Bureau of Local Government Finance Opinion

March 10, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Constancia A. Licayan Municipal Treasurer Office of the Municipal Treasurer Polomolok, South Cotabato Madam : This has reference to the TAX ORDINANCE NO. 01 entitled "AN ORDINANCE ENACTING THE REVISED MUNICIPAL REVENUE CODE OF THE MUNICIPALITY OF POLOMOLOK, PROVINCE OF SOUTH COTABATO FOR 2007", copy furnished this Office. Section 2A.03 is quoted as follows: Section 2A.03. Computation of tax for newly-started business. In the case of a newly-started business under Sec. 2A.02 ( sic ) (a), (b), (c), (d), (e), (f), (g), (h), and (i), above, the tax shall be fixed by the quarter. The initial tax for the quarter in which the business starts to operate shall not exceed one-twenty of one percent (1/20 of 1%) of the capital investment. "xxx xxx xxx." Section 2A.01 of the Ordinance refers to the various businesses subject to business tax under that jurisdiction. By way of comment, it is informed that the Local Government Code of 1991 (LGC) does not specifically provide for the imposition of an initial local business tax (LBT) based on capital investment of a newly-started business except in the case of Franchise Tax and Tax on the Business of Printing and Publication , both of which are provincial impositions but may be imposed by cities pursuant to Section 151 of the LGC, quoted hereunder as follows: "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, or any fraction thereof, as provided herein. cSATDC "SEC. 137. Franchise Tax. Notwithstanding any exemption granted by 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 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, or any fraction thereof, as provided herein." (Underscoring for emphasis) It is emphasized however, that in case of Tax on Business as provided in Section 143 of the LGC, tax due is based only on the gross sales or receipts of the preceding calendar year. Therefore, a newly started business with no gross sales or receipts on its initial year of operation is not liable to pay local business tax. It is advanced however, that the above view is not a declaration of nullity or illegality of the Ordinance as the matter falls exclusively within the jurisdiction of the Department of Justice or a Court of competent authority. Hoping that this will help clarify matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director