All about LBT

LIKE IT OR NOT, the Christmas rush is upon us. The harried nature of the season is often characterized by inexplicable traffic, overcrowded shopping centers, work deadlines before the end of the year and calendars marked by this or that party or reunion.

After the Christmas season and just when we are about to heave a sigh of collective relief -- another equally busy season comes rushing in and this is the period for the renewal of business permits.

The Local Government Code requires all business entities to renew their business permits and pay their local business taxes (LBT) on or before the 20th of January of each year. The deadline applies to all cities and municipalities in the country. The Code, however, allows local government units (LGUs) to extend the time of payment but only for a justifiable reason or cause.

Note that the extended deadline only pertains to the payment date, which means that applicants for business permit renewal should still submit and file all the necessary documents beginning the first working day of January and only until the 20th thereof.

Some LGUs usually extend the payment date until the end of January. Quarterly payments of LBT may be allowed in some cases but some LGUs give discounts to businesses that opt to pay the full amount in a single payment.

Based on experience, applications for renewal of business permits with complete supporting documents submitted a day or a few days after the 20th of January, particularly in LGUs within the Metro Manila area, are considered as late filing, and will trigger penalties and surcharges based on the amount of LBT assessed.

Businesses that are liable to pay a large amount of business tax must ensure that applications are duly filed and LBT paid within the deadline; otherwise, the penalties and surcharges will likewise be great.

Most, if not all, LGUs only start accepting applications on the first working day of January, and not a day earlier. Given the tight deadline, prudence dictates that businesses start preparing and gathering all the required documents for renewal as early as October or November. Such documents include the audited financial statements, if applicable, and statements of gross receipts and value-added tax (VAT) returns filed -in the preceding year. If not earning income, such as in the case of a representative office, an Affidavit of No Income is normally required by some LGUs aside from other documentation.

The procedures for renewal and payment may vary from one LGU to another so it pays to know the specific steps and processes early on to avoid the risk of mistakes and having to start all over again with the January 20th deadline looming near.

Another thing to consider is the Papal Visit of Pope Francis which coincides with the renewal season. The City of Manila has declared January 16 to 19, 2015 as holidays, thereby reducing the available dates for filing applications in Manila. LGUs where the Pope is scheduled to visit may likewise declare holidays in the coming days. It is hoped that deadline extensions in these areas are declared as well.

Before the renewal period starts, concerned businesses must also take heed of certain policies of some LGUs when it comes to the assessment and collection of LBT. Some impose LBT on PEZA-registered entities based on the gross receipts generated by their non-PEZA registered activities.

By law, PEZA-registered entities are exempt from paying LBT regardless of whether they are enjoying income tax holiday or are under the 5% gross income tax regime. However some LGUs insist that the tax incentives apply only to PEZA-registered activities and not to “unregistered” ones. This reasoning may perhaps be the result of a BIR ruling which imposed regular income tax on income generated by PEZA-registered enterprises from activities which are not covered by their PEZA registration.

Another issue that commonly arises in the payment of LBT is the proper situs of the tax where the business entity has branches, sales offices, project offices, and plants scattered in different cities and provinces but maintains a head or principal office in a different area.

In one fairly recent decision, the Court of Tax Appeals (CTA) ruled that the City of Makati should not be allocated any LBT by virtue of a so-called project office as declared by a taxpayer. In that case, the taxpayer treated its office in Makati City as one of three project offices and/or plants, and allocated a portion of its LBT payment thereto. The court ruled that since said office in Makati is not indispensable to the main purpose of the company, it cannot be treated as a project office, hence the allocation of LBT to that Makati office was held to be improper and without basis.

Holders of government or legislative franchises must also take note of a recent CTA decision which declared that an LGU may impose both the LBT and the local franchise tax on the gross receipts and sale of the same taxpayer in the same year. A prominent cable company called this imposition double taxation and questioned the legality of such a move. The CTA then ruled that there is no double taxation if the franchise holders pay both the LBT and franchise tax in the same year because the two taxes are different in nature -- LBT is based on the privilege of engaging in business while franchise tax is imposed on the exercise of enjoying a franchise.

In sum, I advise all applicants for business permit renewals to start and prepare early, determine the procedures and requirements adopted by your concerned LGUs before the renewal period, know your rights and remedies in case of erroneous LBT assessments and most important, have a merry renewal season. Happy Holidays!

Susan M. Aquino is a senior manager at the tax services department of Isla Lipana & Co., the Philippine member firm of the PwC network.

(02) 845-2728

susan.m.aquino@ph.pwc.com

source: Businessworld