Business Taxes

Business Taxes

Let’s review internal sources of

funds again.

Taxes – enforced contributions

-- property taxes
Revenues -- business and other taxes

Fees – imposed in exercise of

regulatory powers

Receipts Charges – cost recovery

impositions for services
delivered or use of facilities
 Business Taxes

Who has power to tax?

Type of tax Prov City Mun

Tax on printing &

publication
Franchise tax

Tax on sand, gravel,

other quarry
resources

Amusement tax

Delivery trucks and

vans
Business tax
Business Taxes

Other local taxes . . . .

Type of Tax Prov City Mun

Tax on transfer of
real property

Tax on professionals

Community tax
 Business Taxes
(Sec. 143 of R. A. 7160)
( Municipalities and Cities)

> Tax subject: Business establishments

Tax Base: Gross Receipts
Tax Rate: Graduated fixed tax, Fixed tax or
percentage tax
Implementing Mechanism: Require payment of
business taxes before renewal of business permit
Who Pays the tax: Business owners or proprietors
When to Pay: On or before January 20 of every year
or at the date extended by the sanggunian not to
exceed 6 months.
(with the option to pay quarterly)
What Constitute Gross Sales or
Gross receipts?

 Total amount of money or equivalent

- contract price, compensation, or
service fees
 Includes amount charged on materials supplied
with service
 Includes deposits or advanced payments
received during taxable quarter/year for
services performed or to be performed
Exclusion to gross sales/receipts
• Discounts at time of sales
• Sales return
• Excise Tax
• Value-added tax
8 clusters/classification of businesses
for business tax
(Sec. 143)

 Graduated Tax:

1. Manufacturers, assemblers , repackers,

processors, brewers, distillers, rectifiers and
compounders of liquors……
2. Wholesalers, distributors, or dealers in any
article of commerce of whatever kind or nature
3. Exporters, manufacturers, millers, producers,
wholesalers, distributors, dealers or retailers of
essential commodities
4. Contractors ..

 Fixed tax
5. Peddlers - P 50.00
Classifications of business…

> Percentage tax

6. Retailers
Mun. 1st 400,000.00 - 2%
over 400,000.00 - 1%
Cities 1st 400,000.00 - 3%
over 400,000.00 - 1.5%

7. Banks and other Financial institutions

Mun. – 50% 0f 1%
Cities - 75% of 1%
8. Any other business not otherwise specified
Mun. – 2%
Cities - 3%
Procedures in the Administration of
Business Taxes

 Newly started Business - No business Tax

(Except Tax on Business of Printing and Publication & Franchise Tax where the rates
are 1/20 of 1% of the capital investment. )

 Old Business - Classify business according to 8

clusters, determine gross receipts of the preceding
year

 Operating more than 2 businesses

1. 2 or more business w/c are subject to the same
rate of imposition - compute based on the total
gross sales/receipts
2. if subject to different rates of tax, compute the
tax based on the gross receipts of each business

> Retirement of Business

Surcharges, Penalties and Interest
for Late Payment of Tax

•Sec. 168: For Taxes not paid on time- The

Sanggunian may impose:
-Surcharge of 25%
- Interest 2% per month on unpaid
taxes including surcharges but
not to exceed 36 months or 72%

• Sec. 169: Interest on Unpaid Revenue – If

not fixed in the ordinance, interest of 2% per
month not to exceed 36 months
Illustrations on diff. rates of tax

• A wholesaler and a retailer of certain of essential

and non essential commodities declared a total
gross sales for 2016 of P 2M broken down as
follows:

Wholesale of Essential - 500,000.00

Non-essential – 500,000.00
Retail of Essential 600,000.00
Non-essential - 400,00.00

Compute the business Tax if he pays on Feb. 15, 2017:

Tax rate of the Mun. for wholesaler – 50% of 1% and

for retailer is 2%.. It imposes 25% Surcharge and
2% interest per month for late payments.
Business Tax Due:

•Wholesaler:
• Essential (500,000x .005 x.50) = P1,250.00
Non-Essential (500,000x.005) = 2,500.00
P3,750.00
Surcharge 25% (3,750.00/4) 234.38
Interest (1,171.88 x 2%x 2) 46.88
total tax due P4,031.26
•Retailer:
• Essential 1st 400,000x 2% x.50) = 4,000.00
– 200,000x 1% x .50 = 1,000.00
Non-Essential (400,000x 2%) = 8,000.00
P13,000.00
Surcharge 25% (13,000.00/4) 1,820.32
Interest (5,070.32 x 2%x 2) 202.81
total tax due P15,023.13
Grand Total P19,054.39
 SITUS RULE
(Sec. 150 R.A. 7160)

• Situs – place of payment of the tax

Sales are made in the Locality:

> with branch or sales outlet - taxes accrue
to the Mun/City where the branch is
situated

> w/out branch or sales outlet - taxes accrue

to the Mun/City where the principal office
is situated
SITUS…

In case there is factory, project office, plant or

plantation in the pursuit of business

Principal Office – 30 % of Sales

Factory - 70% of sales
If plantation is located in locality other than the
location of the factory :
70% is allocated to factory - 60%
plantation - 40%

Note: the above allocation applied irrespective of

whether or not sales are made in the locality where the
factory, project office, plant or plantation is located
ILLUSTRATION OF SITUS RULE:

A big business firm with factories and plantation situated

in different LGUs:
M1 - Principal Office (P)
M2 and M3 - Branches
M4 and M5 – Factories
M6 – Plantation
M7 – Warehouse and Display center.

1.M2 and M3 - 100% of the sales made

2. M1 – 30% of all sales made outside of branches in
M2 and M3
3. 70% to Mun. where Factories are located:
60% - M4 and M5
40% - M6
4. Warehouse and Display Center – No sales allocation
Drawback on Business Tax:

• Under-declaration of gross sales/receipts is

a major issue in the collection business tax

• Ranges from 10% to 80%

• Huge revenue loss for LGU

 Strategies to Combat Under-
declaration of Gross
Sales/Receipts

• Compare BIR gross-sales data vs declared

gross sales

• Through ordinance require copy of ITR

• Treasurer examines books of accounts and

pertinent records

• Through ordinance authorize treasurer to

use PIL to determine gross sales
 Revenue enhancement measures

Other strategies for

improving business
tax collection:

• conduct business tax mapping

• establish revenue data bank
• conduct regular census & listing of businesses
• improve tax records management
• prepare and maintain list of business firms;
classify these
• set up internal control system
• conduct continuing tax info and education
campaign
• enforce collection through administrative
action
Revenue enhancement measures

Why not supplement strategies with

Presumptive Income Level

Technique
 Revenue enhancement measures

Steps in (PIL) technique

1. Identify major business classifications
or types of business
2. Identify possible indicators for each type
of business
3. Categorize businesses accdg to scale of
operation
4. Prepare a presumptive assessment of
average taxable income for each type of
business
5. Compute for estimated gross sales based
on indicators
6. Negotiate taxable income with business
taxpayers
7. Compare results w/ taxpayer’s sworn
declarations and tax payments
made
8. Levy appropriate business tax on
compromise business income.
Step 1. Identify major business
classifications or types of businesses in
LGU.

• You may use classifications given in Code or

just identify businesses in LGU whose annual
gross sales are difficult to determine

Examples:
Manufacturing Wholesaler
Distributor Retailer
Contractor Rice mill
Poultry feeds Bottled water Mini-
grocery Beauty parlor Meat
vendor Builder
Step 2. Identify possible indicators
for each type of business

• Select readily verifiable and realistic

indicators, like:

Type of Business Possible Indicators

Apartment no. of units

Coffee shop no of tables

Fish pen no. of pens

General goods floor area or

store inventory turnover

Movie house no. of seats

Step 3. Categorize businesses
according to scale of operation

• Group businesses into categories or

classifications.
• Classifications may be based on physical
size of operations such as floor area or no.
of employees

General Goods Store

Class A Sari-sari store
Class B Mini-grocery
Class C Grocery
Class D Supermarket
Step 4. Prepare a presumptive
assessment of average taxable income
for each type of business
• Provide a realistic percentage of actual
daily operations
Example: restaurant (indicator: no. of
tables)
50% occupancy rate x 2 turnovers (lunch and dinner)

• Determine current cost of service/ goods

provided
Example: minimum P50.00 worth of food
per customer
Or, every table has average of
P150.00 in sales

• Identify how many days in a year business

likely to be in operation
Example: 6 days a week or 324 days/year
Sample Presumptive Assessment Table

Type of Indicator Assessment

Business
Apartment no. of units no of units x
monthly rent

Coffee shop no. of no. of tables x

tables estimated sales per
table x occupancy
rate
Movie house no. of seats no. of seats x
admission rate x
occupancy rate per
screening x no. of
screenings
Step 5. Compute for estimated gross
sales based on indicators

• Do a trial computation for actual

businesses in the area
• Compare results of your PIL table with
actual sales paid in preceding year
Remember:
Actual tax payments made by majority of
businesses most likely below your PIL
computation.

Actual tax payments should have been

50% higher, using PIL.
 Sample Minimum Annual Gross Sales
(AGS)
Type Indica- Assessment Estimated
of Business tor minimum annual
gross sales

Apart-ment no. of no of units x 4 units x P3000/u

units monthly rent x 12 mos =
P144,000

Coffee shop no. of no. of tables x 10 table x P150/ x

tables estimated 50% x 324 days =
sales/table x P243,000
occupancy rate

Movie no. of no. of seats x 200 seats x

house seats admission rate x P15.00/ x 30% x
occupancy rate/ 3 screenings x
screening x no. of 360 days =
screenings P972,000
 Step 6. Negotiate taxable income
with business taxpayers

• Prior to institutionalizing use of PIL

Technique, meet with business sector and
agree on:
-- indicators for their sectors
-- assumptions for computations
such as occupancy rate, estimated sales
• Use discretion to determine rates for
computing least acceptable gross sales
• Alternatively, prepare Minimum Acceptable
Gross Sales Declaration Table.
Meaning: business in a category can’t pay
tax lower than pre-determined minimum
amount of gross sales.
 Sample
Minimum Gross Sales Table

Business Minimum Gross Sales

Sari-sari store P 100,000.00

Mini-grocery P 250,000.00
Grocery P 400,000.00
Supermarket P 750,000.00

How to use minimum gross sales table:

Taxpayers can’t pay tax lower than pre-
determined minimum established for the category.
Step 7. Compare results with
taxpayer’s sworn declarations and tax
payments made

Experience shows that taxpayers:

• don’t argue against computations for least
acceptable gross sales

• usually settle for compromise business

income rather than examination of books
Step 8. Levy appropriate business tax
on compromise business income

• As result of comparison table, negotiate

with taxpayer to settle deficit and avoid
financial audit by LGU Treasury Division

• Failure or refusal to settle taxes is ground

for revocation or non-renewal of business
permit

• LGU may also initiate administrative or

judicial proceedings
 Make PIL technique work for you .

• Hold consultation meetings with affected

business men. Get agreement on indicators.

• Pass local ordinance adopting PIL technique,

together with other strategies

• Keep data current:

-- regularly update base amount used for
computing gross sales. Do at least every 3
years.

-- keep track of changes in base data

from establishments.
Administrative procedures

Retirement of business

• Upon termination of business, sworn

statement of gross sales for calendar year
must be submitted within 30 days from
closure.
• Tax due must be paid first before business
is fully terminated

• Termination is complete stop in operations.

• Termination is not change in ownership,

management, or name of business
Administrative procedures

Retirement of business: verification

Treasurer ensures no tax avoidance occurs

through false claims of termination:
– Assigns inspector to verify stop in
operations
– If findings show only a change in
ownership, management, or name,
Treasurer recommends to Mayor
disapproval of application of
termination
– Business continues to be liable for
payment of taxes, fees, charges
– In case business transferred to a new
owner, new owner is liable to pay tax
on business and must get new permit
Administrative procedures

Official retirement of business

• If termination is legitimate, and tax due

paid for current year is less than tax due
for current year, tax difference must be
paid before business is officially retired.

• Business permit is surrendered to Treasurer

who cancels the same and records
cancellation in books

• In case of death of licensee, and business is

continued by another, no additional
payment is required for remainder of term
for which tax was paid
Bureau of Local Government Finance