Bureau of Local Government Finance Opinion

September 1, 1993 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Adrian O. Sison Chairman KBP Legal/Franchise Committee 6th Floor, LTA Building 118 Perea Street, Legaspi Village Makati, Metro Manila S i r : This refers to your letter posing the following queries: 1. can local governments impose local franchise tax on the total gross receipts on top of the 3% national franchise tax and the 35% tax on income. 2. what is the maximum percentage the local government can charge as franchise tax and on what business activity? In this connection, please be informed that provinces but not municipalities, may impose a local franchise tax under the provisions of Section 137 of the Local Government Code (LGC) of 1991, quoted hereunder: "Sec. 137. Franchise Tax . Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on business enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. "In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein." Cities may likewise do so in view of Section 151 of the Code which provides as follows: "Sec. 151. Scope of Taxing Powers . Except as otherwise provided in this Code, the city may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however , That the taxes, fees, and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code. "The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes." Moreover, as an exception to the grant of levying franchise tax to provinces pursuant to Section 137, the thirteen (13) municipalities within Metro Manila which became part of the Metropolitan Area are now empowered to exercise the taxing powers enjoyed by the provinces and cities pursuant to Section 144 of the LGC, as implemented by Article 236 of the Implementing Rules and Regulations (IRR) implementing the Code, which reads: "Art. 236. Rate of Tax within the Metropolitan Manila Area . (a) The municipalities within the MMA may levy taxes on businesses enumerated in Article 232 of this Rule at rates which shall not exceed fifty percent (50%) the maximum rates prescribed for said businesses. "(b) Said municipalities, pursuant to Article 274 of this Rule, may levy and collect the taxes which may be imposed by the province under Article 224, 225, 226, 227, 228, 229, and 230 of this Rule at rates not exceeding those prescribed therein." As regards query no. 2, it is informed that the rate of the franchise tax that a province and a city may impose, shall not exceed fifty percent (50%) and seventy-five percent (75%) respectively, of one percent (1%) of the gross annual receipts derived by the business pursuant to Section 137 of the Code, as implemented by Article 226 of the IRR. aisa dc We trust that this will clarify matters. Very truly yours, By Authority of the Secretary: (SGD.) LORINDA M. CARLOS Executive Director Bureau of Local Government Finance