Local Tax: Renewal vs. New Registration

Another issue that always crop up during this period of business registration with LGUs is the difference in the amount of local tax paid on an i-café’s first year of operation versus the amount assessed for payment in its second year of operation. Why the big difference in the amounts?

An i-café owner renewing his business permit for the first time (usually on the second year of operation) is almost always surprised to know that while he paid only P4,000 in the previous year, he has to shell out say double the amount depending on the tax base used on computing his local tax. He must understand that on registering his cafe business, the LGU uses his paid-up capital (amount of investment) as the tax base. Usually, three-fourth (0.75%) percent of the amount is levied as local tax.

When renewing his business permit for the first time, his income on the first year of operation will be the basis of the local tax he has to pay. If, say, his first business permit was issued on the middle of that year, then the difference will be much less than when he started operating his i-café in January of the same year.

Again, as I had said in my blog previous to this one, PIL may be used by the LGU especially if the taxpayer cannot show the proof of income that can support the figure he wrote on his application for renewal of business permit. This shows the importance of keeping book of accounts on any business.

By way of an example, let us say that an investment of P200,000 was declared by an owner of a 10-seater i-café that started operation in the month of March. His local tax computed at 3/4 percent of the capital will be P1,500 only. On renewing his permit in January of the succeeding year, his gross income may be assessed using P100/PC/day PIL so that for the ten (10) months operation, his tax base will be P300,000 in which 2% will be due as local tax or a total of P6,000 as compared to only P1,500 on his first year of operation.

It is usually this scenario that makes an i-cafe owner thinks of closing his business, transferring its name to somebody else and have the business registered as new again. But is this practice advisable? This will be a subject in my future blogs so please watch for it.