Bureau of Local Government Finance Opinion

September 18, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Arthur R. Ponsaran Atty. Riza C. Villegas-Tumale Corporate Counsels, Philippine Law Offices 21/F Pacific Star Building Gil Puyat corner Makati Avenue Makati City Sir/Madam : This refers to your letter dated 27 August 2002 requesting opinion in behalf of your clients relative to the following issues: 1. Whether the gross receipts of a company rendering management service for a fee is subject to business tax on contractors under Section 143 (e) of R.A. 7160. 2. Whether passive income, such as interest income from savings or time deposits of a manufacturing or trading company, which is subject to final tax, or dividends received by a corporation from another corporation, which is otherwise exempt from tax, in accordance with the provision of Section 27 (D) (1) & (4) of RA 8424, are exempted from local business taxes, the same not forming part of the gross receipts, which is defined in the Local Government Code. DaScAI 3. Whether other income, such as gain due to Foreign Currency variance of manufacturing, trading or export-import companies are exempt from local business taxes, the former also not being part of the gross receipts as defined in Sec. 131 of the Local Government Code. Issue No. 1. Section 131 (h) of R.A. 7160 otherwise known as the Local Government Code (LGC) of 1991 defines "contractors" as follows: SEC. 131. Definition 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. ETHIDa As used in this Section, the term contractor shall include general engineering, general building and specialty contractors as defined under applicable laws; . . . ." (Underlining ours) It is clear from the abovequoted provision of law that for as long as the entity is not subject to professional tax under Section 139 of the Code and for as long as it is engaged in all kinds of services, which in this instant case is management service, the gross receipts it derived from such activity shall be taxed under the provision of Section 143 (e) of the Code, as implemented under a duly-enacted tax ordinance of the local government unit concerned. Issue Nos. 2 and 3. Section 131 (n) of the Code defines "gross sales or receipts" as follows: SEC. 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 services 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 returns, excise tax, and value-added tax (VAT)." IAaCST The answer is in the affirmative. The above definition of the phrase "gross sales or receipts" does not include nor make mention of passive income such as interest from savings and time deposits as well as other income derived from foreign currency variance as one of those that are considered part or form part of the "gross sales or receipts" and therefore such income is not subject to local business tax. It is hoped that this clarifies matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director