REO-Local-Taxation as of May 2020 PDF

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LOCAL GOVERNMENT TAXATION REX B. BANGGAWAN, CPA, MBALOCAL TAXATIONREX B. BANGGAWAN, CPA MBAREO CPA REVIEW Effectiveness. Efficiency. Convenience.reocpareview.com REAL EXCELLENCE ONLINE CPA REVIEWSUBDIVISION OF THE GOVERNMENT National government Local government ORGANIZATION OF LOCAL GOVERNMENT Provi...

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Page 1 of 18 | TAX Handouts No. 12 LOCAL GOVERNMENT TAXATION REX B. BANGGAWAN, CPA, MBA

LOCAL TAXATION REX B. BANGGAWAN, CPA MBA

SUB SUBDIV DIV DIVIS IS ISION ION OF THE G GOV OV OVER ER ERNM NM NMEN EN ENTT 1. National government 2. Local government OR ORGAN GAN GANIZA IZA IZATIO TIO TION NO OFF LOC LOCAL AL GO GOVE VE VERNM RNM RNMEN EN ENTT 1. Provinces 2. Municipalities 3. Cities 4. barangays BRA BRAN NCHES O OFF TH THE E GO GOVER VER VERNM NM NMEN EN ENTT IIN N TTHE HE LOC LOCA AL SE SETTIN TTIN TTING G Provi Provinc nc nces es

Munic Municiipaliti palities es

Citi Cities es

Bar Barang ang angays ays

Legis Legislat lat latur ur ure e Exec Executiv utiv utive e Judici Judiciary ary

NAT NATION ION IONA AL VS. LO LOCA CA CALL TTAXA AXA AXATIO TIO TION N Asp Aspect ect of D Differ iffer ifferences ences Nature of power Levy or Imposition Assessment and collection Accounting period Real property valuation Basis of business taxation

Natio National nal TTaa xatio xation n

Local TTaxat axat axation ion

LIMI LIMITATIO TATIO TATIONS NS OF THE LOC LOCAL AL TAX TAXING ING PPOW OW OWER ER 1. Inherent limitation 2. Constitutional limitations 3. Statutory limitations a. No double taxation rule b. Reservation rule c. Residual taxing power CLA CLASSIFIC SSIFIC SSIFICATIO ATIO ATION N OF LO LOCAL CAL TAXES A ASS TO IMPOS IMPOSING ING A AUTHO UTHO UTHORITY RITY 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 PRO PROPERT PERT PERTYY 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 Pro Procedures: cedures:  Determine property fair market value  Determine the assessment level  Assess ssessmen men mentt le level vel – fixed by the Provincial/City/Municipal Council (Sanggunian)

 Determine assessed value  Determine Real Property Tax

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Page 2 of 18 | TAX Handouts No. 01 REX B. BANGGAWAN, CPA MBA LOCAL GOVERNMENT TAXATION

Property classification & assessment level for land: - Residential - Agricultural - Commercial/Industrial and Mineral - Timberland - Special classes: Cultural, scientific - Hospital and water districts

20% 40% 50% 20% 15% 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% Illu Illustration stration 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. Requ Required: ired: Compute the Real Property Tax. _____________ Illu Illustration stration 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 Illu Illustration stration 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% Dea Deadline dline – 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 Pena Penalties lties - 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 Exem Exempted pted p properti roperti roperties es  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 Sp Special ecial Ed Educatio ucatio ucation n Fun Fund d Tax – uniform 1% rate with the same basis to the RPT Ad vvalo Ta on id alo alorem rem Taxx idle le lan lands ds – 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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Page 3 of 18 | TAX Handouts No. 01 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 Sp Special ecial 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. Socia Sociall Hou Housing sing 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 TRA TRANSFE NSFE NSFER R OF REA REALL PROPER ROPERTY TY OWN OWNERSH ERSH ERSHIP IP – 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 Illus Illustration tration 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 paymen t? _______________ _________________ Illus Illustration tration 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 b. P 100,000

c. P 50,000 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 Illu Illustration stration 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 Inte Integra gra grated ted PProble roble roblems ms Pro Problem blem 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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Page 4 of 18 | TAX Handouts No. 01 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. Requ Required: ired: 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 Pro Problem blem 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:

Land Improvement Total

Fair value P 3,500,000 2,000,000 P 5,500,000

Assessm Assessm sessment ent le level vel 20% 40%

Assessed valu Assessed value e P 700,000 800,000 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%. Requ Required: ired: Determine the following: a. Sales tax and the venue of payment. b. Capital gains tax and the venue of the capital gains tax Supp Supplemen lemen lemental tal Q Quizzers uizzers 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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Page 5 of 18 | TAX Handouts No. 01 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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Page 6 of 18 | TAX Handouts No. 01 REX B. BANGGAWAN, CPA MBA LOCAL GOVERNMENT TAXATION

PRI PRIVILEGE VILEGE AND O OTHER THER TA TAX XES 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 o on n bu business siness o off prin printing ting aand nd p publicatio ublicatio ublication n – 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 o on n fra franchise nchise – 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 Grave Gravell aand nd Qua Quarry rry R Resou esou esources rces – 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  Pro Profession fession fessional al 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)  Am Amusemen usemen usementt Tax - not exceeding 10% of admission fees of theaters, cinemas, concert halls, circuses, boxing stadia and others  An Annual nual ffixed ixed ta taxx 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 Oth Other er privil privilege ege ta taxes xes 1. In 2020, Rex Printing Company started a printing business in Quezon City. Capital and sales data in 2020 and 2021 were as follows:

Capital stocks Gross receipts from private clients Gross receipts from Dep-ED publications

202 2020 0 P 2,500,000 1,200,000 200,000

202 2021 1 P 2,500,000 5,000,000 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 b. McDonalds

c. Taxi operators 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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Page 7 of 18 | TAX Handouts No. 01 REX B. BANGGAWAN, CPA MBA 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. Requ Required: ired: 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. Requ Required: ired: 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 b. Holdings of pop or rock concerts

c. Operators of hot spring and swimming pools 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 Professional basketball Amateur basketball Cinema

P 85,000 120,000 36,700 145,000

Requ Required: ired: 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<...