Guidelines Governing the Power of Municipalities and Cities to Impose a Business Tax on Exporters

July 30, 1993 DOF LOCAL FINANCE CIRCULAR NO. 04-93 SUBJECT : Prescribing the Guidelines Governing the Power of Municipalities and Cities to Impose a Business Tax on Exporters pursuant to Sections 143 (c) and 151 of Republic Act No. 7160 of 1991, and Its Implementing Rules and Regulations (IRR) TO : All Regional Directors, Bureau of Local Government Finance; District Treasurers of Metropolitan Manila; Provincial, City and Municipal Treasurers; and Others Concerned Pursuant to the provisions of Sections 143 (c) of Republic Act No. 7160, otherwise known as the Local Government Code of 1991 (LGC), as implemented by Article 232 (c) of the Implementing Rules and Regulations (IRR), municipalities and cities may impose a business tax on exporters. Accordingly, the following guidelines are hereby prescribed in accordance with Article 287 of the IRR to supplement Article 232 (c) of the IRR as it applies to exporters with a view of further clarifying the implementation of said provision consistent with Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987 and other related laws and national policies. SECTION 1. Coverage . As used herein, the term (a) Exporter shall refer to those who are principally engaged in the business of exporting goods and services, as well as manufacturers and producers whose goods or services are both sold domestically and abroad. (b) Export sales shall mean the Philippine port F.O.B. value, determined from invoices, bills of lading, inward letters of credit, lading certificates, and other commercial documents, of export products exported by a BOI-registered export producer to another export producer or the net selling price of export product sold by a BOI-registered export producer to another export producer or to an export trader that subsequently exports the same: Provided ,That sales of export products to another shall be only deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents: Provided , further ,That without actual exportation the following shall be considered constructively exported for purposes of this provision: (i) sales to bonded manufacturing warehouse of export-oriented manufacturers; (ii) sales to export processing zones; (iii) sales to BOI-registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products under guidelines set by the BOI in consultation with the Bureau of Customs; (iv) sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not; Provided , further ,That export sales of BOI-registered export trader may include commission income; Provided , finally ,That exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee. cdt Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government and paid for in convertible foreign currency inwardly remitted through the Philippine banking systems shall also be considered export sales. (Art. 23, E.O. 226) (c) Subcontractors are persons or firms who agrees or who have agreed with manufacturer-exporter to perform certain manufacturing operations for a specific cost or price agreed upon. SECTION 2. Business Tax on Exporters. Exporters shall be subject to the business tax as follows: (a) the gross sales/receipts on goods or products sold domestically shall be subject to the business tax at rates prescribed under paragraphs (a), (b) and (d) of Sec. 143 of the LGC; (b) the amount of export sales as defined in Sec. 2 (b) shall be subject to the business tax at a rate not exceeding one-half (1/2) of the rates stated in (a) above. For this purpose, the amount of export sales shall be excluded and declared separately from the total sales and shall be subject to the rates prescribed in (b) above. Failure to make this separate declaration of export sales shall subject the total sales to the rates prescribed in (a) above. SECTION 3. Non-Separability of Business Enterprise Registered with the BOI . The provisions of Art. 242 of the IRR requiring a person or entity to get a separate mayor's permit for each business activity shall not apply to exporters who conduct an integrated operation which consists of manufacturing, wholesaling and retailing and with respect to activities inherent, necessary or incidental to such business operation. SECTION 4. Procedures for the Enactment of Tax Ordinances . (a) The tax on exporters, as provided herein may be imposed by a city or municipality only through an appropriate ordinance enacted by the Sangguniang Panlungsod or Sangguniang Bayan, as the case may be. Such ordinance shall be enacted and approved in accordance with Arts. 107, 108, 275 and 276 of the IRR. (b) Pursuant to the procedures on the conduct of public hearings as prescribed in Art. 276 (b) of the IRR, the Sanggunians concerned shall cause the sending of written notices of public hearings for proposed ordinances to the branch manager or the highest officer of the Head Office of affected banks and banking institutions within their territorial jurisdictions. (c) Any tax ordinance which does not comply with the above provisions shall be deemed null and void. Enforcement of such ordinance shall be a ground for disciplinary action against the officials or employees responsible therefore as provided for in Art. 260 of the IRR. SECTION 5. Situs of the Tax . (a) Definition of terms (1) Principal Office shall refer to the head or main office of the exporter indicated in the pertinent documents submitted to the Securities and Exchange Commission, Department of Trade and Industry or other appropriate agencies; the city or municipality specifically mentioned in the Articles of Incorporation and other official registration papers as being the official address of said Principal Office shall be considered as the situs thereof. (2) Branch or Sales Office a fixed place in a locality which conducts operations of the business as an extension of the principal office. Offices used only as display areas of the products where no stock or items are stored for sale, although orders for the products may be received thereat, are not branch or sales offices as herein contemplated. A warehouse which accepts orders and/or issues sales invoices independent of a branch with sales office shall be considered as a sales office. (3) Warehouse a building utilized for the storage of products for sale and from which goods or merchandise are withdrawn for delivery to customers or dealers, or by persons acting in behalf of the business. A warehouse that does not accept orders and/or issue sales invoices as aforementioned shall not be considered a branch or sales office. (b) Sales Allocation For purposes of collection of the tax, the following shall apply - (1) All export transactions made by the branch and the gross sales or receipts derived from the said transactions shall be taxable by the city or municipality where such branch is located. (2) The gross sales or receipts derived from export transactions made by the Principal Office, except gross sales or receipts recorded in the branches, shall be taxable by the city or municipality where said Principal Office is located. cdt (3) In cases where there is no such branch or sales office, in the locality where the sale is made, the sale shall be recorded in the principal office along with the sales made by the said principal office and the tax shall accrue to the city or municipality where said principal office is located. (4) In cases where there is a factory or plant in pursuit of business, thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located and seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory or plant is located. (5) In cases where there are two (2) or more factories or plants located in different localities, the seventy percent (70%) sales allocation shall be prorated among the localities where such factories or plants are located in proportion to their respective volumes of production during the period for which the tax is due. cdt (6) The sales allocation in paragraph (b) hereof shall be applied irrespective of whether or not sales are made in the locality where the factory or plant is located. In case of sales made by the factory or plant, the sale shall be covered by subparagraphs (1) or (2) above. (7) In case of manufacturers or producers which engage the services of an independent contractor to produce or manufacture some of their products, these rules on situs of taxation shall apply except that the factory or plant and warehouse of the contractor utilized for the production and storage of the manufacturer's products shall be considered as the factory or plant and warehouse of the manufacturer; the independent contractor shall not be taxed on the basis of the gross sales of his production of the manufacturer's products but on his gross receipts as independent contractor under Sec. 143 (e) of the LGC, as implemented under Art. 232 (e) of its IRR. (8) Port of loading the city or municipality where the port of loading is located shall not levy and collect the tax imposable on exporters unless said exporters maintain in said city or municipality its principal office, a branch, sales office or warehouse, factory, plant or plantation in which case, the rule on the matter shall apply accordingly. (c) Transfer or Relocation In case there is a transfer or relocation of the Principal Office or of any of its branch to another city or municipality, due notice of such transfer or relocation shall be given to the chief executives of the cities or municipalities concerned within fifteen (15) days after such transfer or relocation is effected. SECTION 6. Accrual of Tax and Time of Payment . (a) The tax on business shall accrue on the first day of January of each year as regards the tax subject then liable therefor; but an entirely new tax or change in the rate of an existing tax shall accrue on the first day of the quarter next following the effectivity of the ordinance imposing such new levy or rate. (b) The tax due and accruing to the city or municipality shall be paid within the first twenty (20) days of January or of each subsequent quarter, as the case may be. SECTION 7. Examination of Books of Accounts and Pertinent Records . (a) The Treasurer of the LGU concerned or through his deputies duly authorized in writing may examine the books of accounts and other pertinent records of banks in order to ascertain, assess, and collect the correct amount of tax due. (b) The examination shall be made during regular office hours not oftener than once a year for every tax period, which shall be the year immediately preceding the examination and shall be certified by the examining official. Such certification shall be made of record in the books of accounts of the business enterprise examined. SECTION 8. Penalties for Violation of Tax Ordinance . The Sanggunian of the city or municipality may, through an ordinance, prescribe imprisonment or fines or other penalties for violation of a tax ordinance but in no case shall such imprisonment be less than one (1) month nor more than six (6) months or such fine be less than One Thousand (P1,000.00) Pesos nor more than Five Thousand (P5,000.00) Pesos or both such imprisonment or fine, at the discretion of the court. SECTION 9. Attempt to Enforce Void or Suspended Tax Ordinances or Revenue Measures . (a) Enforcement of any tax ordinance or revenue measure after due notice of the disapproval or suspension thereof shall be sufficient ground for administrative disciplinary action against the local officials and employees responsible therefor. (b) Any attempt to enforce any tax ordinance or revenue measure deemed rescinded by operation of law, or the effectivity of which has been suspended, or the passage of which has been declared illegal, shall subject the local officials and employees responsible therefor to administrative disciplinary action. SECTION 10. Repealing Clause . All rules, regulations, orders, and/or circulars which are contrary to, or inconsistent with, the provisions of this Circular are hereby repealed or modified accordingly. SECTION 11. Effectivity . This Circular shall take effect immediately. This Circular has been approved and recommended by the Oversight Committee for issuance by the Secretary of Finance in accordance with Art. 287 of the IRR. The Regional Directors of the Bureau of Local Government Finance and District Treasurers of Metropolitan Manila Area are hereby instructed to disseminate the contents of this Circular to all Provincial, City and Municipal Treasurers within their respective jurisdiction for their information and guidance. ERNEST LEUNG Acting Secretary of Finance