Bureau of Local Government Finance Opinion

March 16, 1994 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Josefina R. Contreras Member, Sangguniang Bayan Hagonoy, Bulacan M a d a m: This refers to your letter dated January 28, 1994 requesting clarification on the imposition of municipal tax on retailers of essential commodities, community tax (not residence certificate) and contractors tax for reasons stated therein. In this connection, attention is invited to the provisions of Section 143(c) of the Local Government Code of 1991 (RA 7160) as implemented by Article 232(c) of the Implementing Rules and Regulations (IRR), quoted hereunder: "ART. 232. Tax on Business. The municipality may impose taxes on the following businesses: "xxx xxx xxx "(c) On . . . retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates prescribed under subsections (a), (b) and (d) of this Article: "(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. Since the subject of your query is on retailer of essential commodities, it therefore follows that one half (1/2) of the rates prescribed under subsection (d) shall serve as the tax rates which will then be: On P400,000.00 or less 1% more than P400,000.00 1/2% It should be observed, further, that the Code speaks of the tax base as the Gross Sales/Receipts. No qualification of any kind so as to make a deduction of any amount from gross sales can be allowed except of course the discounts if determinable at the time of sale, sales returns, excise tax, and value-added tax (VAT). Thus applying the said provisions of the Code, on an annual gross sales of P1M, the tax due shall then be computed as follows: On the P400,000.00 (400,000.00 x 1%) = P4,000.00 P600,000.00 (600,000.00 x 1/2%) = P3,000.00 Total tax due P7,000.00 ======== Moreover, with respect to businesses you mentioned such as pawnshops and banks, they are covered under different provisions of law and cannot be compared with the tax imposition on retailers. As to the Community Tax, individuals are required to pay an annual community tax of Five Pesos (P5.00) and an annual additional tax of One Peso (P1.00) for every One Thousand Pesos (P1,000.00) of income regardless of whether it came from business, exercise of profession or from property owned which in no case shall be in excess of Five Thousand Pesos (P5,000.00), pursuant to Section 157 of the LGC. Payment of said tax shall be made at the place of residence of the taxpayer (Sec. 160, LGC). With regard to the tax liability of a contractor, attention is invited to the provision of Section 143(e) of the LGC as implemented by Article 232(e) of the IRR, quoted hereunder: "Art. 232. Tax on Business. The municipality may impose taxes on the following businesses: "(e) On contractors and other independent contractors, in accordance with the following schedule: Gross Sale/Receipts Amount of For the Preceding Tax Per Annum Calendar Year. "Less than P5,000.00 P27.50 P5,000.00 or more but less than 10,000.00 61.5 10,000.00 or more but less than 15,000.00 104.5 15,000.00 or more but less than 20,000.00 165 20,000.00 or more but less than 30,000.00 275 30,000.00 or more but less than 40,000.00 385 40,000.00 or more but less than 50,000.00 550 50,000.00 or more but less than 75,000.00 880 75,000.00 or more but less than 100,000.00 1,320.00 100,000.00 or more but less than 150,000.00 1,980.00 150,000.00 or more but less than 200,000.00 2,640.00 200,000.00 or more but less than 250,000.00 3,630.00 250,000.00 or more but less than 300,000.00 4,620.00 300,000.00 or more but less than 400,000.00 6,160.00 400,000.00 or more but less than 500,000.00 8,250.00 500,000.00 or more but less than 750,000.00 9,250.00 750,000.00 or more but less than 1,000,000.00 10,250.00 1,000,000.00 or more but less than 2,000,000.00 11,500.00 2,000,000.00 or more at a rate not exceeding fifty percent (50%) of one percent (1%) "xxx xxx xxx. It may be seen that the Code does not grant deduction of the cost of labor and materials in arriving at the tax base. Hence, on a contract of P2M to build a building and on the assumption that the said amount represents the total of what was actually or constructively received including the amount charged or materials supplied with the service by the contractor during the taxable year , the tax due shall then be computed based on the P2M, hence, 50% of 1% of P2M = P10,000.00 It shall be understood that the rates used in the above computation as provided for in the Code are the same rates existing in the local tax ordinance enacted by the Sangguniang Bayan thereat for the purpose pursuant to the provisions of the Local Government Code of 1991. We trust that this will clarify matters. Very truly yours, LORINDA M. CARLOS Executive Director