Business Mirror

Atty. Rodel C. Unciano discusses his insights on the practice of LGUs in holding issuance or renewal of business permits of taxpayers with pending business tax assessments.

Impasse on Business Permit Renewals

By Atty. Rodel C. Unciano

Under the Local Government Code (“LGC”) of 1991, a Local Government Unit (“LGU”) is authorized to collect local business taxes on any business entity operating within its territorial jurisdiction. The amount of business tax imposed would depend on the amount of gross sales or receipts generated by the business entity during the preceding calendar year. And for most LGUs, payment of the business tax is a condition for the yearly renewal of the business permit of any entity operating within their territorial jurisdictions.

There seems to be no issue on this if the taxpayer and the LGU agree on the amount of gross sales or receipts as basis for the business tax assessed since under the LGC, local taxes accrue on the first day of January of each year and should be paid within a prescribed period. But very often, the LGU and the taxpayer do not agree for a number of reasons. For some LGUs, they have unwritten rule of collecting business taxes that should always be higher than the payments made in the preceding year, without regard as to whether or not the taxpayer’s gross sales or receipts had really increased. Thus, in case of disagreement, there may be a need for time to iron out their differences.

But very often, business entities always end up paying the business taxes being assessed by the LGUs, only just for the sake of being able to secure their business permits. Year in and year out, taxpayers almost always face a dilemma of not being able to renew their business permits without paying the business tax being assessed by the LGUs. If the taxpayer does not pay the business taxes being assessed, it will not be issued a business permit. Thus, taxpayers are being forced to pay business taxes despite disagreement on the amount sought to be collected.

Of course, after payment, the taxpayer is not without a remedy under the provisions of the LGC. The taxpayer can claim later on a refund if it thinks that the payment it made to the LGU is really erroneous or excessive. But the refund process is not easy as it seems as the taxpayer may even need to prove its entitlement for refund before the Courts. And since tax refund claims are in the nature of an exemption which is construed against the taxpayer, the burden of proof to establish the right to refund lies with the taxpayer.

One question to ask is this: Is payment of local business tax assessments a condition sine qua non in renewal of business permits before the LGUs? Certainly, this is another area of concern in our local tax system that is worth revisiting.

A look at the provisions of the LGC would reveal an answer in the negative. Nowhere in the LGC would require payment of business tax assessments a condition for renewal of business permit. Perhaps what an LGU can do is to accept taxpayers’ payments based on their own declarations and conduct later on an audit if it thinks correct payment has not been made, collect the balance, if any, and impose surcharge and interest in case of late payment, if warranted. It should not hold issuance of business permit just because the taxpayer does not agree to pay the amount of business tax being assessed.

The payment of local business tax assessments should not be made a condition for renewal of business permits with the LGUs. This is a flawed policy that is not sanctioned under our tax laws. Taxpayers have the right to question the correctness of the tax being assessed. Business entities should still be able to do business with the LGUs even in case of non-payment of tax assessments that are under dispute, since the assessments are not yet final, executory and demandable.

LGUs cannot hold the issuance of a business permit just because of non-payment of business taxes being assessed. This is not in harmony with the government’s policy of promoting ease of doing business and efficient delivery of government services. It is violative of the due process rights of the taxpayer that is well guaranteed under our Constitution.