Presumptive Business Taxes

ESTIMATION OF PRESUMPTIVE INCOME-BASED MINIMUM CITY & MUNICIPAL BUSINESS TAXES : 

ESTIMATION OF PRESUMPTIVE INCOME-BASED MINIMUM CITY & MUNICIPAL BUSINESS TAXES ADB TA 4556 25 October 2007

Contribution of Business Taxesto Total Revenues: Cities : 

Contribution of Business Taxesto Total Revenues: Cities For cities, business taxes showed a substantial and steady increase in the share of business taxes to total revenues from 17.3% in 1991 to 23.5% by 2004. Its elasticity vis-à-vis the Gross Domestic Product (GDP) — a measure of the overall tax base — during the period is estimated at 1.6, meaning that for every 1 % increase in the tax base, there is a corresponding 1.6% increase in the business taxes collected by Philippine cities. During the same period, business taxes collected by Philippine cities grew by 19.8% annually.

Contribution of Business Taxes to Total Revenues: Municipalities : 

Contribution of Business Taxes to Total Revenues: Municipalities For municipalities, the contribution of business taxes to total revenues steadily declined from 12.1% in 1991 to 6.3% in 2004. It is relatively inelastic with respect to the GDP with an elasticity of just 0.23. During the period, business taxes collected by Philippine municipalities grew by only 9.3% annually or less than half of the growth rate for Philippine cities.

Need for Presumptive Business Tax Estimates : 

Need for Presumptive Business Tax Estimates One of the identified key constraints is the problem of coming up with presumptive business tax estimates which LGUs can then use to “contest” the tax computations based on the sworn declaration of business income made by business owners. These presumptive estimates serve in practice as estimates of minimum business tax due for a particular business activity. Quezon City pioneered in developing a set of presumptive minimum business income estimates on which they base their estimates of presumptive business tax due by business establishment type within the city.

Minimum Gross Receipts/Sales with Corresponding Minimum Business Tax Due Applicable to Quezon City: As of Jan 2005 : 

Minimum Gross Receipts/Sales with Corresponding Minimum Business Tax Due Applicable to Quezon City: As of Jan 2005

Estimation Methodology : 

Estimation Methodology 1st step. The Quezon City minimum business income estimates were escalated to 2007 Prices (to be applied beginning 2008) using the following average annual inflation rates computed from sectoral implicit price indices (1985=100) estimated from national income accounts data. The sectoral inflation rates show that there are substantial differences in inflation rates across economic activities.

Slide 7: 

Escalated Minimum Gross Receipts/Sales with the corresponding Minimum Business Tax Due Applicable to Quezon City: As of January 2008

Estimation Methodology : 

Estimation Methodology 2nd step. The per capita locally sourced revenue of Quezon City at constant 1985 prices in 2004 of Php 530 was compared against other cities and against municipalities. The comparison showed that Quezon City’s per capita locally sourced revenue is equivalent to that of a 2nd class city or a 1st class municipality. The adjustment factor appropriate for each city class or municipality class is computed as the ratio of the class boundary of each LGU class (city or municipality) to that of the LGU class to which Quezon City belongs.

Estimation Methodology : 

Estimation Methodology Table below shows relevant adjustment factor applied to the base Quezon City business receipts/income estimates to derive the presumptive estimates applicable to each LGU class. Note that the category to which Quezon City belongs in terms of per capita locally sourced revenue takes the value of 1.00. Adjustment Factors Used to Derive the Minimum Business Income Estimates Appropriate to each City/Municipality Class

Estimation Methodology : 

Estimation Methodology 3rd step. The adjustment factors were then applied to escalated Quezon City minimum business income estimates to derive the minimum business income estimates appropriate for each city or municipality per capita income class. 4th step. The minimum business income tax due for each business activity type within each city or municipality class was estimated by applying a 2.5% business tax rate on the minimum business income

Computational Results : Cities : 

Computational Results : Cities The estimates are as of 2007 & applicable beginning Jan 2008. Under the 1992 LGC, all business taxes less than Php 1,250 will be collected by the city barangay within which the business establishment is located. If the amendment to the LGC under HB 7845 gets enacted, then the amount collectible by the city barangays will go up to Php 2,500. All the taxes greater than Php 1,250 under the existing LGC and greater than Php 2,500 under HB 7845 are to be collected by the city government. Note that it will only be in 4th and 5th class cities where city barangays will have the chance to collect business taxes.

Slide 12: 

Proposed Minimum Business Tax Estimates for Cities, by Business Activity Type & Per Capita Income Class Category: As of January 2008

Computational Results : Municipalities : 

Computational Results : Municipalities Under the 1992 Local Government Code (LGC), all business taxes less than Php 750 will be collected by the municipal barangay within which the business establishment is located. If the amendment to the LGC under HB 7845 gets enacted, then the amount collectible by the municipal barangays will go up to Php 1,500. All the taxes greater than Php 750 under the existing LGC and greater than Php 1,500 under HB 7845 are to be collected by the municipal government. Note that it will only be in 5th and 6th class municipalities where municipal barangays will have the chance to collect business taxes.

Slide 14: 

Proposed Minimum Business Tax Estimates for Municipalities, by Business Activity Type & Per Capita Income Class Category: As of January 2008

Recommendations : 

Recommendations The minimum business tax estimates presented here should be integrated with the proposed business tax billing and collection system to tackle the underestimation problem associated with a business tax assessment that is purely based on the sworn declaration by the business owners. Anecdotal evidences from Quezon City and the pilot LGU of Orani attests to the usefulness of the use of presumptive income based business tax estimates. Additional work in the future may consider applying regression analysis on available annual Census of Business Establishment data and on selected available LGU-level data to derive useable floor-space-support ratios — ratio of business establishment floor area to annual sales revenue — for each business activity type within an LGU.

Illustrating An Alternative System of Implementing A Presumptive Business Income for Cities and Municipalities : 

Illustrating An Alternative System of Implementing A Presumptive Business Income for Cities and Municipalities

Alternative System of Presumptive Business Taxation : 

Alternative System of Presumptive Business Taxation

Sample Results from a Business Establishment Survey in Lapulapu City : 

Sample Results from a Business Establishment Survey in Lapulapu City

Sample FIES Data for Lapulapu City : 

Sample FIES Data for Lapulapu City

Using a Gravity Model to Establish the Proportion of Family Expenditures That Will be Bought in the LGUs of Bukidnon : 

Using a Gravity Model to Establish the Proportion of Family Expenditures That Will be Bought in the LGUs of Bukidnon The analysis was done via the following two-stage process. First, a gravity model analysis was done to establish the sales attraction potential of Malaybalay City vis-à-vis the other city and municipalities comprising the province of Bukidnon. The gravity model as adapted to commercial sales analysis posits that the proportion of purchases of the residents of a population center are attracted to retail centers in direct proportion to the size of the centers and inversely as the squares of the travel time.[1] Mathematically, this is expressed as follows: where: Fa, Fb, Fc,…,Fn = business density ratio in city or municipality n); Di-a,…, Di-n = round-trip travel time in hours from city or municipality i and competing commercial centers a, b, c,…, n. [1] The analyses used the business density ratio as the measure of attraction and the round-trip travel time as the measure of spatial separation.

Passenger and Commercial Activity Linkages in Bukidnon : 

Passenger and Commercial Activity Linkages in Bukidnon The spatial development of the province is characterized by fast linear development along the Sayre Highway connecting the province of Bukidnon to three major regional centers – Cagayan de Oro City in Region X, Davao City in Region XI, and to Cotabato City in Region X Access to key retail facilities located in the cities and municipalities along the Sayre Highway as well as to the three regional centers is provided by five (5) major provincial destinations via a tree-type road network all connected to the Sayre Highway. Malaybalay City, Valencia City, Manolo Fortich, Maramag, and Don Carlos

Sample Computed Floor Space Support Ratio for Lapulapu City : 

Sample Computed Floor Space Support Ratio for Lapulapu City

Sample Computed Floor Space Support Ratio for Tuguegarao City : 

Sample Computed Floor Space Support Ratio for Tuguegarao City

ESTIMATION OF PRESUMPTIVE INCOME-BASED MINIMUM CITY & MUNICIPAL BUSINESS TAXES : 

ESTIMATION OF PRESUMPTIVE INCOME-BASED MINIMUM CITY & MUNICIPAL BUSINESS TAXES