In the Philippines, the power of a local government unit (LGU) to create its own sources of revenue and to levy taxes is a constitutionally mandated principle, further codified under Republic Act No. 7160, otherwise known as the Local Government Code of 1991. Among the most significant LGUs in terms of revenue generation is Quezon City, which operates under Quezon City Ordinance No. SP-2235, S-2013, as amended—collectively referred to as the Quezon City Revenue Code.

For legal practitioners and business owners, understanding the nuances of how these taxes are computed is essential for compliance and financial planning.

I. The Tax Base: Gross Sales and Receipts

The fundamental basis for the computation of the Local Business Tax (LBT) in Quezon City is the gross sales or receipts realized during the preceding calendar year.

Gross Sales: Refers to the total amount of money or its equivalent representing the contract price, compensation, or service fee, including the amount charged or received for cash sales and on-account sales.
Gross Receipts: Specifically applies to service providers, representing the total amount of money or its equivalent actually or constructively received for services rendered.

The Situs of Tax

A critical legal concept is the "Situs of Tax," which determines which LGU has the authority to tax the revenue. Generally, all sales made in a branch or sales office located in Quezon City shall be recorded in said branch and taxed by the city. If there is no branch or office, but the factory is located in Quezon City, a percentage of the total sales is allocated to the city.

II. Categories of Businesses and Tax Rates

The Quezon City Revenue Code categorizes businesses into several classes, each with its own graduated or fixed tax rate. The following are the primary classifications:

1. Manufacturers, Assemblers, and Processors

This category includes those who transform raw materials into finished products. The tax is computed based on a graduated scale. As the gross sales increase, the tax amount increases, but the effective rate often stabilizes at a certain threshold.

2. Wholesalers, Distributors, or Dealers

Entities that sell goods for resale are taxed differently from retailers. The rates for wholesalers are generally lower than those for retailers to account for the higher volume and lower margins inherent in wholesale trade.

3. Retailers

Retailers are businesses that sell directly to the end consumer. Under the Code:

Businesses with gross sales of P400,000.00 or less are subject to a specific percentage (usually around 1%).
Businesses with gross sales exceeding P400,000.00 are taxed at a higher rate (often 1.1% to 1.5% depending on specific updates to the code).

4. Contractors and Service Providers

This is a broad category encompassing various service-oriented businesses, such as:

General engineering and building contractors.
Repair shops, beauty parlors, and funeral parlors.
Information technology and BPO services.

The tax is computed as a percentage of the gross receipts from the preceding year.

5. Banks and Other Financial Institutions

Financial institutions are taxed at a percentage of their gross receipts derived from interests, commissions, and discounts from loans, income from lease or images of property, and dividends.

III. The Computation Formula

The general formula for computing the annual Local Business Tax in Quezon City is as follows:

$$LBT = (Adjusted Gross Sales/Receipts \times Applicable Tax Rate) + Fixed Taxes$$

Progressive Bracketing

For many categories, Quezon City employs a "Tax Table" approach. For example, if a manufacturer’s gross sales fall within a specific bracket (e.g., P1,000,000 to P2,000,000), the tax is a fixed amount plus a percentage of the amount in excess of the lower limit of that bracket.

IV. Newly Started Businesses

Since there are no "preceding year sales" for a new business, the initial tax is not based on actual revenue. Instead, the tax is computed based on:

Capital Investment: A percentage of the paid-up capital or the value of the assets invested in the business.
Minimum Fixed Tax: Some categories require a minimum fixed fee for the first year of operation.

In the succeeding year, the tax will be adjusted based on the actual gross sales or receipts reflected in the first year of operation.

V. Exemptions and Incentives

Under the Quezon City Revenue Code and relevant national laws, certain entities are exempt from the Local Business Tax:

Cooperatives: Duly registered with the Cooperative Development Authority (CDA).
Business Enterprises (BMBEs): Registered as Barangay Micro-Business Enterprises under RA 9178.
BOI-Registered Enterprises: For a specific period (usually 4 to 6 years), businesses registered with the Board of Investments may be exempt from local taxes.
Non-Stock, Non-Profit Corporations: Specifically those organized for charitable, religious, or educational purposes.

VI. Administrative Requirements and Penalties

Deadlines for Payment

The Local Business Tax is due on or before the 20th of January each year. However, the Code allows for quarterly installments:

1st Quarter: On or before January 20
2nd Quarter: On or before April 20
3rd Quarter: On or before July 20
4th Quarter: On or before October 20

Surcharges and Interests

Failure to pay the tax on time results in significant penalties:

Surcharge: A 25% penalty on the amount of taxes, fees, or charges due.
Interest: An interest rate of 2% per month on the unpaid amount, including the surcharge, until the tax is fully paid. (Note: The total interest shall not exceed 36 months or 72%).

VII. Retirement of Business

When a business closes, it must submit a Sworn Statement of Gross Sales or Receipts for the current year. The city will compute the tax due for the period from the start of the year until the date of closure. The business permit will not be officially cancelled, and the owners will not be cleared of liability until all outstanding local business taxes are settled.