The Basis of Local Business Taxes

7/24/2019 The Basis of Local Business Taxes

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The basis of local business taxes

KPMG CORNER By Mr. Manuel P. Salvador III | Updated February 2

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&'e 2!t' day o( )anuary %ar*+ an ,%portant day ,n P',l,pp,ne',+tory. On t',+ day ,n t'e year 2!!" our -urrent and ,n a (e%ont'+ +oon to be e/#pre+,dent a+ +orn ,n a+ t'e "0t' Pre+,dento( t'e Republ,- o( t'e P',l,pp,ne+ (ollo,n1 t'e (all o( (or%erPre+,dent )o+ep' E+trada and le++ t'an (our year+ later +ub+euentlyele-ted to a (ull +,/#year pre+,dent,al ter%. &'u+ 'o one ould v,et'e +,1n,3-an-e o( t'e 2!t' o( )anuary %ay depend on 'at +,de o(t'e pol,t,-al (en-e one ,+ on. 4+ an 4(r,-an proverb +tate+ 5Unt,l

l,on+ 'ave t'e,r ',+tor,an+ tale+ o( t'e 'unt +'all alay+ 1lor,(y t'e'unter+. 5

Fro% a ta/ per+pe-t,ve t'e 2!t' o( )anuary %ay al+o be -on+,deredan ,%portant date a+ ,t ,+ t'e date 'en lo-al ta/e+ (or t'e Ne 6ear(all due. 7o-al ta/e+ are t'o+e t'at are ,%po+ed by lo-al 1overn%entun,t+ +u-' a+ Prov,n-e+ -,t,e+ %un,-,pal,t,e+ and baran1ay+ ,n-ontra+t to nat,onal ,nternal revenue ta/e+ t'at are t'o+e ,%po+edby t'e Nat,onal Govern%ent t'rou1' t'e Bureau o( Internal Revenueand t'e Bureau o( Cu+to%+. Ea-' lo-al 1overn%ent un,t +'alle/er-,+e ,t+ poer to -reate ,t+ on +our-e+ o( revenue and to levyta/e+ (ee+ and -'ar1e+ -on+,+tent ,t' t'e ba+,- pol,-y o( lo-alautono%y.

Under Se-t,on "89 o( t'e 7o-al Govern%ent Code :7GC; all lo-alta/e+ (ee+ and -'ar1e+ +'all be pa,d ,t',n t'e 3r+t 2! day+ o(

)anuary or ,( pa,d uarterly on or be(ore t'e 2!t' o( ea-' %ont'be1,nn,n1 ea-' +ub+euent uarter. By t'e t,%e you read t',+ art,-leyou %ay 'ave already reneed or are already ,n t'e pro-e++ o(rene,n1 your bu+,ne++ per%,t. It %ay be 'elp(ul to under+tand+o%e ba+,- -on-ept+ o( lo-al ta/at,on.

F,r+tly lo-al ta/at,on ,+ 1overned by a nu%ber o( (unda%entalpr,n-,ple+. One o( t'e+e ba+,- pr,n-,ple+ ,+ t'at ta/at,on 'a+ to beun,(or% ,n ea-' lo-al 1overn%ent un,t.


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-olle-ted and u+ed (or publ,- purpo+e+. In add,t,on t'e ta/ %u+t notbe un>u+t e/-e++,ve oppre++,ve or -on3+-atory a+ ell a+ not-ontrary to la publ,- pol,-y nat,onal e-ono%,- pol,-y or ,nre+tra,nt o( trade.

In add,t,on to t'e pr,n-,ple on t'e un,(or%,ty o( ta/at,on anot'erpre-ept ,+ t'at t'e -olle-t,on o( lo-al ta/e+ (ee+ -'ar1e+ and ot'er,%po+,t,on+ +'all ,n no -a+e be dele1ated to any pr,vate per+on.4l+o t'e revenue -olle-ted +'all ,nure +olely to t'e bene3t o( andbe +ub>e-t to d,+po+,t,on by t'e lo-al 1overn%ent un,t levy,n1 t'eta/. F,nally ea-' lo-al 1overn%ent un,t +'all a+ (ar a+ pra-t,-ableevolve a pro1re++,ve +y+te% o( ta/at,on. ur,+d,-t,on+ o( lo-al 1overn%ent un,t+ e/-,+eta/e+ on art,-le+ enu%erated under t'e Nat,onal Internal RevenueCode a+ ell a+ per-enta1e or value#added ta/e+ :@4&; on +ale+barter+ or e/-'an1e+ or +,%,lar tran+a-t,on+ on 1ood+ or +erv,-e+e/-ept a+ ot'er,+e prov,ded ,n t'e 7GC.

&'e *,nd o( ta/e+ t'at a lo-al 1overn%ent un,t -an ,%po+e oulddepend on t'e lo-al 1overn%ent un,t. For e/a%ple a prov,n-e %ay,%po+e a ta/ on &ran+(er o( Real Property Oner+',p a &a/ onBu+,ne++ o( Pr,nt,n1 and Publ,-at,on a Fran-',+e &a/ a &a/ on SandGravel and Ot'er Auarry Re+our-e+ a+ ell a+ a Pro(e++,onal &a/ and4%u+e%ent ta/ a%on1 ot'er+. On t'e ot'er 'and a %un,-,pal,ty%ay ,%po+e. a ta/ on bu+,ne++ on %anu(a-turer+ 'ole+aler+


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d,+tr,butor+ reta,ler+ -ontra-tor+ ban*+ and 3nan-,al ,n+t,tut,on+ a+ell a+ peddler+ en1a1ed ,n t'e +ale o( %er-'and,+e. In (a-t ,( t'elo-al le1,+lat,ve body -'oo+e+ ,t %ay ,n (a-t ,%po+e a bu+,ne++ ta/on any bu+,ne++ not ot'er,+e +pe-,3ed ,n t'e 7GC ',-' t'e lo-alle1,+lat,ve body %ay dee% proper to ta/. Note t'at t'e bu+,ne++ ta/t'at %ay be ,%po+ed by t'e %un,-,pal,ty %ay be ,%po+ed by a -,tya+ ell alt'ou1' t'e 7GC allo+ t'e -,ty to ,%po+e a ',1'er rate o(bu+,ne++ ta/.

One o( t'e ta/ ,++ue+ +urround,n1 t'e ,%po+,t,on o( t'e lo-albu+,ne++ ta/ ,+ t'e proper ta/ ba+e. &'e 7GC prov,de+ t'at t'e lo-albu+,ne++ ta/ payable ould depend on t'e a%ount o( 1ro++ +ale+ or1ro++ re-e,pt+ o( t'e prev,ou+ ta/able year ',-' a bu+,ne++ 'a+ tode-lare. For e/a%ple t'e lo-al bu+,ne++ ta/ t'at ,+ payable (or t'e

year 2!"! ould be ba+ed on t'e 1ro++ +ale+ or 1ro++ re-e,pt+ ,n t'eyear 2!!. 4+ lo-al 1overn%ent+ %ay rely on t'e aud,ted 3nan-,al+tate%ent+ o( a bu+,ne++ to deter%,ne t'e lo-al bu+,ne++ ta/payable t'e ue+t,on ar,+e+ a+ to 'et'er t'e revenue+ a+ de-lared,n t'e aud,ted 3nan-,al +tate%ent+ repre+ent+ an a--urate ba+,+ (orde-lar,n1 1ro++ +ale+ or re-e,pt+ (or lo-al bu+,ne++ ta/.

&',+ ,++ue appear+ to 'ave been +ettled by t'e P',l,pp,ne Supre%eCourt. In t',+ -a+e a lo-al 1overn%ent un,t a++e++ed a ta/payer (orde3-,en-y lo-al bu+,ne++ ba+ed on ,t+ 1ro++ revenue a+ reported ,n

,t+ 3nan-,al +tate%ent+. &'e lo-al 1overn%ent un,t ar1ued t'at1ro++ re-e,pt+ are +ynony%ou+ ,t' 1ro++ earn,n1+revenue ',-',n turn ,n-lude+ un-olle-ted earn,n1+.

&'e Supre%e Court d,+a1reed ,t' t'e po+,t,on ta*en by t'e lo-al1overn%ent un,t. In ,t+ de-,+,on t'e Supre%e Court 'eld t'at 1ro++re-e,pt+ ,n-lude %oney or ,t+ eu,valent a-tually or -on+tru-t,velyre-e,ved ,n -on+,derat,on o( +erv,-e+ rendered or art,-le+ +olde/-'an1ed or lea+ed 'et'er a-tual or -on+tru-t,ve. It -on-ludedt'at t'e lo-al 1overn%ent un,t erred 'en ,t a++e++ed t'e

ta/payer=+ lo-al bu+,ne++ ta/ ba+ed on 1ro++ revenue a+ de-lared ,n,t+ aud,ted 3nan-,al +tate%ent+ ',-' ,n-luded a--rued revenue+ orrevenue+ t'at ere not a-tually or -on+tru-t,vely re-e,ved +,n-e t'e7GC prov,de+ t'at t'e ta/ +'ould be -o%puted ba+ed on 1ro++re-e,pt+.


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7et %e end t',+ art,-le ,t' anot'er an-,ent proverb t',+ t,%e (ro%Da,t,. 55y Mon G,n MonBe',nd t'e %ounta,n+ are %ore%ounta,n+.H In order to 'urdle t'e -'allen1e+ t'at ta/at,on ,++ue+t'ro our ay one %u+t %ana1e to over-o%e +o %any ob+ta-le+. I'ope t',+ art,-le 'a+ prov,ded ,n(or%at,on t'at ,ll enable you toover-o%e lo-al bu+,ne++ ta/ ,++ue+.

:Manual P. Salvador III,+ a &a/ ,re-tor o( Manabat Sana1u+t,n Co. CP4+ a %e%ber 3r% o( KPMG netor* o( ,ndependent %e%ber3r%+ a?l,ated ,t' KPMG Internat,onal Cooperat,ve :5KPMGInternat,onalH; a S,++ ent,ty

&'e v,e+ and op,n,on+ e/pre++ed 'ere,n are t'o+e o( t'e aut'orand do not ne-e++ar,ly repre+ent t'e v,e+ and op,n,on+ o( KPMG ,nt'e P',l,pp,ne+. For -o%%ent+ or ,nu,r,e+ plea+ee%a,l%+alvador,,,J*p%1.-o%;
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The Basis of Local Business Taxes

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