Bureau of Local Government Finance Opinion

May 10, 2001 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City, Philippines Attention: Jose A. Osana Tax Division Gentlemen : This has reference to your letter dated 29 June 2000 seeking confirmation of your position that your client, Warner-Lambert Philippines, Inc., is not required to pay additional local business tax (LBT) in Pasig City when its manufacturing plant located in said city ceased to operate in 31 October 1999. It is represented that as manufacturer and exporter, Warner-Lambert has been paying LBT in Pasig City based on 70% of total sales and in San Juan based on 30% of total sales. As wholesaler, it pays LBT in San Juan based on 100% of total sales. On 31 October 1999, its manufacturing plant in Pasig City closed down and ceased operations. For the year 1999, Warner-Lambert paid its liability as manufacturer-exporter in Pasig in the amount of P2,803,536.00 based on 1998 gross sales of P781,859,400.00. The LBT was paid on quarterly basis. However, for the period 1 January, 1999 to 31 October, 1999 the total sales as manufacturer-exporter reportable in Pasig City amounted to P702,632,000.00 based on which the LBT was computed to be P2,449,470.00. It is your contention that your client is not liable for additional LBT for the year 1999 upon closure of its plant since the LBT actually paid in 1999 in the amount of P2,803,536.00 based on the 1998 gross sales is higher than the LBT in the amount of P2,449,478.00 computed based on the current year sales. It is your assertion that a contrary view will run counter to the plain language of Section 145 of the Local Government Code of 1991 (LGC) regarding retirement of business. aIcCTA On the other hand, the Treasurer of Pasig City holds the view that under Section 24 of the Revenue Code of Pasig, Warner-Lambert is liable to pay LBT in the year of retirement (current year) based on gross sales for the period January to October, 1999, notwithstanding Section 145 of the LGC. Because of this contrary view, you seek the opinion of this Bureau regarding the tax liability of your client. The applicable provision of the LGC on retirement of business is Section 145, which provides: "Sec. 145. Retirement of Business. A business subject to tax pursuant to the preceding Sections shall, upon termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If the tax paid during the year be less than the tax due on said gross sales or receipts of the current year, the difference shall be paid before the business is considered officially retired." (underscoring supplied) It is hereby emphasized that the local business tax is a tax for the current year based on the gross sales or receipts for the preceding year. Therefore, the local business tax is a current year tax. It is claimed herein that Warner-Lambert had already paid the LBT for 1999 based on the gross sales of the preceding year (1998). For the year 1999, (year of retirement) it appears that the computed LBT based on the gross sales upon retirement is less than the tax paid. Applying the provisions of Sec. 145, it is your view that Warner-Lambert is not liable to LBT upon retirement. We agree. A retiring business is liable to pay LBT when the tax due on the gross sales or receipts realized at the time of retirement is more than the LBT paid for the current year. Assuming that the figures supplied herein are correct, it appears that the LBT based on gross sales realized by Warner-Lambert at the time of retirement is less than the LBT paid during the current year. Therefore, it is our view that Warner-Lambert is no longer liable for additional LBT at the time of retirement. This view can be implied from Sec. 145 of the LGC. It is provided therein that "if the tax paid during the year be less than the tax due on said gross sales or receipts of the current year, the difference shall be paid before the business is considered officially retired." It is necessary therefore that the tax due be more than the tax paid in order to hold a retiring business liable to pay the "difference" in LBT. Otherwise, there will be no "difference" to speak of and therefore, the retiring business is not liable. IEHDAT Premises considered, this Bureau holds the view that Warner-Lambert is no longer liable to pay additional LBT at the time of retirement. We trust that this clarifies matters. Very truly yours, (SGD.) BENJAMIN A. GERONIMO Executive Director <www.blgf.gov.ph/downloads/opinion/localtax/2001/a2000-0617.pdf> last visited January 16, 2014.