Bureau of Local Government Finance Opinion

May 14, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Genestor E. Cruz Manager Payroll and Advances Department EEI Corporation Sir : This refers to your undated letter relative to the assessment made by the City Treasurer of Taguig on the new project of EEI Corporation (EEI for brevity). Said letter was referred to the City Treasurer of Taguig for comment and or appropriate action under a 1st Indorsement dated December 14, 2009. In reply, the City Treasurer of Taguig submitted her comments on the following issues raised: 1. The assessment and computation of Business Tax is not in harmony with Local Finance Circular No. 03-95 and Section 143 (e) of RA 7160 otherwise known as the Local Government Code of 1991. Comment: The assessment and computation of the Business Tax of EEI was based on the gross receipts (less VAT) derived from the construction of Sunlife of Canada Building as appearing in the Contract between them in 2009. 2. Gross Receipts as interpreted by EEI is the total contract price less the amount paid to the sub-contractor. Comment: Gross Receipts as gleaned from its definition in the Local Government Code excludes only discounts if determinable at the time of sales, sales return, excise tax and value-added tax (VAT). AaEcDS Unless there is specific provision in the Contract stipulating the breakdown of the total cost of construction vis--vis the amount to be paid to EEI for the construction of the Sunlife of Canada Building, and the amount to be paid by the client to another contractor, this Office has no recourse but to assess on the basis of the full amount stated in the Contract to be paid to the Contractor as contract price actually or constructively received for services performed or to be performed in consonance with the provision of RA 7160 and the Taguig City Revenue Code which provides that assessment of tax payment shall be based on gross receipts. 3. Local Business tax for current year collections will only be due and payable the following year on a quarterly basis, starting January 20 up to October 20, 2010. Comment: EEI is applying for a building permit for the construction of the Sunlife of Canada Building. It is imperative therefore that before issuance of the requested permit, all obligations due the City for said project should be fully settled, hence the requirement for payment of the business tax due from the project. This procedure is in pursuance of Executive Order No. 033 dated July 1, 2005 of the City Mayor. EEI was, however, given up to January 20, 2010 to settle their tax obligation. EEI was further assured that they can request for a tax credit of any excess payment in the event that the Contract has not (sic) materialized and/or full payment has not (sic) been satisfied subject to examination of their financial records to verify the veracity of their claim. In addition with the above comments of the City Treasurer, this Bureau expresses the following views: Gross Sales/Receipts It is emphasized that the term "gross receipts", as applied to contractors, would be the total amount of service fees, including the amount charged or materials (parts of the things to be constructed) supplied with the service, and advance payments or deposits actually or constructively received during the taxable year. Such part of the contract price or those payments or deposits which are not actually or constructively received by the contractor during the taxable year and materials or equipment that do not form part of the things to be constructed although they were supplied during the said year shall be excluded from the tax base. DAaEIc Taxable Gross Receipts of Contractors/Sub-Contractors The taxable gross receipts shall be the amounts received by the principal contractor as the total contract price less the amount paid to a sub-contractor under a subcontract arrangement, if there is any. The said sub-contractor, however, shall also be subject to the business tax imposed therein. Multi-year Project The tax on multi-year project undertaken by general engineering, general builders, specialty contractors shall initially be based on the total contract price, payable in equal annual installments within the project term. Upon completion of the project, the taxes shall be recomputed on the basis of the gross receipts of the preceding calendar year and the deficiency tax, if there be any, shall be collected or the excess tax payments shall be refunded. Project Completed Within the Year In cases of projects completed within the year, the tax shall be based upon the contract price and shall be paid upon the issuance of the Mayor's permit. It must be stressed however that the above stipulations for the multi-year project as well as a project completed within the year shall be provided under a duly-enacted tax ordinance. We hope that this will help clarify matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director