Dynamics of Business Tax and Other Local Taxes PDF

**DYNAMICS OF BUSINESS TAX and OTHER LOCAL TAXES** ***LEGAL FOUNDATION OF LGU's POWER TO TAX*** 1987 Constitution Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress...

**DYNAMICS OF BUSINESS TAX and OTHER LOCAL TAXES** ***LEGAL FOUNDATION OF LGU's POWER TO TAX*** 1987 Constitution Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. Local Government Code (RA7160) Each Local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government units. ***Nature of the Taxing Power of LGU*** Not inherent, but a direct grant from the constitution Limited -- Neither plenary nor absolute; subject to the guidelines provided by Congress Legislative -- May be exercised only by the Sanggunian Territorial -- Can only be exercised within the territorial jurisdiction of the LGU ***Taxation powers of LGUs*** Common Revenue --Raising Powers Reasonable fees and charges for services rendered Public Utility Charges Toll fees *** Exceptions:*** 1\) Officers & enlisted men of the AFP; 2\) PNP members on mission; 3\) post office personnel delivering mail; 4\) physically handicapped and disabled citizens who are 65 and above ***Specific Power of LGUs to impose taxes (Business-Related LGU Taxing Powers)*** - - - - - - - - - ***BUSINESS-RELATED TAXING POWERS OF PROVINCES*** ***Tax on Transfer of Real Property Ownership*** Transaction taxed - Sale, donation, barter, or any other mode of transferring ownership or title of real property Tax rate - Province: not more than 50% of 1% of GR Tax base - The total consideration involved or fair market value in case the consideration is not substantial, whichever is higher. ***Exemption:*** Transfer or disposition pursuant to RA6657 (CARP) Person liable to pay - Seller, donor, transferor, executor, or administrator Time of payment - Within 60 days from the date of execution of the deed or from the date of the decedent's death ***Tax on Business of Printing and Publication*** Tax rate - Business Province City OLD 50% of 1% of GR 75% of 1% of GR NEWLY STARTED 5% of 1% of CI 15% of 1% of CI Tax base - OLD: gross annual receipt for the preceding year NEWLY STARTED: capital investment ***Exemption*** Printing of DEPED/CHED/TESDA prescribed texts or references ***Franchise Tax*** Enjoyment of a franchise Tax rate - Business Province City OLD 50% of 1% of GR 75% of 1% of GR NEWLY STARTED 5% of 1% of CI 15% of 1% of CI Tax base - OLD: gross annual receipt for the preceding year NEWLY STARTED: capital investment ***Tax on Sand, Gravel, and Other Quarry Resources*** Extraction of ordinary stones, gravel, sand, earth, and other quarry resources from PUBLIC LANDS or from the beds of seas, lakes, rivers, streams, creeks, and other PUBLIC WATERS within its territorial jurisdiction. Tax rate- Province: not more than 10% Tax base - Fair market value in the locality per cubic metre of the subject Who issues permits? - Exclusively by the Provincial Governor pursuant to an ordinance of the Sanggunian. ***Distribution of Tax Proceeds:*** PROVINCE CITY PROV 30% MUN 30% CITY 60% BRGY 40% 40% ***NOTE***: Extractions from PRIVATE LANDS are within the taxing authority of the Bureau of Internal Revenue. ***Professional Tax*** Exercise or practice of profession requiring government licensure examination Tax rate - Not to exceed P300.00 Tax base - Reasonable classification by the Sanggunian Place of Payment - Province where profession is practiced or where principal office is located Time of payment - Annually, on or before January 31 or before beginning the practice of the profession ***Exemption***: Professionals exclusively employed by the government ***Amusement Tax*** Ownership, lease or operation of theatres, cinemas, concert halls, circuses, boxing stadium, and other places of amusement Pop, rock, or similar concerts Tax rate - Not more than 10% Tax base- Gross receipt from admission fees ***Exemption*** (not taxable): Operas, concerts, dramas, recitals, painting, and art exhibitions, flower shows, musical programs, literary and oratorical presentations PBA games **Under the NIRC:** Cockpits Cabarets Night or day clubs Boxing exhibitions Professional basketball games Jai alai Racetracks ***Distribution of Proceeds:*** Shared equally between the province and the municipality where such amusement places are located. ***Annual Fixed Tax for Delivery Trucks or Vans*** Use by manufacturer, producers, wholesaler, dealers, retailers of truck, van, vehicle in the delivery or distribution of distilled spirits, fermented liquors, soft drinks, cigar, and cigarettes, and other products, determined by the Sangguniang Panlalawigan, to sale outlets or consumers, whether directly or indirectly Tax rate - Not exceeding P500.00 Tax base - Every truck, van, or vehicle ***Exemption*** Exempt from tax on peddlers imposed by municipalities ***BUSINESS-RELATED TAXING POWERS OF MUNICIPALITIES*** Municipality's Tax on Business ***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***. Rice and corn 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 Cooking oil and cooking gas Laundry soaps, detergents, and medicine Agricultural implements, equipment, and post-harvest facilities, fertilizers, pesticides, herbicides and other farm inputs Poultry feeds and other animal feeds School supplies and cement ***Retailers*** 400,000 or less Annual Gross Receipt -- 2% of the GR for the preceding years in excess of 400,000 AGR -- 1% of GR ***Contractors and other independent contractors*** ***Banks and other financial institutions*** 50% of 1% on the gross receipts of the preceding calendar year derived from interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property and profit from sale or exchange of property, insurance premiums. ***Peddlers engaged in any merchandize or article of commerce*** Not exceeding P50.00 per peddler annually ***Any business not otherwise specified in the above enumeration*** Provided, businesses subject to NIRC excise, vat, or percentage tax -- not exceeding 2% GR ***BUSINESS-RELATED TAXING POWERS OF CITIES*** The cities may levy the taxes, fees, and charges which the province or municipality may impose and may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) ***except the rates of professional and amusement taxes.*** ***BARANGAY IMPOSITIONS*** ***Taxes*** -- on stores or retailers with gross sales or receipts of the preceding calendar year of ₱50,000 or less in the case of cities and ₱30,000 or less in the case of municipalities. ***Service Fees and Charges*** -- They may collect reasonable fees or charges for services rendered ***Barangay Clearance*** -- no city or municipality may issue any license or permit unless a clearance is first obtained from the barangay at reasonable rate. ***Other fees and Charges*** -- reasonable fees and charges. ***Business taxes*** Those imposed by the local government unit on the privilege of engaging in business,occupation, and other activities within its territorial jurisdiction. The proceeds of these taxes accrue exclusively to local government unit that imposes them, or may be shared with other local government units when provided by law. ***Gross Sales or Receipts*** -- the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services, and the deposits or advance payments actually or constructively received during the taxable quarter ***INCLUDING*** Amount charged for materials supplied with the services Deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person ***EXCLUDING*** Discounts, if determinable, at the time of sale Sales returns Excise tax Value added tax ***BASIC STEPS IN COMPUTING BUSINESS TAX*** Step 1. Classify the business Critical in determining business tax to be imposed Graduated Fixed tax Percentage tax Step 2. Determine gross Receipts Step 3. - locate tax due on the tax schedule OR compute: tax due = tax base x tax rate + surcharge/interest Guidelines for business classification: Avoid mis-classification on 8 clusters essential commodities ***Apply Graduated Fixed Tax on*** - - - - ***Apply Fixed Tax on:*** Peddlers engaged in sale of any merchandise or article of commerce P50.00 per peddler annually ***Apply percentage tax on:*** Retailers, Banks and other financial institutions lending investors finance and investment companies Pawnshops money shops insurance companies stock markets stock brokers dealers in securities and foreign exchange ***Apply graduated fixed tax or percentage tax on*** Other businesses not in the Code At the rate or schedule that the Sanggunian may prescribe -- But must not exceed the rates provided in Section 143 of the LGC For businesses subject to excise, value-added or percentage tax under National Internal Revenue Code, ***rate shall not exceed:*** -- for cities: 3% of GR -- for municipalities: 2% of GR ***Tax structure and rates for business taxes*** Combination of fixed and percentage rates, based on gross receipts & business classification structured as a graduated fixed tax, with each business classification falling under own tax schedule becomes a percentage tax after highest level is reached Cities may impose rates 50% higher than rates allowed in municipalities ***Collection of Business Taxes*** ***TAX PERIOD -*** the calendar year ***MANNER OF PAYMENT -*** Annual or in equal quarterly instalments ***ACCRUAL -*** On the 1st day of January On the first day of the quarter next following the effectivity of the ordinance (new) ***TIME OF PAYMENT -*** Within the 1st 20 days of January 1st 20 days of the quarter following the effectivity of the ordinance (new) For justifiable reasons, the sanggunian may extend the time for payment without surcharges or penalties for a period not exceeding 6 months **SUMMARY of TAXES** +-----------------+-----------------+-----------------+-----------------+ | LOCAL TAXES | P | C | M | +=================+=================+=================+=================+ | 1. | - | - | | +-----------------+-----------------+-----------------+-----------------+ | 2. | - | - | | +-----------------+-----------------+-----------------+-----------------+ | 3. | - | - | | +-----------------+-----------------+-----------------+-----------------+ | 4. | - | - | | +-----------------+-----------------+-----------------+-----------------+ | 5. | - | - | | +-----------------+-----------------+-----------------+-----------------+ | 6. | - | - | | +-----------------+-----------------+-----------------+-----------------+ | 7. | - | - | | +-----------------+-----------------+-----------------+-----------------+ | 8. | - | - | - | +-----------------+-----------------+-----------------+-----------------+ | 9. | - | - | - | +-----------------+-----------------+-----------------+-----------------+ | 10. | - | - | - | +-----------------+-----------------+-----------------+-----------------+ | 11. | - | - | - | +-----------------+-----------------+-----------------+-----------------+ | 12. | - | - | - | +-----------------+-----------------+-----------------+-----------------+ | 13. | - | - | - | +-----------------+-----------------+-----------------+-----------------+ | 14. | - | - | - | +-----------------+-----------------+-----------------+-----------------+ | 15. | | - | - | +-----------------+-----------------+-----------------+-----------------+ | 16. | | - | - | +-----------------+-----------------+-----------------+-----------------+ | 17. | | - | - | +-----------------+-----------------+-----------------+-----------------+ | 18. | | - | - | +-----------------+-----------------+-----------------+-----------------+ | 19. | | - | - | +-----------------+-----------------+-----------------+-----------------+ | 20. | | - | | +-----------------+-----------------+-----------------+-----------------+ **TAX RATES** 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Reference: **DYNAMICS OF BUSINESS TAX and OTHER LOCAL TAXES** ***ATTY. JULAIDA C. PANCHO*** *Provincial Treasurer, Abra*