the Director of the Bureau of Mines and Geo-

Sciences may declare to be quarry resources

such as, but not restricted to, marl, marble,

granite, volcanic cinders, basalt, tuff and rock

phosphate: Provided, That they contain nometal or other valuable minerals in

economically workable quantities.

3. Land dug up from a residential area or from

your own backyard is not subject to SGT

because it is not PUBLIC LAND.

Hence, private lands are exempted from SGT

under the LGC. However, they are still subject

to SGT under NIRC.

It is not a requisite that you are engaged in the

business of extraction and selling the sand and

gravel to be liable for SGT. It is an excise tax on

the extraction of quarry resources from public

lands or public waters and not on the business

of extraction and selling the quarry resources.

The activity of extraction is taxable regardless

of the purpose.

ONLY the provinces have the authority to give

the permit to quarry resources in all areas of

the country but since every extraction would

also affect the city, municipality and the

barangay, they get a share from the SGT.

Province 30%, component city or

municipality30%, barangay40%

Having suffered the most from the extraction,

barangays would receive 40% share of the

taxes collected.

5. Professional Tax (Sec. 139)

SEC. 139. Professional Tax. - (a) The province may

levy an annual professional tax on each person

engaged in the exercise or practice of his profession

requiring government examination at such amount

and reasonable classification as the sangguniang

panlalawigan may determine but shall in no case

exceed Three hundred pesos (P=300.00).

(b) Every person legally authorized to practice his

profession shall pay the professional tax to the

province where he practices his profession or where

he maintains his principal office in case he practices

his profession in several places: Provided, however,

That such person who has paid the corresponding

professional tax shall be entitled to practice his

profession in any part of the Philippines without

being subjected to any other national or local tax,

license, or fee for the practice of such profession.

(c) Any individual or corporation employing a

person subject to professional tax shall require

payment by that person of the tax on his profession

before employment and annually thereafter.

(d) The professional tax shall be payable annually,

on or before the thirty-first (31st) day of January.

Any person first beginning to practice a profession

after the month of January must, however, pay the

full tax before engaging therein. A line of profession

does not become exempt even if conducted with

some other profession for which the tax has been

paid. Professionals exclusively employed in thegovernment shall be exempt from the payment of

this tax.

LEPANTO CONSOLIDATED MINING CO vs HON. AMBANLOC

Tax on the sand and gravel does not require that it must be for

business purposes or for commercial undertakings. Notwithstanding

its incidental nature, as long as theres an act of extraction, there

should be imposed SGT.

The mining contract or the mining lease agreement entered into with

the government by Lepanto does not make it an agent of the National

Government. Entering into contracts with the government for mining

or mining lease contract does not make the other party an agent nor

a representative of the state but rather an independent contractor.


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(e) Any person subject to the professional tax shall

write in deeds, receipts, prescriptions, reports,

books of account, plans and designs, surveys and

maps, as the case may be, the number of the official

receipt issued to him.

Professional tax - is a tax on each person

engaged in the exercise or practice of his

profession requiring government examination

(i.e. teachers, CPAs, engineers or those

professions governed by the ProfessionalRegulations Commission or the IBP.

Other professions that do not require

government examination are exempted from

professional tax (i.e. professional athletes,

media men).

2 requisites for imposition of Professional Tax:

1. Must be a professional in a profession

requiring government examination

2. Must be engaged in the practice of such

profession

- Both requirements should be met

Such professionals are liable for a maximum of

P300 PT every year. P300 per profession,

hence, if you are a CPA Lawyer, the maximum

PT that can be imposed is P600 regardless if

you are practicing in different LGUs.

The P300 limit cannot be increased even if the

imposing authority is the city (notwithstanding

its right to impose a 50% higher rate)

Remember, a city can impose up to the extent

of 50% higher than what the provinces or

municipalities can impose but excluding the

PT, which at all times remain at 300, and

amusement taxes. So the same rates for all

kinds of LGUs with respect to PT and

amusement taxes unless a law is subsequently

passed.

SITUS of Professional tax:

General Rule: LGU where you practice your

profession

However, if you practice in different localities,

you have to pay it where your principal office

is located.

Note:

A municipality cannot impose

professional taxes. Only a city or province can

impose PT. Imposition by city pre-empts the

province.

PT is payable annually on or before January 31.

This is for the purpose of issuing a PT receipt

(PTR) and then obtain a PTR number.

If you first begin practice after Jan. 31, then

pay the PT before engaging in such practice.

NOTE: Every employer who hires professionals

are obligated to inform there employees to

get PTRs.

Exception to PT: Professional exclusively

employed by the government

Hence, if you are not exclusively employed by

the government meaning you are alsoengaging in part-time teaching or other

professional work, then you are still subject to

PT.

The PT of every professional is different from

mayors permit.

A mayors permit is a permit to operate

business while PT only applies to professionals

in order to enjoy the practice of profession (no

need to get mayors permit).

But once individuals or professionals form a

general professional partnership or any

partnership, a separate mayors permit is

required for the partnership. This permit does

not preclude the professionals from paying

professional tax.

6. Amusement Tax (Sec. 140)

SEC. 140. Amusement Tax. - (a) The province may

levy an amusement tax to be collected from the

proprietors, lessees, or operators of theaters,

cinemas, concert halls, circuses, boxing stadia, and

other places of amusement at a rate of not more

than ten percent (10%) of the gross receipts fromthe admissions fees

(b) In the case of theaters or cinemas, the tax shall

first be deducted and withheld by their proprietors,

lessees, or operators and paid to the provincial

treasurer before the gross receipts are divided

between said proprietors, lessees, or operators and

the distributors of the cinematographic films.

(c) The holding of operas, concerts, dramas, recitals,

paintings, and art exhibitions, flower shows,

musical programs, literary and oratorical

presentations, except pop, rock, or similar concerts

shall be exempt from the payment of the tax hereinimposed.

(d) The sangguniang panlalawigan may prescribe

the time, manner, terms and conditions for the

payment of tax. In case of fraud or failure to pay

the tax, the sangguniang panlalawigan may impose

such surcharges, interest and penalties as it may

deem appropriate.

(e) The proceeds from the amusement tax shall be

shared equally by the province and the municipality

where such amusement places are located.

a.

Amusement - is a pleasurable diversion andentertainment. It is synonymous to relaxation,

avocation, pastime, or fun.


12/45


b. Amusement places - includes theaters,

cinemas, concert halls, circuses and other

places of amusement where one seeks

admission to entertain oneself by seeing or

viewing the show or performances.

Amusement tax (AT) is imposed for every

admissionto amusement places at 10% of the

gross receipts.

It is a tax on the admission. Whether you areactually amused or not, it does not matter.

What is taxed is the admission.

This is different to the amusement tax under

the NIRC

Cockpits, cabarets, night or day clubs, boxing

exhibitions, professional basketball games, Jai-

Alai and racetracks taxable by amusement

taxes under the NIRC are not subject to local

AT. According to the limitations of the residual

taxing power, whatever is already taxed under

the NIRC, the LGU can no longer encroach.

However, boxing exhibitions wherein World or

Oriental Championships in any division is at

stake shall be exempt from amusement tax:

Provided, further, That at least one of the

contenders for World or Oriental

Championship is a citizen of the Philippines

and said exhibitions are promoted by a

citizen/s of the Philippines or by a corporation

or association at least sixty percent (60%) of

the capital of which is owned by such citizens

b. Statutory taxpayers for Local AT

They are the proprietors, lessees or operators

(not all of them for the same activity) of the

following amusement places:

Theaters

Cinemas

Concert halls

Circuses

Boxing stadia

And other places of

amusement

EXEMPT Amusement Places:

Operas

Concerts

Dramas

Recitals

Paintings and artexhibitions

Flower shows

Musical programs

Literary and oratorical

presentations

o Except pop, rock, or

similar concerts

The exemption also includes benefit shows,

athletic metes, physical programs and

performances. Theyre still exempt from AT.

Rationale: They are artistic forms of

entertainment which the State promotes.

c. If the ticket for an amusement place does not

detail the components of the price, it means

to say that the 10% AT will be computed based

on the total cost of the ticket.

d. Collection of Amusement taxes does not

preclude the collection of business taxes

7. Annual Fixed Tax for Every Delivery Truck or Van

of Manufacturers / Producers / Wholesalers (Sec.141)

SEC. 141. Annual Fixed Tax For Every Delivery

Truck or Van of Manufacturers or Producers,

Wholesalers of, Dealers, or Retailers in, Certain

Products.

(a) The province may levy an annual fixed tax for

every truck, van or any vehicle used by

manufacturers, producers, wholesalers, dealers or

retailers in the delivery or distribution of distilled

spirits, fermented liquors, soft drinks, cigars and

cigarettes, and other products as may be

determined by the sangguniang panlalawigan, to

sales outlets, or consumers, whether directly or

indirectly, within the province in an amount not

exceeding Five hundred pesos (P500.00).

(b) The manufacturers, producers, wholesalers,

dealers, and retailers referred to in the immediately

foregoing paragraph shall be exempt from the tax

on peddlers prescribed elsewhere in this Code.

Two Requisites:

1. Truck, van or any vehicle used by a.)

manufacturers, b.) producers, c.) wholesalers,e.) dealers or f.) retailers

2. In the delivery or distribution of:

a. distilled spirits,

b. fermented liquors,

c. soft drinks,

d. cigars and cigarettes, and

e. other products determined by

sangguniang panlalawigan

Hence, if you are in the business of delivery

and hauling but not a manufacturer, producer,


13/45


wholesaler, dealer or retailer of the above

items, then, you are not subject to this tax.

The business is not subject to local taxes

because it is a transportation contractor

outside the reach of LGUs but subjected to tax

by the National government.

Tax amount not exceeding P500 for every

delivery truck, van or vehicle

B. Municipality (Secs. 142-150)

The scope of the taxing powers of the municipality is

limited. They may levy taxes, fees, and charges not

otherwise levied by provinces.

1. Fees and Charges (Sec. 147)

SEC. 147. Fees and Charges.-The municipality may

impose and collect such reasonable fees and

charges on business and occupation and, except as

reserved to the province in Section 139 of this Code,

on the practice of any profession or calling,

commensurate with the cost of regulation,

inspection and licensing before any person may

engage in such business or occupation, or practice

such profession or calling.

The municipality can impose fees and charges

on businesses and occupation except for those

that have been subjected already to

professional taxes by the province or the city.

Hence, they cover only those professionals not

requiring government examination (i.e.

computer engineers, media men)

No maximum amount fixed as long ascommensurate with the cost of regulation,

inspection and licensing

2. Fees for Sealing and Licensing of Weights and

Measures

SEC. 148. Fees for Sealing and Licensing of Weights

and Measures.- (a) The municipality may levy fees

for the sealing and licensing of weights and

measures at such reasonable rates as shall be

prescribed by the sangguniang bayan.

(b) The sangguniang bayan shall prescribe the

necessary regulations for the use of such weightsand measures, subject to such guidelines as shall be

prescribed by the Department of Science and

Technology. The sanggunian concerned shall, by

appropriate ordinance, penalize fraudulent

practices and unlawful possession or use of

instruments of weights and measures and prescribe

the criminal penalty therefor in accordance with the

provisions of this Code. Provided, however, That the

sanggunian concerned may authorize the municipal

treasurer to settle an offense not involving the

commission of fraud before a case therefor is filed

in court, upon payment of a compromise penalty of

not less than Two hundred pesos (P=200.00).

Municipalities and cities can impose fees for

the sealing and licensing of weights and

measures.

a. LGUs go to wet markets to check upon the

weights and measures and put in stickers to

those who have passed the test.

3. Fishery Rentals, Fees and Charges(Sec. 149)

SEC. 149. Fishery Rentals, Fees and Charges . - (a)

Municipalities shall have the exclusive authority to

grant fishery privileges in the municipal waters andimpose rentals, fees or charges therefor in

accordance with the provisions of this Section. (b)

The sangguniang bayan may:

(1) Grant fishery privileges to erect fish corrals,

oyster, mussels or other aquatic beds or bangus fry

areas, within a definite zone of the municipal

waters, as determined by it: Provided, however,

That duly registered organizations and cooperatives

of marginal fishermen shall have the preferential

right to such fishery privileges: Provided, further,

That the sangguniang bayan may require a public

bidding in conformity with and pursuant to an

ordinance for the grant of such privileges: Provided,

finally, That in the absence of such organizations

and cooperatives or their failure to exercise their

preferential right, other parties may participate in

the public bidding in conformity with the above

cited procedure.

(2) Grant the privilege to gather, take or catch

bangus fry, prawn fry or kawag-kawag or fry of

other species and fish from the municipal waters by

nets, traps or other fishing gears to marginal

fishermen free of any rental, fee, charge or any

other imposition whatsoever.

(3) Issue licenses for the operation of fishing

vesselsof three (3) tons or less for which purpose

the sangguniang bayan shall promulgate rules and

regulations regarding the issuances of such licenses

to qualified applicants under existing laws.

Provided, however, That the sanggunian concerned

shall, by appropriate ordinance, penalize the use of

explosives, noxious or poisonous substances,

electricity, muro-ami, and other deleterious

methods of fishing and prescribe a criminal penalty

therefor in accordance with the provisions of this

Code: Provided, finally, That the sanggunian

concerned shall have the authority to prosecute anyviolation of the provisions of applicable fishery laws.

4. Tax on Business(Sec. 143)

Local business tax (LBT) is the major source of

revenues for every city or municipality. This is not

imposable by:

a.) province or the b.) barangay

What is the LBT?

LBT is a tax based on gross receipts or gross

sales not on income. It is a tax on theoperation of the business and also as under

the police power of LGUs in regulating the


14/45


business.

It is not an income tax. So whether you are

operating at a gain or loss, you are still subject

to local business tax. This is used as a measure

to regulate businesses. Non-payment of LBT

based on the preceding calendar years gross

sales or receipts shall not allow you to validly

operate during the year.

It is a prerequisite for the issuance of mayorspermit.

It partake the nature of percentage tax when

the limit of each graduated table for different

taxpayers is reached (see Sec. 143 of LGC) i.e.

37.5% of 1% for manufacturers.

Example: On January 20, 2011 (deadline of

LBT), every business should pay the LBT based

on 2010 gross sales or receipts.

Based on the gross receipts of the preceding

calendar year, whether or not the company is

actually on a calendar or fiscal year basis.

(Review: calendar year JanDec, fiscal year

any 12 month period starting on a month

other than January)

The basis of computation of the LBT remains

fixed at gross sales or receipts of the preceding

calendar. There could be no other basis not

the income, not the production, not the

output, and not the fiscal year.

Businesses subject to LBT

a.

Manufacturers, assemblers, repackers,processors, brewers, distillers, rectifiers,

and compounders of liquors, distilled

spirits, and wines or manufacturers of

any article of commerce of whatever

kind or nature

There is a fixed tax up to the point of the

highest bracket wherein it becomes

already a percentage tax of 37 % of 1%.

b. Wholesalers, distributors, or dealers in

any article of commerce of whatever

kind or nature

These are businessmen who do not have

anything to do with the manufacturing or

production or processes of the products

that they are dealing, distributing, or

delivering wholesale.

They shall be taxed at fixed amount of

taxes depending on its bracket of sales or

receipts but the highest bracket is not

exceeding 50% of 1%. However, such rate

may be raised by the cities to more than

the limit provided so long as its not more

than 50% higher.

EXAMPLE: When one is a manufacturer

and wholesaler or distributor at the same

time, he will only pay as manufacturer

because the distribution is only incidental

of being a manufacturer.

However, if youre a manufacturerof one

product and a distributor of another, you

will now be liable for both classification

as manufacturer of your own product and

distributor of someone elses product.

c.

Exporters, and on manufacturers,millers, producers, wholesalers,

distributors, dealers or retailers of

essential commodities enumerated

hereunder:

1. Rice and corn

2. Wheat or cassava flour, meat, dairy

products, locally manufactured,

processed or preserved food, sugar, salt

and other agricultural, marine, and fresh

water products, whether in their original

state or not

3. Cooking oil and cooking gas

4. Laundry soap, detergents, and

medicine

5. Agricultural implements, equipment

and post- harvest facilities, fertilizers,

pesticides, insecticides, herbicides and

other farm inputs

6. Poultry feeds and other animal feeds

7. School supplies; and

8. Cement

RATE: Not exceeding of the rates

prescribed under manufacturers,

wholesalers, and retailers.

Hence, the maximum rates are:

Manufacturers of 37.5% of 1%

Wholesalers of 50% of 1%

Retailers of 2% or of 1%

(depending on amount)

This category actually is a concession

since it has a lower rate compared to

other categories. Rationale: It involves

exportation which is favored by the State

and essential commodities (non-luxury

goods or items)

This category contemplates two

classification:

A. Exporters whether essential or non-

essential commodity

B. Manufacturers, millers, producers,

wholesalers, distributors, dealers or


15/45


retailers of essential commodities

If you are a manufacturer, wholesaler,

distributor, or retailer of an essential

commodity, you need to pay only of

what is due to other manufacturers,

wholesalers, distributors, or retailers.

d. Retailers

Retailers are those who are engaged in asale where the purchaser buys the

commodity for his own consumption,

irrespective of the quantity of the

commodity sold. They are those who sell

products to end-users.

RATE: 2% or 1%

If gross sales or receipts for the preceding

calendar year is:

400k or less2%

More than 400k1%

However, barangays shall have the

exclusive power to levy taxes on gross

sales or receipts of the preceding

calendar year if:

A.) 50k or less, in case the barangay is

located in cities

B.) 30k or less, if located in

municipalities.

This is one area wherein the barangays

can pre-empt both the municipalities andthe cities in imposing LBT to retailers.

When you are both a wholesaler and a

retailer, you are subject to BOTH as

wholesaler and retailer. You have

different sales as wholesaler and retailer.

Unlike if both wholesaler and

manufacturer wherein you pay the lesser

rate as manufacturer only. This is because

he usually has no income for the

distribution, therefore, only as a

manufacturer.

EXAMPLE:

If youre a retailer of both essential

commodities and non-essential

commodities, how will you be taxed?

There would be a separate computation

for essential commodities and for non-

essential commodities.

2% or 1% on non-essential commodities

and 50% of 2% or 50% of 1% if essential.

e. Contractors and other independent

contractors

RATE: not exceeding 50% of 1% of gross

receipts of the preceding calendar year

Contractors- includes persons, natural or

juridical, not subject to professional tax

under Section 139 of this Code, whose

activity consists essentially of the sale of

all kinds of services for a fee, regardless

of whether or not the performance of the

service calls for the exercise or use of the

physical or mental faculties of suchcontractor or his employees.

The term "contractor" shall include

general engineering, general building and

specialty contractors as defined under

applicable laws; filling, demolition and

salvage works contractors; proprietors or

operators of mine drilling apparatus;

proprietors or operators of dockyards;

persons engaged in the installation of

water system, and gas or electric light,

heat, or power; proprietors or operators

of smelting plants; engraving, plating,

and plastic lamination establishments;

proprietors or operators of

establishments for repairing, repainting,

upholstering, washing or greasing of

vehicles, heavy equipment, vulcanizing,

recapping and battery charging;

proprietors or operators of furniture

shops and establishments for planing or

surfacing and recutting of lumber, and

sawmills under contract to saw or cut logs

belonging to others; proprietors or

operators of dry- cleaning or dyeing

establishments, steam laundries, and

laundries using washing machines;proprietors or owners of shops for the

repair of any kind of mechanical and

electrical devices, instruments, apparatus,

or furniture and shoe repairing by

machine or any mechanical contrivance;

proprietors or operators of

establishments or lots for parking

purposes; proprietors or operators of

tailor shops, dress shops, milliners and

hatters, beauty parlors, barbershops,

massage clinics, sauna, Turkish and

Swedish baths, slenderizing and building

saloons and similar establishments;

photographic studios; funeral parlors;

proprietors or operators of hotels, motels,

and lodging houses; proprietors or

operators of arrastre and stevedoring,

warehousing, or forwarding

establishments; master plumbers, smiths,

and house or sign painters; printers,

bookbinders, lithographers; publishers

except those engaged in the publication

or printing of any newspaper, magazine,

review or bulletin which appears at

regular intervals with fixed prices for

subscription and sale and which is not

devoted principally to the publication ofadvertisements; business agents, private

detective or watchman agencies,


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commercial and immigration brokers, and

cinematographic film owners, lessors and

distributors.

General Professional Partnerships are

considered as independent contractors.

f.

Banks and other financial institutions

This is the exception on the limitation

wherein income tax are computed forbanks and other financial institutions

RATE: Not exceeding 50% of 1% on the

gross receipts of the preceding calendar

year

Gross receipts of banks and financial

institutions--

It is derived from interest, commissions

and discounts from lending activities,

income from financial leasing, dividends,

rentals on property and profit from

exchange or sale of property, insurancepremium.

It appears that this is an exclusive list of

what will comprise the gross receipts of

banks and other financial institutions.

Hence, fees or charges not among the

gross receipts stated above, then, it will

not be covered by the LBT on banks and

financial institutions.

Example: filing fees, service fees,

administrative charges imposed by banks.

They will not be covered by this provision.

There are 2 taxes to which the bank will

be liable for under the LGC:

1. Income tax

2. LBT

Income tax is based on income. LBT is

based on gross receipts.

Note: There is no law yet which

clarifies what is the basis of income tax

on banks. Not even the LGC provides for

it. In fact, the IRR proscribe LGUs from

imposing taxes against the income of

banks.

Nonetheless, it would appear that banks

are subject to these 2 taxes.

"Banks and other financial institutions"

include non-bank financial intermediaries,

lending investors, finance and investment

companies, pawnshops, money shops,

insurance companies, stock markets,

stock brokers and dealers in securitiesand foreign exchange, as defined under

applicable laws, or rules and regulations

thereunder.

Pawnshops and Money changers are

included

Insurance companiesare included.

Gross receipts of insurance companies

include:

The premiums collected, interestearnings, if it owns property and rentals

coming from such property is also

included, income from acquired assets,

cash dividends, etc.

g. Peddlers engaged in the sale of any

merchandise or article of commerce

Peddler - means any person who, either

for himself or on commission, travels

from place to place and sells his goods or

offers to sell and deliver the same.

RATE: annual tax of not exceeding 50.

It is a fixed tax.

h. Any business not otherwise specified

Categories A - G are not exclusive. This is

a catch all provision.

Special requirement for this catch-all

provision to apply:

1. Having a special ordinance for that

purpose

2. With a prior public hearing

3. It must not be excessive, unjust,

confiscatory or following the fundamental

principles of taxation and

4. It must not violate the common

limitations found under Sec. 133.

Tax rates within the Metro Manila Area(Sec. 144)

SEC. 144. Rates of Tax within the Metropolitan

Manila Area. - The municipalities within the

Metropolitan Manila Area may levy taxes at rateswhich shall not exceed by fifty percent (50%) the

maximum rates prescribed in the preceding Section.

The tax rates within the Metro Manila Area may be

50% more than what the municipalities can impose.

The rate for municipalities within Metro Manila

Area is the same as a city.

Tax period (Sec. 165)

SEC. 165. Tax Period and Manner of Payment. -

Unless otherwise provided in this Code, the tax

period of all local taxes, fees and charges shall be

the calendar year. Such taxes, fees and charges may

be paid in quarterly installments.


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Tax period calendar year (whether or not the

taxpayer follows calendar of fiscal year for income

tax purposes)

Accrual of tax (Sec. 166)

SEC. 166. Accrual of Tax. - Unless otherwise

provided in this Code, all local taxes, fees, and

charges shall accrue on the first (1st) day of January

of each year. However, new taxes, fees or charges,

or changes in the rates thereof, shall accrue on thefirst (1st) day of the quarter next following the

effectivity of the ordinance imposing such new

levies or rates.

LBT accrues on the 1st

day of January of each year.

However for new taxes, fees or charges or changes

in the rates, they shall accrue on the 1st

day of

quarter next following the effectivity of the

ordinance imposing such new levies or rates

TAX BASIS : Gross sales or receipts excluding

returns, discounts and allowances

Time and manner of payment (Sec. 167)

SEC. 167. Time of Payment. - Unless otherwise

provided in this Code, all local taxes, fees, and

charges shall be paid within the first twenty (20)

days of January or of each subsequent quarter, as

the case may be. The sanggunian concerned may,

for a justifiable reason or cause, extend the time for

payment of such taxes, fees, or charges without

surcharges or penalties, but only for a period not

exceeding six (6) months.

Time for payment : On or before January 20

Otherwise you will be subject to surcharges and

penalties. In addition, no mayors permit is issued

when local taxes are not paid.

However, the sanggunian concerned may extend

the time to not exceeding 6 months

Local taxes can also be paid quarterly - Within 20

days of each quarter

If you opt to pay quarterly, simply divide your LBT

into 4 and you pay by installment on or before the

20

th

day of the first month of every quarter (Jan. 20,Apr. 20, Jul. 20, Oct. 20).

This does not apply to other fees and charges. You

cannot pay in installments the other fees and

charges of the government. Only the LBT can be

payable quarterly.

When you say that business taxes accrue on Jan. 1

of each year, it does not mean that it is a tax of the

previous year. It accrues Jan. 1 of each year payable

on or before Jan. 20 and payment of which gives

you the right to carry-on legally your business.

The basis is the preceding year, however, it is a

tax on the current year. i.e. business tax for year

2012 is based on gross receipts during year 2011

but paid on year 2012 (on or before January 20)

In income taxes, the tax paid this year the basis is

the preceding year and it also pertains to income

taxes last year. i.e. income tax for year 2011 is

based on gross receipts during year 2011 but paid

on year 2012 (on or before April 15)

LBT are somewhat imposed in the exercise of the

regulatory power of the state in order to regulate

businesses and is a prerequisite before a permit can

Mobil Phils. vs. City Treasurer of Makati, GR No. 154092

(2005)

Local business tax v. income tax

Business taxes imposed in the exercise of police power for regulatory

purposes are paid for the privilege of carrying on a business in the

year the tax was paid. It is paid at the beginning of the year as a fee

to allow the business to operate for the rest of the year. It is deemed

a prerequisite to the conduct of business.

Income tax, on the other hand, is a tax on all yearly profits arising

from property, professions, trades or offices, or as a tax on a persons

income, emoluments, profits and the like. It is tax on income,

whether net or gross realized in one taxable year. It is due on or

before the 15th day of the 4th month following the close of the

taxpayers taxable year and is generally regarded as an excise tax,

levied upon the right of a person or entity to receive income or

profits.

The business tax, like income tax, is computed based on the previous

years figures. This is the reason for the confusion. A newly-started

business is already liable for business taxes (i.e. license fees) at the

start of the quarter when it commences operations. In computing the

amount of tax due for the first quarter of operations, the business

capital investment is used as the basis. For the subsequent quartersof the first year, the tax is based on the gross sales/receipts for the

previous quarter. In the following year(s), the business is then taxed

based on the gross sales or receipts of the previous year. The

business taxes paid in the year 1998 is for the privilege of engaging in

business for the same year, and not for having engaged in business for

1997.

Erricson Case

Gross Receipts for income tax purposes vs. Gross Receipts for LBT

purposes

Gross Receipts for income tax purposes computed on accrual basis.

Includes those actually or constructively received plus those which are

yet to be received

Gross Receipts for LBT purposes only includes those actually or

constructively received (smaller in scope)

SC ruled that you cannot change the basis for computation of the LBT.

Do not confuse it with the computation of gross receipts for income

tax purposes.


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be given. Any tax that accrues on Jan. 1 as a LBT is a

tax really for that current year.

Payment of business taxes, multiple business

establishment / lines (Sec. 146)

SEC. 146. Payment of Business Taxes. - (a) The

taxes imposed under Section 143 shall be payable

for every separate or distinct establishment or place

where business subject to the tax is conducted and

one line of business does not become exempt bybeing conducted with some other business for

which such tax has been paid. The tax on a business

must be paid by the person conducting the same.

(b) In cases where a person conducts or operates

two (2) or more of the businesses mentioned in

Section 143 of this Code which are subject to the

same rate of tax, the tax shall be computed on the

combined total gross sales or receipts of the said

two (2) or more related businesses.

(c) In cases where a person conducts or operates

two (2) or more businesses mentioned in Section

143 of this Code which are subject to different rates

of tax, the gross sales or receipts of each business

shall be separately reported for the purpose of

computing the tax due from each business.

If a person operates 2 or more businesses

mentioned in Sec. 143 which are taxed;

computation shall be based on:

1. Combined total gross sales/receipts if subject to

the same tax rate

Rationale: the Higher your gross receipts, the

higher bracket you belong, the higher tax thatwill be due from you until you reach the limit.

2. Separate reports on gross sales/receipts if

subject to different tax rates (i.e. retailer and

manufacturer)

Situs of the tax (Sec. 150)

SEC. 150. Situs of the Tax. - (a) For purposes of

collection of the taxes under Section 143 of this

Code, manufacturers, assemblers, repackers,

brewers, distillers, rectifiers and compounders of

liquor, distilled spirits and wines, millers, producers,

exporters, wholesalers, distributors, dealers,contractors, banks and other financial institutions,

and other businesses, maintaining or operating

branch or sales outlet elsewhere shall record the

sale in the branch or sales outlet making the sale or

transaction, and the tax thereon shall accrue and

shall be paid to the municipality where such branch

or sales outlet is located. In cases where there is no

such branch or sales outlet in the city or

municipality where the sale or transaction is made,

the sale shall be duly recorded in the principal office

and the taxes due shall accrue and shall be paid to

such city or municipality.

(b) The following sales allocation shall apply tomanufacturers, assemblers, contractors, producers,

and exporters with factories, project offices, plants,

and plantations in the pursuit of their business:

(1) Thirty percent (30%) of all sales recorded in

the principal office shall be taxable by the city or

municipality where the principal office is located;

and

(2) Seventy percent (70%) of all sales recorded in

the principal office shall be taxable by the city or

municipality where the factory, project, office,

plant or plantation is located; and

(c) In case of a plantation located at a place other

than the place where the factory is located, said

70% mentioned in subparagraph (b) of subsection

(2) above shall be divided as follows:

(1) 60% to the city or municipality

(2) 40% to the city or municipality where the

plantation is located

(d) In cases where a manufacturer, assembler,

producer, exporter or contractor has two (2) or

more factories, project offices, plants, orplantations located in different localities, the

seventy percent (70%) sales allocation mentioned in

subparagraph (b) of subsection (2) above shall be

prorated among the localities where the factories,

project offices, plants, and plantations are located

in proportion to their respective volumes of

production during the period for which the tax is

due.

(e) The foregoing sales allocation shall be applied

irrespective of whether or not sales are made in the

locality where the factory, project office, plant, or

plan is located.

Situs for LBT:

Its the place where the sale is consummated

associated with the delivery of the articles of

commerce, which are the subject matter of the

contract.

Branch- an extension of the principal office of the

business. There must really be business operation.

This does not include an office displaying products

but does not maintain stocks or items for sale. It is

merely a display office and not a branch. LGUshaving jurisdiction over the display area would not

have a right to share in the taxes of the gross

receipts for the entire operation.

Rules as to the collection of LBT

Rule 1: In case of persons maintaining/operating a

branch or sales outlet making the sale or

transaction, the sale shall be recorded in said

branch or sales outlet and the tax shall be paid to

the municipality/city where the branch or sales

outlet is located.

Rule 2: Where there is no branch or sales outlet inthe city/municipality where the sale is made, sale

shall be recorded in the principal office and the tax


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shall be paid to the city/municipality where such

principal office is located.

Rule 3: In the case of manufacturers, contractors,

producers, and exporters having FPOP, proceeds

shall be allocated as follows:

30% of sales recorded in the principal

office shall be made taxable by the

city/municipality where the principal office is

located

70% shall be taxable by the

city/municipality where the FPOP is located

Plant is somewhat similar to a factory. Project

offices include construction projects and the like.

Rule 4: In case the plantation is located in a place

other than the place where the factory is located,

the 70% in Rule 3 will be divided as follows:

60% to the city/municipality where the

factory is located

40% to the city/municipality where theplantation is located

Whenever theres a factory and/or plantation

operated by the principal office, it will

automatically share in whatever is reflected or

recorded as sales by the principal office.

Rule 5: In case of 2 or more FPOP in different

localities, the 70% shall be prorated among the

localities where the FPOP are located in proportion

to their respective volume of production.

PRORATED based on volume of production (not

distributed equally)

Note: if the sale is consummated in a place

where there is no branch however the place where

it was sourced can be traced, then 100% of such

sale will accrue to the source as if there was a

branch there.

Example:

Same illustration as above. Sale was made in

Dalaguete where there was no branch however, it

can be traced that the goods sold were from the

factory in Boljoon. 100%

Documents

08 Tax 2 Finals (Lgc Totcc)