Local Business Taxes:What to Expect

Local business taxes are one legal aspect that you need to become familiar with if you’re starting a business in the Philippines.

 

Republic Act 7160 or The Local Government Code of 1991 (LGC) provides local government units the authorityto impose business taxes on certain business activities.The Tax on Business, otherwise known as Local Business Taxes (LBT) is imposed by cities and municipalities on businesses.

 

Exemptions

The Bureau of Local Government Finance released BLGF MC No. 01-001-2017 which clarified that newly started businesses will not be required to pay the initial LBT, only the Business Permit and other regulatory fees and charges.

 

The memorandum also states that businesses registered with the Board of Investments (BOI) as:

  • pioneer and non-pioneer enterprises within a period of four to six years since registration,

  • businesses engaged in the production, manufacture, refining, distribution or sale of oil, gasoline and other petroleum products,

  • cooperatives registered with the Cooperative Development Authority,

  • and PEZA-registered enterprises

are exempted from paying the LBT.

 

When to pay the LBT

The LBT is computed via the gross sales or receipts of the preceding year. This means that only revenues that were actually and constructively received are used to determine the tax rate. The Supreme Court states that this is to avoid double taxation as the item will be counted twice if it is listed when it is logged and when it is actually received.

Businesses may choose to pay the LBT either annually, by January 20, or quarterly (January 20, April 20, July 20 and October 20).

 

Local business taxrates

The imposition of local taxes in a municipality is exercised through ordinances enacted by the sanggunian; however, the sanggunian are prohibited from legislating taxes above the maximum limit, as proscribed by the LGC. This limit is 0.5% of the gross receipts.

The municipal business tax rates are determined by the classifications under the law. Sec. 143 of the LGC provides a table of rates for municipal LBT, based on the industry that the business is involved in.

 

Manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines and the like:

With gross sales or receipts for the preceding calendar year in the amount of: Amount of Tax Per Annum
Less than Php10,000 Php165
Php10,000-Php14,999 Php220
Php15,000 -Php19,999 Php202
Php20,000-Php29,999 Php440
Php30,000-Php39,999 Php660
Php40,000-Php49,999 Php825
Php50,000.00-Php59,999 Php1,320
Php75,000-Php99,999 Php1,650
Php100,000-Php149,999 Php2,200
Php150,000- Php199,999 Php2,750
Php200,000-Php299,999 Php3,850
Php300,000-Php499,999 Php5,500
Php500,000-Php749,999 Php8,00
Php750,000-Php999,999 Php10,000
Php1,000,000-Php1,999,999 Php13,750.00
Php2,000,000-Php1,999,999 Php16,500.00
Php3,000,000—Php3,999,999 Php19,000
Php4,000,000—Php4,999,999 23,100
Php5,000,000—Php6,49,999 24,375
6,000,000.00 or more at a rate not exceeding thirty-seven and a half percent (37½%) of one percent (1%)

 

Wholesalers, distributors and dealers:

With gross sales or receipts for the preceding calendar year in the amount of: Amount of Tax Per Annum
Less than Php1,000 Php18
Php1,000-Php1,999 Php33
Php2,000-Php2,999 Php50
Php3,000-Php3,999 Php72
Php4,000-Php4,999 Php100
Php5,000-Php5,999 Php121
Php6,000-Php6,999 Php143
Php7,000-Php7,999 Php165
Php8,000-Php9,999 Php187
Php10,000-Php14,999 Php220
Php15,000.00-Php19,999 Php275
Php20,000-Php29,999 Php330
Php30,000-Php39,999 Php440
Php40,000-Php49,999 Php660
Php50,000-Php74,999 Php990
Php75,000-Php99,999 Php1,320
Php100,000-Php149,999 Php1,870
Php150,000.00-Php199,999 Php2,420
Php200,000-Php29,000 Php3,300
Php300,000-Php499,999 Php4,400
Php500,000-Php749,999 Php6,600
Php750,000-Php99,999 Php8,800
Php1,000,000-Php2,000,000 Php10,000
2,000,000 or more at a rate not exceeding fifty percent (50%) of one percent (1%).

 

Exporters and manufacturers , millers, producers, wholesalers, distributors, dealers or retailers of essential commodities

Their business is at a rate not exceeding one-half (½) of the rates prescribed on the other tables.

These “essential commodities” are described as the following: rice and corn, wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar, salt and other agricultural, marine, and fresh water products, whether in their original state or not, cooking oil and cooking gas, laundry soap, detergents, and medicine, agricultural implements, equipment and post-harvest facilities, fertilizers, pesticides, insecticides, herbicides and other farm inputs, poultryand other animal feeds, school supplies, cement.

 

Retailers

With gross sales or receipts for the preceding calendar year in the amount of: Rate of Tax Per Annum
Php400,000or less 2%
More than Php400,000.00 1%

 

Barangays will levy taxes on gross sales or receipts of the preceding calendar year of Php50,000 or less for cities and Php30,000 or less for municipalities.

 

Contractors and other independent contractors

With gross sales or receipts for the preceding calendar year in the amount of: Amount of Tax Per Annum
Less than Php5,000 Php27.50
Php5,000.00-Php9,999 Php61.60
Php10,000.00-Php14,999 Php104.50
Php15,000-Php19,999 Php165
Php20,000-Php29,999 Php275
Php30,000-Php39,999 Php385
Php40,000-Php49,999 Php550
Php50,000-Php74,999 Php880
Php75,000-Php99,999 Php1,320
Php100,000-Php149,999 Php1,980
Php150,000-Php200,000 Php2,640
Php200,000-Php249,999 Php3,630
Php250,000-Php299,999 Php4,620
Php300,000-Php39,999 Php6,160
Php400,000-Php49,999 Php8,250
Php500,000-Php749,999 Php9,250
Php750,000-Php999,999 Php10,250
Php1,000,000-Php2,000,000 Php11,500
Php2,000,000 or more at a rate not exceeding fifty percent (50%) of one percent (1%)

 

Banks and other financial institutions

At a rate not exceeding fifty percent (50%) of one percent (1%) on the gross receipts of the preceding calendar year. These gross receipts are derived from interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of property, insurance premium.

 

Peddlers engaged in the sale of any merchandise or article of commerce

At a rate not exceeding Php50 per peddler, annually.

 

Other businesses that the sanggunianhasdeemed proper to tax

Any business that is subject to the excise, value-added or percentage tax under the National Internal Revenue Code cannot be taxed more than two percent (2%) of gross sales or receipts of the preceding calendar year.

Meanwhile, a city government can collect taxes that the municipality imposes and can exceed the maximum tax rates by not more than 50%. For example, a beer brewery that hasgross receipts from the previous year at Php120,000 would have a municipal tax rate of Php2,200. The city government cannot set a tax rate that exceeds Php4,400.