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12

LOCAL GOVERNMENT TAXATION

REX B. BANGGAWAN, CPA, MBA

LOCAL TAXATION
REX B. BANGGAWAN, CPA MBA

SUBDIVISION OF THE GOVERNMENT

1. National government
2. Local government

ORGANIZATION OF LOCAL GOVERNMENT

1. Provinces
2. Municipalities
3. Cities
4. barangays

BRANCHES OF THE GOVERNMENT IN THE LOCAL SETTING

Provinces Municipalities Cities Barangays
Legislature
Executive
Judiciary

NATIONAL VS. LOCAL TAXATION

Aspect of Differences National Taxation Local Taxation
Nature of power
Levy or Imposition
Assessment and collection
Accounting period
Real property valuation
Basis of business taxation

LIMITATIONS OF THE LOCAL TAXING POWER

1. Inherent limitation
2. Constitutional limitations
3. Statutory limitations
a. No double taxation rule
b. Reservation rule
c. Residual taxing power

CLASSIFICATION OF LOCAL TAXES AS TO IMPOSING AUTHORITY

1. Provincial Taxes
a. Real property and related taxes
b. Other privilege taxes
2. Municipal Taxes
a. Community tax
b. Local business tax
3. Barangay Tax

REAL PROPERTY TAX

 Imposed upon real properties (land and improvements) by the Provinces or cities
 Annual tax accruing every January 1
 Real property tax constitutes a lien on the property and is superior to any other lien, or encumbrance of any kind
 Subject to a maximum rate and varies per province/city/municipality

Procedures:
 Determine property fair market value
 Determine the assessment level
 Assessment level – fixed by the Provincial/City/Municipal Council (Sanggunian)
 Determine assessed value
 Determine Real Property Tax

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REX B. BANGGAWAN, CPA MBA

LOCAL GOVERNMENT TAXATION

Property classification & assessment level for land:

- Residential 20%
- Agricultural 40%
- Commercial/Industrial and Mineral 50%
- Timberland 20%
- Special classes: Cultural, scientific 15%
- Hospital and water districts 10%

*Assessment for building & improvements and machineries varies according to values based on a table of assessment levels

Maximum tax rates

 Cities and Municipalities within Metro Manila – 2%
 Provinces – 1%

Illustration 1
You own a residence here in Baguio City with the following fair value per assessment rolls of the city:
o Land – P1,000,000
o House – P2,500,000

The City council of Baguio set the maximum assessment level for land. The house has 40% assessment level based on its
value.

Required: Compute the Real Property Tax. _____________

Illustration 2
Beneco has various fixed electrical machineries which were purchased and installed three years ago for P2,000,000. The
machinery has a current replacement cost of P4,200,000. Compute the current fair value of these machineries for real
property tax purposes.
a. P 800,000 c. P 1,680,000
b. P 1,040,000 d. P 2,184,000

Illustration 3
Benzon owns an idle residential lot in Baguio City. He shall be subject to an annual realty tax rate of
a. 10% c. 5%
b. 8% d. 3%

Deadline – pay before the Treasurer’s office on or before

 For lump sum – On or before January 31
- (On some jurisdiction early payment is entitled to a discount of up to 20%)
 For installment – due in four quarterly payments:
- March 31
- June 30
- September 30
- December 31

Penalties
- Surcharge of 25% on basic tax
- 2% interest per month on the unpaid amount until the tax is fully paid up to a maximum of 36 months

Exempted properties
 Public properties
 Religious, educational and Charitable entities
 Machineries and equipment actually, directly and exclusively used by local water districts and GOCCs engaged in the
supply and distribution of water and or distribution and transmission of electric
 Real properties of registered cooperatives
 Machinery and equipment used for pollution control and environmental protection

Special Education Fund Tax – uniform 1% rate with the same basis to the RPT
Ad valorem Tax on idle lands – 5% on same basis with RPT
 What is idle land?
 Agricultural land with more than 1 hectare land area – ½ of which remain uncultivated or unimproved

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REX B. BANGGAWAN, CPA MBA

LOCAL GOVERNMENT TAXATION

 Land other than agricultural with more than 1,000 sq.m., ½ of which remain unutilized
 Residential lots in subdivision

Special Levy – lands within the territorial jurisdiction specially benefited by public works projects or improvements funded
by the LGU concerned. Special levy shall not exceed 60% of the actual cost of such projects and improvements.

Social Housing Tax – A tax of ½ of 1% of the value of all lands in urban areas in excess of P50,000. This may be imposed by
a province, city, municipality within MMA.

TAX ON TRANSFER OF REAL PROPERTY OWNERSHIP – a tax on sale, donation, barter or any other mode of transferring
ownership or title to real property. The rate is not more than 50% of 1% for provinces and 75% of 1% in the case of cities
or municipalities in the MMA based on FMV or GSP w/e is higher.
- Exempt – Disposal of real property pursuant to CARP

Illustration 1
Mr. Pagaling, a resident of Baguio City, disposed a residential lot located in the Municipality of Asingan, Pangasinan with a
zonal value of P4,000,000 and fair value per tax declaration of P2,500,000. The property is currently appraised at P6,000,000
and was sold for P3,000,000.

1. Compute the property transfer tax.

a. P 30,000 c. P 12,500
b. P 15,000 d. P 2,500

2. Compute the total annual realty tax of the buyer.

a. P 20,000 c. P 5,000
b. P 10,000 d. P 2,500

3. What is the capital gains tax and the venue of payment? _______________ _________________

Illustration 2
Mrs. Leah Mado, a resident of Manila City but employed in Taguig City, owns a commercial building in Quezon City with a
land zonal value of P5,000,000 and land assessed value of P1,000,000. The building has an assessed value of P1,500,000.

1. Compute the real property tax.

a. P 130,000 c. P 50,000
b. P 100,000 d. P 25,000

2. In the immediately preceding problem, Mrs. Mado shall pay the real property tax in
a. Manila City c. Quezon City
b. Taguig City d. City or province where taxpayer registered to the BIR

Illustration 3
Mr. Pogito Despacito, a commercial lessor, leases a building to St. Thomas Moore College for P2,000,000 annual rental. The
building has a current fair value of P2,000,000 and P1,200,000 total assessed value in the City Property Assessment rolls of
Angeles City.

Compute Mr. Despacito’s real property tax.

a. P 24,000 c. P 12,000
b. P 18,000 d. P 0

Integrated Problems

Problem 1
On June 15, 2018, Rhad Estoque, a resident of Baguio City, Benguet, donated an agricultural land located in the Municipality
of Rosario, Province of La Union to his best friend.

The following pertains to the fair value details of the property:

Zonal value P 1,200,000

Fair value per tax declaration 1,000,000

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REX B. BANGGAWAN, CPA MBA

LOCAL GOVERNMENT TAXATION

Baguio City imposes 75% of 1% transfer tax while the province of La Union imposes 40% of 1% transfer tax.

Required: Determine the following:

1. Local transfer tax and the venue of payment
2. Annual real property tax
3. Total annual tax on real property
4. Real property tax due for 2019 if paid
a. December 1, 2018
b. January 15, 2019
c. June 3, 2019
5. Venue of filing of the donor’s tax return

Problem 2
Remunding, a resident of Calamba City, Laguna Province, sold a residential building located in Baguio City, Benguet Province
to a buyer who contracted to pay P5,000,000.

The property has a land zonal value of P5,000,000 and fair value per SMV as follows:

Fair value Assessment level Assessed value

Land P 3,500,000 20% P 700,000
Improvement 2,000,000 40% 800,000
Total P 5,500,000 P 1,500,000

The City of Laguna imposes a property transfer tax at a rate of 60% of 1% while the Baguio City imposes a transfer tax
of 70% of 1%.

Required: Determine the following:

a. Sales tax and the venue of payment.
b. Capital gains tax and the venue of the capital gains tax

Supplemental Quizzers
1. Which is not a feature of the real property tax?
a. A local imposition c. An annual tax
b. An ad valorem tax d. Also imposed upon improvements including machineries

2. Which of the following real properties is subject to property tax?

a. Properties of public domains c. Properties of religious corporations
b. Properties of private schools d. Untitled properties occupied by private individuals

3. Which of the following properties has the smallest assessment level?

a. Industrial land c. Residential land
b. Commercial land d. Grazing land

4. The real property tax is not an imposition of

a. Municipalities c. Cities
b. Provinces d. None of these

5. Which is not a property classification under the Local Government Code?

a. Special c. Timberland
b. Regular d. Mineral

6. Properties classification for lands intended for habitation

a. Residential c. Special
b. Commercial d. Cultural

7. Properties devoted for accrual of profits

a. Commercial c. Mineral
b. Industrial d. Any of these

8. A building that is used for boarding houses shall be classified as

a. Residential c. Industrial

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REX B. BANGGAWAN, CPA MBA

LOCAL GOVERNMENT TAXATION

b. Commercial d. Cultural

9. A building that is currently used as a printing press is classified as a

a. Commercial c. Residential
b. Industrial d. Any of these at the discretion of the taxpayer

10. Which is a machinery subject to real property tax?

a. Ship c. Car or tire hoist
b. Airline d. Residential machinery

11. Statement 1: Only immovable machineries are subject to real property tax.
Statement 2: Self-powered or self-propelled machineries are not subject to real property tax.
a. True; True c. False; True
b. True; False d. False; False

12. Which is not a machinery for purposes of the real property tax?
a. Car washers
b. Air compressors and tireflatros
c. Elevated water tanks
d. Refrigerators

13. Which of the following cannot impose real property tax?

a. Cities c. Municipalities in Metro Manila
b. Provinces d. None of these

14. The following is subject to real property transfer tax, except

a. Donation of real property c. Inheritance of real property
b. Sale of real property d. Transmission pursuant to the CARP

15. The real property tax in municipalities is due to

a. Municipal treasurer c. Authorized government depositary bank
b. Provincial treasurer d. Office of the municipal assessor

16. The real property tax in cities is payable to

a. Office of the Mayor c. Authorized government depositary bank
b. City treasurer’s office d. Provincial treasurer of the province where the city is located

17. Properties shall be assessed on the basis of

a. Actual use c. Fair value
b. Potential use d. Size

18. Which is a residential property?

a. Hotel and motel c. Boarding house
b. Pension house d. B and C

19. Which is subject to real property tax?

a. Generators c. Window type airconditioning units
b. PC servers d. Safety deposit boxes of banks

20. Which of the following municipalities can impose and collect real property taxes?
a. Municipalities in provinces
b. Municipalities in Metro Manila area
c. Municipalities with population of at least 10,000
d. None of the above

21. Which has no share in real property tax?

a. Municipalities c. Barangays
b. Cities d. None of these

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REX B. BANGGAWAN, CPA MBA

LOCAL GOVERNMENT TAXATION

PRIVILEGE AND OTHER TAXES

1. Tax on business of printing and publication
2. Franchise tax
3. Tax on gravel and quarry resources
4. Professional tax
5. Amusement tax
6. Annual fixed tax on delivery trucks or vans

 Tax on business of printing and publication – not to exceed 50% of 1% of gross receipts of prior year
 For newly started, not to exceed 1/20 of 1% of capital investment
 Tax on franchise – not to exceed 50% of 1% of annual gross receipt.
 For newly started, not to exceed 1/20 of 1% of capital investment
 Electricity distribution
 Telecommunication
 Internet service providers/Cable operators
 Railway companies
 Tricycle operations
 Tax on Gravel and Quarry Resources – not exceeding 10% of the value in the locality per cubic meter of gravel or quarry
resources extracted from public lands or waters within the territorial jurisdiction
 Professional Tax – tax on each person engaged in the exercise of his/her profession requiring government examination
– not exceeding P300
 Applies to PRC licensure exam passers only (Note requirements on PTR)
 Amusement Tax - not exceeding 10% of admission fees of theaters, cinemas, concert halls, circuses, boxing stadia and
others
 Annual fixed tax on delivery trucks or vans used in the deliveries of distilled spirits, liquors, soft drinks, cigars, cigarettes
to outlets in the provinces - not exceeding P500/truck

Other privilege taxes

1. In 2020, Rex Printing Company started a printing business in Quezon City. Capital and sales data in 2020 and 2021 were
as follows:

2020 2021
Capital stocks P 2,500,000 P 2,500,000
Gross receipts from private clients 1,200,000 5,000,000
Gross receipts from Dep-ED publications 200,000 1,000,000

Quezon City imposes the maximum rate allowable to publishing business.

Required: Compute the local business tax in 2020 and 2021, respectively. __________ __________

2. Which of the following is not subject to franchise tax?

a. Railway franchise c. Telecommunication companies like PLDT
b. Public utility vehicles d. Electric distribution companies like Beneco

3. Which is subject to franchise tax?

a. Cable operator c. Taxi operators
b. McDonalds d. Gas or water utility

4. Isla Communication, a telecommunication company, has its only office in Baguio City, Benguet. Which is correct?
a. Isla Communication shall pay franchise tax in Baguio City and in the Province of Benguet
b. Isla Communication shall pay franchise tax only in Baguio City
c. Isla Communication shall pay franchise tax only in the Province of Benguet
d. Isla Communication shall pay franchise tax in Baguio City and in the Province of Benguet

5. Who is not subject to professional tax?

a. A certified bookkeeper c. A certified public accountant
b. A medical doctor d. A civil engineer

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LOCAL GOVERNMENT TAXATION

6. Atty. Bernard Bakilan is also a Certified Public Accountant. He started his profession by establishing an accounting firm
in municipality of La Trinidad, Benguet Province. He branched out his accounting practice to Baguio City, Benguet
Province where he studied and finished law. After passing the Bar Examination, he set-up a law office in Baguio City.

Required: Identify the venue of professional tax.

7. Baby Boy Mark Ngina is a holder of a CPA license issued by the PRC. He is also a holder of international certifications
issued by various international organizations such as the Certified Management Accountant (CMA), Certified Internal
Auditor (CIA) and Certified Financial Analyst (CFA). Mark practices his profession in Baguio City.

Required: Determine Baby Boy’s professional tax and venue of filing.

8. Which is exempt from professional tax?

a. Professionals solely employed by the government
b. A consultant to the Philippine government
c. A professional practicing his profession through a general professional partnership
d. Lawyers and judges

9. The Deve Llama Cerraulo Tax firm has 21 professionals on its employ. It failed to require 10 of its employees to pay their
professional tax. The province then issued an assessment to the law firm for the unpaid professional tax. Is the
assessment valid?

10. Which is not subject to local amusement tax?

a. Operators of theaters c. Proprietors of boxing stadia
b. Lessees of cinemas d. Operators of resorts

11. Which is subject to local amusement tax?

a. Operators of clubs and race tracks c. Operators of hot spring and swimming pools
b. Holdings of pop or rock concerts d. Operators of horse racetracks

12. The local amusement tax is

a. 30% c. 15%
b. 20% d. 10%

13. Amazing World is a cinema operating in Urdaneta City, Province of Pangasinan. Amazing World leases cinematographic
films shows from both domestic and foreign film makers. Amazing World collected a total of P 9M on admission fees.
By industry practice, cinemas own 30% of the collection and remits 70% of the receipts to film owners. Urdaneta City
is a component City of the Province of Pangasinan. It charges 10% amusement tax.

Compute the amusement tax and the venue of payment.

14. Which has no share in the local amusement tax?

a. Provinces c. Municipalities
b. Cities d. Barangays

15. Boy Dilena is the operator of Arana Coliseum. During the month, it had the following gross receipts from various
activities, to wit:

Concert by Rosa Mia P 85,000

Professional basketball 120,000
Amateur basketball 36,700
Cinema 145,000

Required:
a. Compute the local amusement tax.
b. Compute the amusement tax for the national government.

16. Goldrich Aggregates has a principal place of business in Baguio City, Benguet. It operates two stone crusher plants in
the municipality of Rosario, Province of La Union and another in the Municipality of Itogon, Benguet Province. The plant
in Rosario, La Union is nearby the national highway where customers directly buy crushed stones (aggregates) by the

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REX B. BANGGAWAN, CPA MBA

LOCAL GOVERNMENT TAXATION

trucks. The Benguet plant is remote. Deliveries are made to clients in nearby municipalities at prices double its local
prices.

Itogon plant sales P 2,000,000

Rosario plant sales P 1,500,000

Required: Determine the local tax on gravel and sand and the venue of payment.

17. Mr. Giron discovered a commercially viable deposit of quarry materials in his titled property. He developed the same
into a private quarry and began selling quarry materials to various construction firms. Giron recorded a total receipt of
P1,200,000 in the previous quarter.

Required: Determine the local tax on gravel and sand.

18. Which has no share in gravel and sand tax?

a. Cities c. Barangays
b. Municipalities d. None of these

19. Kiyong’s Wine operates a “bignay” brewery in the Municipality of Tublay, Province of Benguet. Kiyong has 3 trucks
devoted to deliveries of wines to retail distributors in the Provinces of La Union and 2 trucks to distributors in the
Province of Abra. Kiyong’s Wines has a branch in Dagupan City, Pangasinan which also houses 2 trucks for deliveries of
goods in the provinces of Pangasinan and Tarlac.

Required: Determine the annual fixed tax on delivery vans and the venue of payment.

MUNICIPAL TAXES

Community Tax

1. Drill: Compute the community tax under each of the following cases.

A. Mr. Douglas Alboria earned P800,000 salaries last year. __________

B. Mr. Douglas is unemployed resident who has a vacant lot valued at P300,000. ___________
C. Mr. Douglas Alboria earned the following income last year:
Salaries P 800,000
Income from profession 785,800
Rental income from properties 482,900
____________
D. Assume Mr. Douglas earned P6,874,800 in the preceding year. ______________
E. Mr. and Mrs. Lafa are both employed and self-employed. Mr. Lafa owns a beauty parlor while Mrs. Lafa also owns
a beauty parlor in front of Mr. Lafa’s shop. The following relates to the details of the income of the spouses.
Mr. Lafa Mrs. Lafa
Salaries P 400,000 P 420,000
Income from profession 3,200,000
Income from business 2,400,000
Mr. Lafa opted to pay the additional community tax.
Mr. Lafa _________________ Mrs. Lafa ________________

F. A partnership which is engaged in selling shoes had the following revenue last year:
Sales (P7.2M collected in cash) P 8,000,000
Less: Cost of sales 5,000,000
Gross income P 3,000,000
Interest income from client notes 50,000
Dividend income 214,000
Gain on sale of equipment 100,000
Total income P 3,364,000
Less: Expenses 1,500,000
Net income P 1,864,000

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LOCAL GOVERNMENT TAXATION

_______________

G. ABC Corporation is engaged in property leasing. Last year, it collected P3,489,000 rentals from various tenants from
its commercial building. Last year’s valuation of the building are compiled below:
Land Building Total
Appraisal value P 4,000,000 P 4,500,0000 P 8,500,000
Zonal value 5,000,000 - 5,000,000
Assessed value 1,218,000 1,415,000 2,633,000
_______________
H. Adonis Company, a domestic corporation, had the following receipts from business and property values:
Philippines Abroad Total
Gross receipts P 3,000,000 P 2,500,0000 P 5,500,000
Assessed value of lands and buildings 12,000,000 8,000,000 20,000,000
Assessed value of equipment 3,200,000 2,400,000 5,600,000
_______________
I. MegaLease Corporation, a real estate company, had a total assessed value of land in the previous year aggregating
P30,000,000. _____________
J. A corporation with total real estate properties assessed value aggregating P14,000,000 started operation on
January 2 of the year. _____________
K. A corporation with total real estate properties assessed value aggregating P8,000,000 started operation on July 21
of the year. _____________
L. Ahmed Lofti, a Sudanese, arrived in the country to study medical technology in July of 2019, compute the
community tax. _____________

2. Non-payment of the following is not a ground for imprisonment

a. Income tax c. Community tax
b. Value-Added Tax d. Donor’s tax

3. Which statement is correct?

I. Aliens who have stayed in the Philippines most of the time during the taxable year are required to pay community
tax in the Philippines
II. If a person loses the benefit of exemption on June 20 of the current year, he shall be liable for the community tax
on that same day
a. All are correct c. Only I is correct
b. Both are wrong d. Only II is correct

4. The maximum additional community tax payable by an individual and a corporation, respectively is
a. P5,000; P10,000 c. P5,005; P10,200
b. P5,005; P10,005 d. P5,005; P10,500

5. An exempt individual may secure community tax certificate by paying

a. P5.00 c. P10.00
b. P1.00 d. None

6. Payments of community tax is required to inhabitants of the Philippines whose age is at least
a. 15 c. 21
b. 18 d. 24

7. Which is exempt from community tax?

a. Resident corporation c. Domestic corporation
b. Resident alien d. Non-resident citizen

8. Which has no share in community tax?

a. Provinces c. Municipalities
b. Cities d. Barangays

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REX B. BANGGAWAN, CPA MBA

LOCAL GOVERNMENT TAXATION

LOCAL BUSINESS TAX

Nature:
 There must be a local imposition (ordinance)
 Taxes and rates differs between LGUs
 Tax rates differ per business categories
 Local tax is imposed on the basis of per classification not per tax classification
 Situs – place of sale where fixed place of business is conducted

MUNICIPAL TAXES
 The concept of business
 Tax basis: Gross sales or receipts
 Accounting period

Types of business
1. Sellers of goods
 Manufacturers
 Wholesalers, distributors or dealers
 Retailers
- Half- rate tax for those selling essential commodities.
 Peddlers
 Exporters – any goods (also at half-rate)

2. Sellers of services
 Contractors
 Banks and other financial intermediaries

3. Others

Essential commodities
1. Rice and corn;
2. 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;
3. Cooking oil and cooking gas;
4. Laundry soap, detergents, and medicine;
5. Agricultural implements, equipment and post-harvest facilities, fertilizers, pesticides, insecticides, herbicides, and
other farm inputs;
6. Poultry feeds and other animal feeds;
7. School supplies; and
8. Cement.

List of municipal taxes

 Business Tax – graduated tax and fixed tax
 Manufacturers, assemblers, repackers, processors, brewers of liquors, distilled spirits and wines (with table table)
 Wholesalers, distributors or dealers in any article of commerce of whatever kind or nature (with tax table)
 Exporters, and manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential
commodities
 Contractors and other independent contractors (with tax table)
 Retailers - 2% for GR of P400,000 or less and 1% for GR of over P400,000
 Bank and other financial institutions – not exceeding 50% of 1% of gross receipts from lending activities, financial
leasing, dividend, insurance premium and rent on property and profit from exchange or sale of property
 Any business, not included in prior categories, to be taxed at a rate to be determined by the Sanggunian. If business
is excisable or vatable, the rate shall not exceed 2% of the gross sales or receipt.
- Peddlers – annual tax of P50/pedder

Exempt from municipal taxes:

 Businesses engaged in petroleum products
 Marginal farmers or fishermen
 BOI-registered enterprises during ITH
 PEZA-registered enterprises during ITH/GIT
 Common carriers

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REX B. BANGGAWAN, CPA MBA

LOCAL GOVERNMENT TAXATION

 Cooperatives, registered with CDA

 Local water districts
 Non-stock non-profit hospitals
 Educational institutions
 Business engaged in printing and publications

CITY TAXES

Types of cities:
 Component city
 Highly urbanized city
 Independent component city

Cities has the broadest taxation power for all LGUs since they can levy both municipal and provincial taxes. May impose
those imposed by provinces or municipalities at a rate which exceeds the maximum rates by not more than 50%, except
professional tax and amusement tax.

BARANGAY TAX
 Barangay may impose a tax of not more than 1% of gross sales or receipts on stores or retailers with fixed business
establishments with
 Annual sales or receipts of P50,000 or less for cities
 Annual sales or receipts of P30,000 or less for municipalities

Illustration 1
Omie Sari-Sari Store maintains a head office in Baguio City and another sales office. For last year, the head office reported
sales of P400,000 while the other sales office reported sales of P300,000.

Required: Compute the business tax and identify the venue of payment if:
a. The other sales office is also located in Baguio City
b. The other sales office is situated in Dagupan City
c. What if Omie is a corporation and that the other sales office is established as a subsidiary?

Illustration 2
Vhinson Export manufactures flying motorcycles and markets them to both domestic and foreign traders. Vhinson Export
had the following sales in the prior year:

Domestic sales P 1,500,000

Export sales 900,000
Total sales P 2,400,000

Required:
a. Compute Vhinson’s local business tax.
b. Compute Vhinson’s local business tax assuming it is an export trader.

Illustration 3
Mr. Tommy Niera is engaged in commercial farming producing poultry chicken in Baliuag City, Bulacan. He had a receipt
last year totaling P1,800,000.

Required:
a. What is his local business tax?
b. What is his local business tax if Tommy is a subsistence farmer with P200,000 income?
c. What is his local business tax if Tommy is registered as a BMBE?
d. What if Mr. Tommy is a trader of poultry to various retail markets?

Illustration 4
A retailer of rice with P 845,900 gross sales or receipts in the preceding year will pay a local business tax of
a. P 4,229.50 c. P 8,459
b. P 6,229.50 d. P 12,459

Illustration 5
A gasoline station had the following sales or receipts from the preceding year:

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LOCAL GOVERNMENT TAXATION

Sales of diesel, gasoline and other petroleum products P 8,840,100

Sales of merchandise from convenience stores 1,240,100
Total sales or receipts P 10,080,200

Compute the local business tax. ______________

Illustration 6
The Baguio City branch of Interlink Bank had the following income receipts last year:

Interest income – long-term loans P 4,500,000

Interest income – short-term loans 7,800,000
Rental income 880,000
Gains on sale of ROPA 750,000
Dividend 250,000
Interest income on FCDU loans 1,240,000
Service fees 450,000
Surcharges and penalties 250,000
Total income P 16,120,000

Required: Compute the local business tax. ______________

Integrated Problem

Problem 1
Mark Ngina is a CPA in Baguio City. He is also engaged in various businesses with the following receipts last year:

Management consultancy P 840,000 Baguio City

Trading of vegetables 400,000 Municipality of Bokod, Mt. Province
Barber and parlor operation 700,000 Baguio City
Restaurant operation 600,000 Baguio City
Massage spa 800,000 Baguio City
Grocery store operation 600,000 Municipality of Bokod
Meat shop 500,000 Municipality of Bokod

Required: Determine the following:

Local Tax Venue of payment
a. Local business tax

b. Professional tax
c. Community tax

Problem 2
ABC Homes, Inc. manufactures house furnishings and sells them through its sales outlet in Angeles City. To maximize sales,
it also sells wholesale to DEF Marketing Corporation, a wholesaler with a principal office in La Trinidad, Benguet. Deliveries
are made by its two trucks to the warehouse of DEF Marketing in Benguet.

Last year, ABC Homes made total sales of P5,000,000 on its retail outlets, exclusive of P3,000,000 sales delivered to DEF
Marketing. On the other hand, DEF Marketing reported total sales of P3,000,000 from its head office in La Trinidad,
P2,500,000 from its sales outlet in Baguio City and P500,000 sales from deliveries by its van to clients in nearby
municipalities.

Required: Compute the following for ABC and DEF and identify venue of payment for:

ABC Homes Amount Venue

1. Local business tax

2. Tax on delivery trucks/vans

3. Community tax

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LOCAL GOVERNMENT TAXATION

DEF Marketing
1. Local business tax

2. Tax on delivery trucks/vans

3. Community tax

DECENTRALIZED OPERATIONS

Illustration
Real Banana Chips (RBC), Inc. has a banana chip processing plant in the Municipality of La Trinidad, Benguet. It sells its
products through its head office in Baguio City and branches in other cities which resulted to the following receipts last
year:

Baguio City head office sales P 3,000,000

Urdaneta City branch office sales 2,000,000
Dagupan City branch office sales 1,000,000
Sales to other places without branches 500,0000

RBC has a banana plantation in Pinukpuk, Kalinga and Conner, Apayao which produced 100 tons and 80 tons of banana
harvest last year.

Required: Determine the amount of gross sales or receipts subject to tax in each municipalities or cities. ____________

Supplemental Quizzer: Principles

1. The local legislative body of the local government
a. Sanggunian c. Local Chief Executive
b. Local Congress d. Office of the mayor

2. Which is not a characteristic of local taxes?

a. A delegated power c. Territorial for each LGU
b. Legislative d. Inherent to LGUs

3. Local imposition shall be through a/an

a. Local ordinance c. Local executive memorandum
b. Mandate d. Regulation

4. Statement 1: Local taxes shall not become effective without a public hearing before its enactment.
Statement 2: Local government may impose fees and charges for the use of its proprietary assets.
a. True; True c. False; True
b. True; False d. False; False

5. Statement 1: LGUs can normally impose taxes imposed by the national government.
Statement 2: There should be uniformity in the tax rates of LGUs across the country.
a. True; True c. False; True
b. True; False d. False; False

6. Statement 1: The collection of local taxes, fees, charges and other impositions shall in no case be let to any private
persons.
Statement 2: Taxes, fees, charges and other imposition shall be equitable and based as far as practicable on taxpayer’s
ability to pay.
a. True; True c. False; True
b. True; False d. False; False

7. Local taxes as to imposing authority do not include

a. Provincial taxes c. Barangay taxes
b. Municipal or city taxes d. Sitio taxes

8. Which is not a local privilege tax?

a. Business tax c. Real property title transfer tax
b. Community tax d. Taxes on extraction of gravel and sand

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LOCAL GOVERNMENT TAXATION

9. A tax on property
a. Tax on delivery vans c. Taxes on extraction of gravel and sand
b. Title transfer tax on property d. All of these

10. A local specific tax

a. Tax on delivery vans c. Business tax
b. Real property tax d. Property title transfer tax

11. The basis of local business tax

a. Gross sales or receipts of the current year
b. Gross sales or receipts of the prior year
c. Income from business of the current year
d. Income from business of the prior year

12. The real property valuation for purposes of local tax

a. Assessed value c. A or B, whichever is higher
b. Zonal value d. Current fair market value

13. Which is not a characteristics of local tax?

a. Subject to maximum rates imposed by Congress
b. Not indexed to inflationary changes
c. Not self-assessing
d. Taxes are uniform across all LGUs

14. The power of LGU to tax objects not specifically prohibited by the national legislature
a. Residual taxing power c. Inherent taxing power
b. Primary taxing power d. General power

15. Statement 1: Husbands and wives are subject to separate business taxes.
Statement 2: A single business may be subject to different tax rates.

a. True; True c. False; True

b. True; False d. False; False

16. Which of the following local offices is authorized by law to render local tax assessments?
a. Business and licensing office c. Assessor’s office
b. Local treasurer d. Office of the mayor

17. Which of these is subject to local business tax?

a. BOI-registered enterprises c. Marginal farmers or fishermen
b. Common carriers d. Professionals

18. The LGU with the widest tax base

c. Cities c. Provinces
d. Municipalities d. Barangays

19. Cities are authorized to impose more than 50% taxes on certain tax objects, except
a. Printing press c. Wholesaler’s tax
b. Professional tax d. Contractor’s tax

20. A retail store with annual sales of P40,000 in Baguio City, Benguet must pay business tax in
a. The City treasurer’s office c. The barangay where it is situated
b. The nearest municipality d. The provincial Capitol of Benguet

21. Cities are allowed to impose rates that exceeds those imposed by provinces and municipalities but not exceeding
a. 50% thereof c. 25% thereof
b. 100% thereof d. 40% thereof

22. Cities are not allowed to impose higher taxes on which of the following?
a. Professional tax c. Real property tax
b. Amusement tax d. A and B

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LOCAL GOVERNMENT TAXATION

23. No public hearing is required before the enactment of a local tax ordinance levying
a. Local business taxes c. Both of these
b. Real property tax d. None of these

24. Which of the following is not entitled to sales allocation of gross sales or receipts?
a. City or municipality where warehouse with sales activity is conducted
b. City or municipality where an experimental farm is maintained
c. City or municipality where a branch office is maintained
d. City or municipality where the head office is maintained

25. Sales allocation for purposes of local taxation is not applicable to

a. Assemblers c. Exporters
b. Wholesalers d. Contractors

26. Early payment discount is applicable to

a. Real property tax c. Community tax
b. Local business tax d. All of these

Supplemental Quizzers – Business Tax

1. Be So Cool Corporation has branches in the Municipality of Bauang, Urdaneta City and Tarlac City and maintain its head
office in Baguio City. He shall pay business tax in
a. The city where majority of sales is recorded
b. All cities and municipalities of operations equally
c. All cities and municipalities of operations, with or without sales outlet
d. All cities and municipalities of operations, with sales outlet

2. Mr. Sumie Nirep provides engineering and construction services through its office in the Municipality of La Trinidad,
Benguet. He accepted the construction contract of Magsaysay Stairways Hotel in Baguio City and mobilized his
construction equipment and staffs to the construction site. Which is correct?
a. Mr. Sumie shall pay his business tax in Baguio City
b. Mr. Sumie shall pay his business tax in La Trinidad only
c. Mr. Sumie shall pay business tax in both Baguio and La Trinidad City
d. Mr. Sumie shall not pay business tax as he is subject to professional receipt tax

3. Which is not subject to municipal/city business tax?

a. Manufacturer c. Wholesaler
b. Retailer d. Consumer

4. Local business tax rates are generally

a. Progressive c. Proportional
b. Regressive d. Two-tiered

5. Which is a local business tax?

a. Franchise tax c. Tax on printer’s and publishers
b. Amusement tax d. All of these

6. The general local business tax rate for any business is

a. ½ of 1% of gross sales or receipts c. 2% of gross sales or receipts
b. 1% of gross sales or receipts d. 3% of gross sales or receipts

7. Which is subject to contractor’s tax?

a. A repair shop c. A taxi operator
b. Restaurant d. A professional accountant

8. Which is not an essential commodity qualified for half-rate tax?

a. Cooking oil and gas c. Cement
b. Laundry soap d. Furniture and fixture

9. Which is not an essential commodity?

a. Pesticides and herbicides c. Specialty feeds

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LOCAL GOVERNMENT TAXATION

b. Root crops d. Medicine

10. The local government code do not impose business tax on starting businesses, except
a. Exporters c. Manufacturers of sin products and non-essential commodities
b. Banks and financial institutions d. Business of printing and publication

11. Mr. Inso Tsino is a civil engineer is a construction building contractor with established office in Bauang, La Union. He
had total receipts from business operations of P3,000,000. Which is correct?
a. Mr. Tsino will pay contractor’s tax to the province of La Union.
b. Mr. Tsino shall not pay a local business tax to the municipality or city.
c. Mr. Tsino shall be liable to P300 professional tax.
d. Mr. Tsino shall be required to pay Mayor’s permit.

12. Atty Liam Mado is lawyer by profession but do not practice his law profession. He opted to pursue his dream to become
a beautician. He engaged in the beauty parlor business where he is deriving substantial sums of money in Manila City.
Which is incorrect?
a. Atty. Liam Mado shall be required to pay a Mayor’s permit.
b. Atty. Liam Mado shall be required to pay a professional tax.
c. Atty. Liam Mado shall pay a contractor’s tax as local business tax.
d. Atty. Liam Mado shall be required to pay community tax in Manila City.

13. AB Soaps maintains a factory in the Municipality of Trinidad and sells its products by various wholesale outlets and retail
outlets in Baguio City. Which is incorrect?
a. AB Soaps shall be subject to manufacturer’s tax in Baguio City.
b. AB Soaps shall be subject to manufacturer’s tax in the Municipality Trinidad.
c. AB Soaps shall be subject to wholesaler’s tax in Baguio City.
d. All of these.

14. In the preceding year, an electric franchise grantee in Laoag City billed P360,945,000 for consumer electrical
consumption out of which it was able to collect P347,845,900.

Required: Compute the following:

a. Franchise tax
b. Local business tax

15. AA Book Publishing has a principal place of business in Gumaca, Quezon. It had P44,000,000 receipts last year. Which
is correct?
a. AA Book Publishing shall pay its business tax to the Province of Quezon.
b. AA Book Publishing shall pay its business tax to municipality of Gumaca.
c. AA Books shall pay contractor’s tax as local business tax in all municipalities or cities it has sales outlet.
d. AA Books shall pay retailer’s tax as local business tax in all municipalities or cities it has sales outlet.

16. Barangay business tax on small retailers’ gross sales or receipts shall not exceed
a. 5% c. 2%
b. 3% d. 1%

17. Non-tax revenues of LGUs do not include

a. Regulatory fees and charges
b. Share of the LGU from revenues of the national government
c. Receipts from disposal of assets, donations or contributions
d. All of these

18. The internal revenue allotment to LGUs on its share from the income of the national government is
a. 30% c. 50%
b. 40% d. 60%

19. Who has the duty to examine books of accounts to ascertain, assess and collect the correct amount of the local tax,
fees or charges?
a. Local treasurer c. Bureau of Internal Revenue
b. Business licensing office d. Sanggunian

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LOCAL GOVERNMENT TAXATION

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LOCAL GOVERNMENT TAXATION

----ANNEX-----

---TAX TABLES FOR LOCAL BUSINESS TAX---

Tax rates to manufacturers:

Gross Sales/Receipts Amount of s

For the Preceding Calendar Year Tax Per Annum

Less than P10,000.00 P 165.00

P 10,000.00 or more but less than 15,000.00 220.00
15,000.00 or more but less than 20,000.00 302.00
20,000.00 or more but less than 30,000.00 440.00
30,000.00 or more but less than 40,000.00 660.00
40,000.00 or more but less than 50,000.00 825.00
50,000.00 or more but less than 75,000.00 1,320.00
75,000.00 or more but less than 100,000.00 1,650.00
100,000.00 or more but less than 150,000.00 2,200.00
150,000.00 or more but less than 200,000.00 2,750.00
200,000.00 or more but less than 300,000.00 3,850.00
300,000.00 or more but less than 500,000.00 5,500.00
500,000.00 or more but less than 750,000.00 8,000.00
750,000.00 or more but less than 1,000,000.00 10,000.00
1,000,000.00 or more but less than 2,000,000.00 13,750.00
2,000,000.00 or more but less than 3,000,000.00 16,500.00
3,000,000.00 or more but less than 4,000,000.00 19,800.00
4,000,000.00 or more but less than 5,000,000.00 23,100.00
5,000,000.00 or more but less than 6,500,000.00 24,375.00
6,500,000.00 or more at a rate not exceeding 37 ½% of 1%

Tax rates for wholesalers, distributors or dealers:

Gross Sales/Receipts Amount of

For the Preceding Calendar Year Tax Per Annum

Less than P1,000.00 P 18.00

P 1,000.00 or more but less than 2,000.00 33.00
2,000.00 or more but less than 3,000.00 50.00
3,000.00 or more but less than 4,000.00 72.00
4,000.00 or more but less than 5,000.00 100.00
5,000.00 or more but less than 6,000.00 121.00
6,000.00 or more but less than 7,000.00 143.00
7,000.00 or more but less than 8,000.00 165.00
8,000.00 or more but less than 10,000.00 187.00
10,000.00 or more but less than 15,000.00 220.00
15,000.00 or more but less than 20,000.00 275.00
20,000.00 or more but less than 30,000.00 330.00
30,000.00 or more but less than 40,000.00 440.00
40,000.00 or more but less than 50,000.00 660.00
50,000.00 or more but less than 75,000.00 990.00
75,000.00 or more but less than 100,000.00 1,320.00
100,000.00 or more but less than 150,000.00 1,870.00
150,000.00 or more but less than 200,000.00 2,420.00
200,000.00 or more but less than 300,000.00 3,300.00
300,000.00 or more but less than 500,000.00 4,400.00
500,000.00 or more but less than 750,000.00 6,600.00
750,000.00 or more but less than 1,000,000.00 8,800.00
1,000,000.00 or more but less than 2,000,000.00 10,000.00
2,000,000.00 or more at a rate not exceeding 50% of 1%

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LOCAL GOVERNMENT TAXATION

Tax rates for retailers:

Gross Sales/Receipts Rate of Tax

For the Preceding Year Per Annum
- P400,000.00 or less 2%
- More than P400,000.00 1%
- P50,000 or below in cities, taxable by Barangays
- P30,000 or below in municipalities, taxable by Barangays

Tax applicable to peddlers

Tax rate: Not to exceed P50.00 per peddler annually

Tax rates applicable to contractors:

Gross Sales/Receipts Amount of

For the Preceding Calendar Year Tax Per Annum

Less than P5,000.00 P 27.50

P 5,000.00 or more but less than 10,000.00 61.60
10,000.00 or more but less than 15,000.00 104.50
15,000.00 or more but less than 20,000.00 165.00
20,000.00 or more but less than 30,000.00 275.00
30,000.00 or more but less than 40,000.00 385.00
40,000.00 or more but less than 50,000.00 550.00
50,000.00 or more but less than 75,000.00 880.00
75,000.00 or more but less than 100,000.00 1,320.00
100,000.00 or more but less than 150,000.00 1,980.00
150,000.00 or more but less than 200,000.00 2,640.00
200,000.00 or more but less than 250,000.00 3,630.00
250,000.00 or more but less than 300,000.00 4,620.00
300,000.00 or more but less than 400,000.00 6,160.00
400,000.00 or more but less than 500,000.00 8,250.00
500,000.00 or more but less than 750,000.00 9,250.00
750,000.00 or more but less than 1,000,000.00 10,250.00
1,000,000.00 or more but less than 2,000,000.00 11,500.00
2,000,000.00 or more not exceeding 50% of 1%

Banks and Insurance

Tax rates:
a. In municipalities – Not to exceed 50% of 1% of gross receipts
b. In cities or municipalities in NCR – not to exceed 75% of 1% of gross receipts

---- End of Handouts ----

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