Bureau of Local Government Finance Opinion

February 27, 1997 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully referred, thru the Provincial Treasurer of Batangas, Batangas City, to the Municipal Treasurer of Malvar, same province. This refers to the letter dated January 20, 1997 of Undersecretary Edmundo V. Mir, Department of Public Works and Highways, in connection with the work suspension/stoppage ordered by the Municipal Mayor of Malvar on the construction of the Southern Tagalog Access Road (STAR) Project (formerly the South Luzon Expressway Extension Project), due to the issue of business tax and municipal license that the municipality is imposing on the contractor, New San Jose Builders, Inc. (NSJBI) pursuant to Local Finance Circular No. 3-95, dated May 22, 1995 of the Department of Finance and the Malvar Revenue Code of 1992. In view of the foregoing, the following issues have been raised: a. whether a foreign-assisted and/or nationally-funded project, bidded and awarded in Manila, is subject to the business tax under the provisions of Local Finance Circular No. 3-95; b. whether a Manila based contractor duly licensed and accredited by the Philippine Contractors Accreditation Board (PCAB) with a project, bidded and awarded in Manila, has to apply for a municipal license permit with the municipality that has territorial jurisdiction over the project, under the Revised Revenue Code of 1992 of the municipality; and c. what tax, if any, can the municipality in which the project, or part thereof, is located, collect from the contractor, the basis for computing the tax and the time the tax is due and payable. On the first issue: The tax on businesses that LGUs may levy and collect is imposed on the privilege of engaging or conducting a business within their respective territorial jurisdictions. Hence, in this case, what is being taxed is NOT the project itself but the business of constructing the project, irrespective of whether it is a foreign-assisted and/or a nationally-funded project. The exception to this rule would be national departments or agencies undertaking or implementing the project themselves. On the second issue: The answer is in the affirmative. It is informed that under Section 147 of the Local Government Code of 1991 (LGC), it is mandatory for the owner or operator of any business or calling to secure a Mayor's Permit from the local government unit where they engage in business. The non-issuance of such a permit may constitute sufficient ground for closure or stoppage of the operations of the business or establishment. On the third issue: If NSJBI does not maintain a project office in Malvar, then all receipts made by NSJBI shall be recorded in its principal office in Manila and the following rules under Section 5(b) of the said Local Finance Circular shall apply: "SEC. 5. Situs of Tax . "(a) ... "(b) For purposes of collection of the tax, the following rules shall apply: "xxx xxx xxx;" "(2) In cases where there is no branch office, the gross receipts from domestic projects or contracts shall be recorded in the Head/Principal Office and the same shall be allocated as follows:" "(i) Thirty percent (30%) of the gross receipts shall be taxable by the city or municipality where the principal office is located; and "(ii) Seventy percent (70%) of the gross receipts shall be taxable by the city or municipality where the project office is located. "xxx xxx xxx." Accordingly, NSJBI shall be subject to the payment of the Mayor's permit fee, the business tax on contractors, and other regulatory fees imposed by the municipality of Malvar under a tax ordinance duly enacted pursuant to the provisions of Sec. 143(e) of the Code. Said tax shall be paid within the first twenty (20) days of January of each year or of each subsequent quarter, as the case may be, on the basis of the gross receipts realized during the preceding year. The term "gross receipts", as applied to contractors shall be the total amount of service fees, including the amount charged or materials parts of the things to be constructed supplied with the service, including advance payments or deposits actually or constructively received during the preceding 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 thing to be constructed although they were supplied during the said year shall be excluded from the total taxable receipts. That Office is, therefore, hereby advised to confer with the Municipal Mayor on this matter. DIETcH Undersecretary Mir is being furnished a copy of this indorsement for his information and guidance. By authority of the Secretary: (SGD.) LORINDA M. CARLOS Executive Director