Bureau of Local Government Finance Opinion

September 20, 2013 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Marita A. Calaje City Treasurer Pasig City Madam : This refers to your letter dated September 13, 2013 seeking opinion regarding the issue raised by Mr. Ernesto M. Ordoez, President of Cement Manufacturers Association of the Philippines (CeMAP) to wit: AIHTEa 1. Whether or not the services rendered to members are considered as activity conducted for profit; 2. Whether or not the testing of cement sample is considered as an activity in view to profit. It is represented that CeMAP is a non-stock, non-profit organization duly established and existing under the laws of the Philippines and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 50388 dated March 5, 1973. CeMAP has the following objectives and purposes: 1. To promote or support the raising and safeguarding of the quality and technical standards of cement products for the benefit of the public; 2. To organize and participate in exhibits, trade fairs and conferences for the promotion and public awareness of the industry and otherwise engage in the technical promotion of cement products and the industry as a whole; 3. To promote safety, corporate governance and environmental protection practices in the industry and the good reputation of the industry in general; 4. To advocate legislation or other measures or proceedings in order to foster the development and growth of the industry; 5. To participate in administrative and judicial proceedings affecting the cement industry as a whole; 6. To share general and overall economic information as may be allowed by law; 7. To cooperate with relevant government and non government authorities, institutions and associations; and 8. To do and engage in all acts as may be necessary, advisable or incidental thereto, all within the bounds of law and good corporate governance. As an association, CeMAP derive their income from their members classified as General Assessment Dues. It provides several services such as research, policy formulation, congressional presentations and advocacy work in the national and international conferences. Providing laboratory testing to its members is one of its many services. To calculate the total assessment dues from its members, CeMAP divide this into two parts, the first part covers all CeMAP's services, except for laboratory testing and it is computed on the basis of each member's market share in sales for the previous year. The second part, which is related to the testing service, is computed on the share of samples that each firm provides to CeMAP. TcICEA The laboratory is a part of CeMAP, the same as the policy and external liaison group. However, another function that the Cement Testing Center (CTC) provides is to offer its services to non-member clients. The revenue from external sources is intended to at least cover the cost of these services. It is for this reason that CeMAP report this separately to the BIR so taxes can be made on non-member revenue. On Query No. 1 The income derived from its members or the services rendered to its members are not considered as an activity conducted for profit. As represented by CeMAP, the income derived from its members is classified as General Assessment Dues. The laboratory testing to its members is one of its many services. Therefore, the services rendered to its members or income derived from its members is not subject for local business tax. On Query No. 2 Section 143 (e) of the Local Government Code (LGC) of 1991 provides as follows: "Section 143. Tax on Business . The municipality may impose taxes on the following businesses: "(a) . . . "(e) On contractors and other independent contractors , in accordance with the following schedule: "xxx xxx xxx." Section 131 of the LGC also provides as follows: " Section 131 . Definitions of Terms . When used in this Title, the term: "(a) . . . "(h) Contractor includes persons, natural or juridical, not subject to professional tax under Section 139 of this Code, whose activity consists essentially of the sale of all kinds of services for a fee , regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractor or his employees. "xxx xxx xxx." (Underlining supplied) From the abovequoted provisions of the LGC, CeMAP is liable to pay business tax for the revenues derived from its non-members as service contractor. As can be gleaned from the letter of CeMAP, the revenues derived from non-members are separately reported to the Bureau of Internal Revenue (BIR) for taxation purposes. Therefore, the basis for the collection of business taxes should be the gross sales or receipts derived from the non-member/clientele of CeMAP. We hope that this will help clarify matters. TaISEH Very truly yours , (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director