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May 14, 2010

BUREAU OF LOCAL GOVERNMENT FINANCE OPINION


Mr. Genestor E. Cruz
Manager
Payroll and Advances Department
EEI Corporation
Sir :
This refers to your undated letter relative to the assessment made by the City
Treasurer of Taguig on the new project of EEI Corporation (EEI for brevity).
Said letter was referred to the City Treasurer of Taguig for comment and or
appropriate action under a 1st Indorsement dated December 14, 2009.
In reply, the City Treasurer of Taguig submitted her comments on the
following issues raised:
1.

The assessment and computation of Business Tax is not in harmony


with Local Finance Circular No. 03-95 and Section 143 (e) of RA 7160
otherwise known as the Local Government Code of 1991.
Comment:
The assessment and computation of the Business Tax of EEI was based
on the gross receipts (less VAT) derived from the construction of
Sunlife of Canada Building as appearing in the Contract between them
in 2009.

2.

Gross Receipts as interpreted by EEI is the total contract price less the
amount paid to the sub-contractor.
Comment:
Gross Receipts as gleaned from its definition in the Local Government
Code excludes only discounts if determinable at the time of sales, sales

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return, excise tax and value-added tax (VAT).

AaEcDS

Unless there is specific provision in the Contract stipulating the


breakdown of the total cost of construction vis--vis the amount to be
paid to EEI for the construction of the Sunlife of Canada Building, and
the amount to be paid by the client to another contractor, this Office has
no recourse but to assess on the basis of the full amount stated in the
Contract to be paid to the Contractor as contract price actually or
constructively received for services performed or to be performed in
consonance with the provision of RA 7160 and the Taguig City
Revenue Code which provides that assessment of tax payment shall be
based on gross receipts.
3.

Local Business tax for current year collections will only be due and
payable the following year on a quarterly basis, starting January 20 up
to October 20, 2010.
Comment:
EEI is applying for a building permit for the construction of the Sunlife
of Canada Building. It is imperative therefore that before issuance of the
requested permit, all obligations due the City for said project should be
fully settled, hence the requirement for payment of the business tax due
from the project. This procedure is in pursuance of Executive Order No.
033 dated July 1, 2005 of the City Mayor.
EEI was, however, given up to January 20, 2010 to settle their tax
obligation.
EEI was further assured that they can request for a tax credit of any
excess payment in the event that the Contract has not (sic) materialized
and/or full payment has not (sic) been satisfied subject to examination
of their financial records to verify the veracity of their claim.

In addition with the above comments of the City Treasurer, this Bureau
expresses the following views:
Gross Sales/Receipts
It is emphasized that the term "gross receipts", as applied to contractors, would
be the total amount of service fees, including the amount charged or materials (parts
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Philippine Taxation Encyclopedia 2015

of the things to be constructed) supplied with the service, and advance payments or
deposits actually or constructively received during the taxable year. Such part of the
contract price or those payments or deposits which are not actually or constructively
received by the contractor during the taxable year and materials or equipment that do
not form part of the things to be constructed although they were supplied during the
said year shall be excluded from the tax base.
DAaEIc

Taxable Gross Receipts of Contractors/Sub-Contractors


The taxable gross receipts shall be the amounts received by the principal
contractor as the total contract price less the amount paid to a sub-contractor under a
subcontract arrangement, if there is any. The said sub-contractor, however, shall also
be subject to the business tax imposed therein.
Multi-year Project
The tax on multi-year project undertaken by general engineering, general
builders, specialty contractors shall initially be based on the total contract price,
payable in equal annual installments within the project term. Upon completion of the
project, the taxes shall be recomputed on the basis of the gross receipts of the
preceding calendar year and the deficiency tax, if there be any, shall be collected or
the excess tax payments shall be refunded.
Project Completed Within the Year
In cases of projects completed within the year, the tax shall be based upon the
contract price and shall be paid upon the issuance of the Mayor's permit.
It must be stressed however that the above stipulations for the multi-year
project as well as a project completed within the year shall be provided under a
duly-enacted tax ordinance.
We hope that this will help clarify matters.

Very truly yours,

(SGD.) MA. PRESENTACION R.


MONTESA
Executive Director
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Philippine Taxation Encyclopedia 2015