Bureau of Local Government Finance Opinion

August 4, 2015 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Cecilia S. Magalona Finance & Accounting Dep't Manager SUMISETSU PHILIPPINES, INC. Electrical & Mechanical Contractor 8th Floor, G.C. Corporate Plaza 150 Legaspi St., Legaspi Village Makati City Madam : This refers to your letter dated July 2, 2015 seeking confirmation of the following issues: 1. That the Value-Added Tax (VAT) should be excluded in the computation of business tax (sic) as provided in Chapter 1, Section 131 of the Local Government Code (LGC) of 1991. CScTED 2. That a corporation should only pay one (1) community tax certificate. The City of Tanauan, Batangas assessed SUMISETSU PHILIPPINES, INC. ("SPI for brevity") business taxes where VAT was included in the tax base (Gross Sales or Receipts) and was required to pay the additional P10,070.40 corporate community tax. However, that Office challenged the assessment based on the provisions of Sections 131 (n) and 158 of the LGC, but to no avail. On Issue No. 1 Section 131 (n) of the LGC provides as follows: " Section 131. Definition of Terms. When used in this Title, the term: "(a) . . . "(n) Gross Sales or Receipts include 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 service and 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 sales, sales return, excise tax, and value-added tax (VAT) ; (Underlining supplied) "xxx xxx xxx." From the abovequoted definition of gross sales or receipts, it is very clear that VAT is excluded from the computation or determination of gross sales or receipts, which is the basis for the computation of business tax. In this regard, it is advised that you make representations with the City Treasurer's Office of Tanauan, Batangas for the proper application of Section 131 (n) of the LGC for purposes of recomputation of business tax due from your Company. cDCEIA On Issue No. 2 Sections 158 of the Local Government Code (LGC) of 1991 and Article 246 (e) (3) of the Implementing Rules and Regulations (IRR), implementing Section 160 of the LGC, provide as follows: " Section 158. Juridical Persons Liable to Community Tax. Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an annual additional tax, which, in no case, shall exceed Ten Thousand Pesos (P10,000.00) in accordance with the following schedule: (Emphasis ours) "xxx xxx xxx." "Article 246. Levy or Imposition . The levy or imposition of a community tax by a city or municipality shall be governed by the following rules and procedural guidelines: "xxx xxx xxx "(e) Place of Payment ISHaCD "xxx xxx xxx "(3) In case of branch, sales office or warehouse where the sales are made and recorded, the corresponding community tax shall be paid to LGU where such branch, sales office or warehouse is located. "xxx xxx xxx." In this connection, it is informed that the provision of Article 246 (e) (3) has been clarified under Section 2 of Memorandum Circular No. 153, dated June 4, 1992, of the Office of the President, copy attached, which states that: " Section 2. The community tax shall be paid in the place of residence of the individual, or in the place where the principal office of the juridical entity is located and, upon payment thereof, the corresponding community tax certificate shall accordingly be issued." ( Emphasis ours ) In view hereof, please be informed that this Bureau has consistently expressed the view that a business entity or a corporation should pay the community tax only once and at the local government unit where its principal office is located and not to LGUs where it only operates/maintains sales office, branch or warehouse, etc. , pursuant of Section 2 of MC No. 153 quoted above. We hope that this will help clarify matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director