INTRODUCTION

Dubbed as the Queen City of the South, Cebu City is a bustling metropolis, home
to a diversified market catering to the needs of not only its constituents, but also its
neighboring regions. At the heart of its territory, major economic players engage in key
businesses such as industrial, commercial, manufacturing, wholesale, and retail
industries contributing to the annual revenues generated by the city through the
payment of business taxes then used for the efficient delivery of basic government
services to the public.

Business, as defined in the case of ​Collector of Internal Revenue vs Manila

Lodge No. 761, 105 Phil. 983​, is that which “pertains to trade or commercial activity
regularly engaged in as a means of livelihood or with a viewpoint of obtaining profit. It is
generally characterized as performing a systematic, continuous and regular income
generating activity. It is not a performance of a single disconnected act to obtain gain.
Furthermore, as per R.A. 9337, Sec. 4 105-3​, it may be pursued by any person,
regardless of whether or not the business is a non-stock and non-profit private
organization, irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests, or government entity. Ultimately, the business
must be within the lawful commerce of man.

Business Taxes are those which are imposed by the National Government on
businesses by virtue of their onerous transfers of property, service or rights in the
ordinary course of business. Local Business Taxes are those imposed by the Local
government which is a tool for the Local Government Units to create their source of
revenue. The locality in focus of this paper is Cebu City which is further contrasted with
other localities in the Province of Cebu, namely; Talisay, Lapu-Lapu, Mandaue and
Danao.

Section 191 of R.A. 7160 (Local Government Code of 1991) provides that local
government units shall have the authority to adjust the tax rates not oftener than once
every five (5) years, but in no case shall such adjustment exceed ten percent (10%) of
the rates fixed.

In its audit report for 2017, the Commission on Audit (COA) revealed that the
Revised Omnibus Tax Ordinance of Cebu City has not been updated since 1994.
 Section 191 of R.A. 7160 or the “Local Government Code of 1991” provides that
local government units shall have the authority to adjust the tax rates not oftener than
once every five (5) years, but in no case shall such adjustment exceed ten percent
(10%) of the rates fixed. Since 1994, there was no update on the tax rates provided in
the Omnibus Tax Ordinance. Pursuant to the law granting such amendments, it could
have adjusted the tax rates in 1999, 2004, 2009 and 2014.

Thus, exercising its power of taxation conferred by the Local Government Code
and guided by the sound principle of local taxation that the amount of tax to be paid
should be proportionate to one’s capacity to pay, as well as the desire to maximize the
revenue-generating capacity of the city, the 14th Sangguniang Panlungsod of Cebu City
moves to propose the imposition of a flat rate of 1.5% on business taxes via an
ordinance entitled “AN ORDINANCE IMPOSING A FLAT RATE OF 1.5% ON
BUSINESS TAXES WITH EXCEPTIONS, AMENDING THE TAX RATES PROVIDED
UNDER THE CHAPTER XVII (BUSINESS TAXES) OF CITY ORDINANCE NO. LXIX,
OTHERWISE KNOWN AS ‘THE REVISED OMNIBUS TAX ORDINANCE OF THE
CITY OF CEBU,” ​per SP Resolution Nos. 14-0392-2018 and 14-00392A-2018 dated 18
September 2018.

While the proposed amendment was in compliance with the recommendations of

the COA stating that the City Government of Cebu lost Php1.6 Billion in potential
revenue due to the outdated tax ordinance wherein it could have financed more
valuable projects, the Cebu Chamber of Commerce and Industry (CCCI) has refused to
support any amendment of the Omnibus Tax Ordinance because they believed that the
proposal is excessively high for the business community in Cebu City to absorb
considering the effects of the recent TRAIN (Tax Reform Acceleration and Inclusion)
law. Although they understand the need of the city to increase its tax rate, for them, it
must not, however, be excessive.

The table below shows the summary of the proposed amendatory provisions
under Sec. 59 of the Revised Omnibus Tax Ordinance of Cebu City.

Section 59. ​Flat Rate on Business in General. No person shall engage in or operate
any of the businesses enumerated hereunder without first paying the corresponding
annual flat-rate (1.5%) on each type or kind of business, viz:

Manufacturers, With gross sales or 1.5% on gross sales or

assemblers, repackers, receipts for the preceding receipts.
 processors, brewers of
distilled spirits and wines
or manufacturers of any
article of commerce of
whatever kind of nature.
calendar year in the
amount of less than 10,000
up to more than
20,000,000.00.

Wholesalers, distributors or With gross sales or 1.5% on gross sales or

dealers in any article of receipts for the preceding receipts.
commerce of whatever calendar year in the
kind or nature. amount of less than 10,000
up to more than
20,000,000.00.

Retailers With gross sales or 1.5% on gross sales or

receipts for the preceding receipts.
calendar year in the
amount of 50,000 or less
and more than 50,000.00

Contractors and other With gross sales or 1.5% on gross sales or

independent contractors receipts for the preceding receipts.
such as general calendar year in the
engineering, general amount of less than 5,000
building and especially and 2,000,000.00 or more
contractors as defined
under applicable law

The proposed ordinance, if passed, would impact the key business sectors
responsible for the city’s thriving economy. Given this perspective, this paper aims to
provide an in-depth comparative analysis on the different tax rates of the major cities in
Cebu Province (specifically Lapu-lapu, Talisay, and Danao) vis-à-vis the Cebu City tax
rate and the feedback as well of the different establishments on the proposal to impose
a flat rate of 1.5% on the city’s business tax. Moreover, this also aims to examine the
proposed ordinance’s perceived effects on the part of business establishments engaged
in the aforementioned industries, including their business responses should the
ordinance be implemented.

MANUFACTURERS

ON MANUFACTURERS, ASSEMBLERS, REPACKERS, PROCESSORS,

BREWERS, DISTILLERS, RECTIFIERS, and COMPOUNDERS or LIQUORS,
DISTILLED SPIRITS, AND WINES OR MANUFACTURERS OF ANY ARTICLE OF
COMMERCE OF WHATEVER KIND OR NATURE. ​For every transaction not
exceeding Php10,000.00, Talisay City imposes an annual tax of Php245.00, Danao City
at Php272.00 and Cebu City at 247.50 while Lapu-lapu imposes at the lowest rate of
Php50,000.00 to less than Php75,000.00 at the amount of Php 1,980.00. However, as
to the high-paying transactions involving those exceeding Php50,000,000.00 or more-
Talisay City imposes 50% of 1%; Lapu-lapu City imposes Php66,500.00 plus 0.50% in
excess of Php 20,000,000.00; Danao City imposes not exceeding 56.25% of 1%; Cebu
City imposes for every Php1,000,000.00 in excess add Php1,000.00 to Php126,500.00.

TABLE 1: ANNUAL TAX RATE FOR THE CITIES OF TALISAY, LAPU-LAPU,

DANAO, CEBU.
FROM TO LESS ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
THAN TAX- TAX- TAX- TAX- TAX- CEBU
TALISAY LAPU-LAPU DANAO CEBU CITY ON
CITY CITY CITY PROPOSED
ORDINANCE

0.00 10,000.00 245.00 - 272.00 247.50 FLAT RATE OF

1.5% on gross
sales or receipts

10,000. 15,0000.00 330.00 - 363.00 330.00

00

15,000. 20,000.00 450.00 - 498.00 453.00

00

20,000 30,000.00 660.00 - 726.00 660.00

30,000. 40,000.00 990.00 - 1,089.00 990.00

00

40,000. 50,000.00 1,235.00 - 1,360.00 1,237.50

00

50,000. 75,000.00 1,980.00 1,980.00 2,178.00 1,980.00

00

75,000. 100,000.00 2,475.00 2,475.00 2,720.00 2,475.00

00

100,00 150,000.00 3,300.00 3,500.00 3,630.00 3,300.00

0.00

150,00 200,000.00 4,125.00 4,125.00 4,535.00 4,125.00

0.00
200,00 300,000.00 5,775.00 5,775.00 6,350.00 5,775.00
0.00

300,00 500,000.00 8,250.00 8,250.00 9,075.00 8,250.00

0.00

500,00 750,000.00 12,000.00 12,000.00 13,200.00 12,000.00

0.00

750,00 1,000,000.0 15,000.00 15,000.00 16,500.00 15,000.00

0.00 0

1,000,0 2,000,000.0 20,650.00 20,625.00 22,687.00 20,625.00

00.00 0

2,000,0 3,000,000.0 24,750.00 24,750.00 27,225.00 24,750.00

00.00 0

3,000,0 4,000,000.0 29,700.00 29,700.00 32,670.00 29,700.00

00.00 0

4,000,0 5,000,000.0 34,650.00 34,650.00 37,115.00 34,650.00

00.00 0

5,000,0 6,500,000.0 36,560.00 36,562.00 40,248.00 36, 562.00

00.00 0

6,500,0 8,000,000.0 50% of 1% 40, 781.00 Not 40,781.00

00.00 0 exceeding
56.25% of
1%

8,000,0 12,000,000. 50% of 1% 45,000.00 Not 45,000.00

00.00 00 exceeding
56.25% of
1%

12,000, 15,000,000. 50% of 1% 57,000.00 Not 57,000.00

000.00 00 exceeding
56.25% of
1%

15,000, 18,000,000. 50% of 1% 62,700.00 Not 62,700.00

000.00 00 exceeding
56.25% of
1%

18,000, 20,000,000. 50% of 1% 66,500.00 Not 66,500.00

000.00 00 exceeding
56.25% of
1%
 20,000. 50,000,000. 50% of 1% 66,500.00 plus Not For every
00 00 0.50% in exceeding 1,000,000.
excess of 56.25% of 00 excess,
20,000,000.00 1% add
2,000.00
to
66,500.00

50,000, More 50% of 1% 66,500.00 plus Not For every

000.00 0.50% in exceeding 1,000,000.
excess of 56.25% of 00 in
20,000,000.00 1% excess
add
1,000.00
to
126,500.0
0

In Mandaue City, the rate varies per kind of manufacturing industry namely, Tin
Factory whose lowest rate is those not exceeding Php40,000.00 at Php200.00 per
annum and the highest are at Php400,000.00 with the tax amount of license fee of
Php50.00 for every 10,000.00 or fraction thereof; Match Factory whose lowest rate is
not more than 100 cartons at Php25.00 and the highest is in excess of Php10,000.00 at
the tax amount of a license fee of Php15.00 for every 100 cartons or fraction thereof,
Alcohol Refinery which the lowest is at those not exceeding 500 liters at the tax amount
of Php2.50 and the highest rate is over Php3,000.00 at the tax amount of license tax of
Php1.00 for every 500 liters and lastly, Coconut Oil Refinery which has the lowest
amount not exceeding Php5,000.00 at Php 25.00 and the highest rate is exceeding
Php50,000.00 at the tax amount of license tax of Php25.00 for every 5,000 gallons or
fraction thereof.

TABLE 2: ANNUAL TAX RATE FOR MANDAUE CITY.

TIN FACTORY

IN EXCESS OF BUT NOT OVER PER ANNUM

40,000.00 200

40,000.00 80,000.00 400

80,000.00 100,000.00 500

 100,000.00 140,000.00 700

140,000.00 180,000.00 900

180,000.00 200,000.00 1,000

200,000.00 240,000.00 1,200

240,000.00 280,000.00 1,400

280,000.00 300,000.00 1,500.00

300,000.00 340,000.00 1,700.00

340,000.00 380,000.00 1,900

380,000.00 400,000.00 2,000

400,000.00 A license fee of 50.00 for

every 10,000.00 or
fraction thereof

MATCH FACTORY

IN EXCESS OF BUT NOT OVER PER ANNUM

100 cartons 25

100 200 50

200 300 75

300 500 125

500 1,000 250

1,000 2,500 625

2,500 5,000 1,250

5,000 7,500 1,875

7,500 10,000 2,500

10,000 A license fee of 15.00 for

every 100 cartons or
fraction thereof
ALCOHOL REFINERY

OVER NOT EXCEEDING PER ANNUM

500 liters 2.50

500 1,000 5.00

1,000 1,500 7.50

1,500 2,000 10.00

2,000 2,500 15.00

2,500 3,000 20.00

3,000 A license tax of 1.00 for

every 500 liters

COCONUT OIL
REFINERY

OVER NOT EXCEEDING PER ANNUM

5,000 25

5,000 7,500 37

7,500 10,000 50

10,000 15,000 75

15,000 20,000 100

20,000 30,000 150

30,000 40,000 200

40,000 50,000 250

50,000 A license tax of 25.00 for

every 5,000 gallons or
fraction thereof
 WHOLESALERS

WHOLESALERS play a significant role in the locality as they improve efficiency

in food distribution by encouraging competition through creating conditions for
transparent price discovery at relatively low costs and by enhancing access to market
information for various actors. Where multiple equilibrium prices occur for a single
commodity because there are no wholesale markets, price transparency is undermined
and transaction costs rise. Wholesale markets, therefore, are a critical part in the
vertical coordination of food markets, equilibrating supply with demand and facilitating
price formation. Their role reduces per unit marketing costs, promotes stable markets
for local produce and encourages increased output and productivity.

ON WHOLESALERS, DISTRIBUTORS OR DEALERS IN ANY ARTICLE OF

COMMERCE OF WHATEVER KIND OR NATURE. Cebu City is proposing to apply the
flat rate of 1.5% on gross sales or receipts while its neighboring cities within the Cebu
Province ​(Mandaue​​, ​Talisay and ​Lapu-Lapu)​​, follows the Graduated Tax Rate in
accordance with their schedule of taxes.

GROSS TALISAY LAPU-LAPU MANDAUE DANAO CEBU CITY

SALES/RECEIPTS CITY (Php) (Php) (Php) (1.5%) FLAT
(Php) RATE

LESS THAN 1,000 27 EXEMPT 10 29 1.5

1,000-LESS THAN 49 EXEMPT 20 54 1.5

2,000

2,000-LESS THAN 75 EXEMPT 30 82 1.5

3,000

3,000-LESS THAN 108 EXEMPT 45 118 1.5

4,000

4,000-LESS THAN 150 EXEMPT 55 165 1.5

5,000

5,000-LESS THAN 180 EXEMPT 60 198 1.5

6,000

6,000-LESS THAN 214 EXEMPT 80 235 1.5

7,000
7,000-LESS THAN 247 EXEMPT 100 272 1.5
8,000

8,000-LESS THAN 280 EXEMPT 120 308 1.5

10,000

10,000-LESS THAN 330 EXEMPT 140 363 1.5

15,000

15,000-LESS THAN 412 EXEMPT 170 453 1.5

20,000

20,000-LESS THAN 495 EXEMPT 200 544 1.5

30,000

30,000-LESS THAN 660 EXEMPT 240 726 1.5

40,000

40,000-LESS THAN 990 EXEMPT 1,089 1.5

50,000

50,000-LESS THAN 1,485 1,485 1,633 1.5

75,000

75,000-LESS THAN 1,980 1,980 2,178 1.5

100,000

100,000-LESS THAN 2,805 2,805 3,085 1.5

150,000

150,000-LESS THAN 3,630 3,630 3,993 1.5

200,000

200,000-LESS THAN 4,950 4,950 5,445 1.5

300,000

300,000-LESS THAN 6,600 6,660 7,260 1.5

500,000

500,000-LESS THAN 9,900 9,990 10,890 1.5

750,000
 750,000-LESS THAN 13,200 13,200 14,520 1.5
1,000,000

1,000,000-LESS THAN 15,000 15,000 16,500 1.5

2,000,000

2,000,000 AND ABOVE 60% OF LESS 15,000 AT THE 1.5

1% PLUS (0.60%) RATE NOT
IN EXCESS OF EXCEEDING
2,000,000 75% OF 1%

RETAILERS

On RETAILERS. ​With the influx of big retail investors in the province, Cebu City
is considered to be the future of retail and commercial developments. Metro Cebu, to
date, remains as the largest retail hub outside of Metro Manila. With a strong and
growing business process management sector, as well as steady Overseas Filipino
Workers remittances, consumption has been a big contributor to its growth and
progress. Correspondingly, retail is a big beneficiary of such growth.

As of last year, Cebu City’s retail stock reached 1.06 million square meters
(sq.m). Super-regional malls or outlets with Gross Leasable Area (GLA) of more than
100,000 sq.m. account for about 60% of Cebu’s retail stock. These malls are SM
Seaside at Reclamation Area, SM City Cebu, and Ayala Center Cebu.

Retail outlets (50,000 sq.m to 99,999 sq.m) such as SM Consolacion and

Robinsons Galleria Cebu cover 10% of the market. Smaller district centers (25,000
sq.m to 49,999 sq.m) and neighborhood outlets (below 25,000 sq.m) located primarily in
the downtown area cover 30%.

Under R.A. No. 8762, retail trade enterprises with paid-up capital of less than
USD 2,500,000 are exclusively reserved for Filipino citizens. Full foreign participation is
allowed only if they have a paid-up capital of USD 2,500,000 or more provided that the
investments for establishing a store is not less than USD 830,000 or specializing in high
end or luxury products, provided that the paid-up capital per store is not less than USD
250,000
 For reference, “retail trade” shall mean any act, occupation or calling habitually
selling direct to the general public merchandise, commodities or goods for consumption.

Gross annual sales and/or receipts for the preceding calendar year in the amount
of:

MANDAUE AMOUNT PER ANNUM

1 Less than P 1, 000.00 10.00

2 P1,000.00 or more but 20.00

less than P2,000.00

3 P2,000.00 or more but 30.00

less than P3,000.00

4 P3,000.00 or more but 45.00

less than P4,000.00

5 P4,000.00 or more but 55.00

less than P5,000.00

6 P5,000.00 or more but 60.00

less than P6,000.00

7 P6,000.00 or more but 80.00

less than P7,000.00

8 P7,000.00 or more but 100.00

less than P8,000.00

9 P8,000.00 or more but 120.00

less than P10,000.00

10 P10,000.00 or more but 140.00

less than P15,000.00

11 P15,000.00 or more but 170.00

less than P20,000.00

12 P20,000.00 or more but 200.00

less than P30,000.00
 13 P30,000.00 or more but 240.00
less than P40,000.00

The Tax on Business in so far as Mandaue City ranges from Less than P1,000 to
the maximum of P40,000.00. As to the amount of tax per annum, it ranges from P10.00
being the least while P240.00 being the maximum.

DANAO AMOUNT PER ANNUM

P400,000.00 or less 3%

More than P400,000.00 1.5% in excess of the

first P400,000.00

The tax on the business in Danao ranges from 3% to 1.5% in excess of the first
P400,000.00.

TALISAY AMOUNT PER ANNUM

P50,000.00 but less than 3%

P400,000.00

P400,000.00 or more but P8,000 plus 1.5%

less than
P100,000,000.00

P100,000,000.00 or more P1,004,000.00 plus 75%

but less than of 1% if gross receipt in
P500,000,000.00 excess P100,000,000.00

P500,000,000.00 or more 12.5% of 1%

but less than
P4,004,000.00 plus 50%
of 1% of gross receipts,
in excess of
P500,000,000.00
 The tax on business in Talisay ranges from 3% for the amount of the transaction
of P50,000.00 but less than P400,000.00 but the P500,000,000.00 or more but less
than P4,004,000.00 plus 50% of 1% of gross receipts, in excess of P500,000,000.00 in
the amount of 12.5% of 1%.

CEBU CITY AMOUNT PER ANNUM

More than P50,000.00 up 2%

to P400,000.00

For every P1,000.00 or P15.00 to P8,000.00

fraction thereof in excess
of P400,000.00 but not
more than P1,000,000.00

For every P10,000.00 or P25.00 to P17,000.00

fraction thereof in excess
of P1,000,000.00

The tax on business in Cebu City ranges from 2% of more than P50,000.00 up to
P400,000.00 to P25.00 to P17,000.00 for every P10,000.00 or fraction thereof in excess
of P1,000,000.00

LAPU-LAPU CITY AMOUNT PER ANNUM

P1.00 2.5%

The tax on business in Lapu-lapu City is in the amount of P1.00 at 2.5%.

EATERIES

For EATERIES, ​the tax rates vary. Some businesses adopt a schedule of fees
while others stick to applying fixed rates. For Cebu City, the current tax rate is pegged
at 2.5% for gross sales or receipts amounting to P50,000.00 or less. For every
P1,000.00 or fraction thereof in excess of P50,000, add an annual tax of P10.00 to
P1,250.00. As for Mandaue City, the minimum amount of tax to be paid for gross
receipts or sales amounting to less than P2,000.00 is fixed at P20.00 per annum, and
the highest rate in the schedule being P550.00 for gross receipts or sales ranging from
P45,500.00 to P50,000.00. As for every P1,000.00 or fraction thereof in excess of
P50,000.00, an addition of P60.00 is added. Lastly, for Lapu-Lapu City and Talisay City,
however, they adopt a fixed rate of 2.5% and 1.75% tax, respectively. As shown, Cebu
City and Lapu-Lapu City have the highest tax rates as compared to the others, and the
same is expected, a such cities being more urbanized as opposed to the other two.

Schedule 1 – The current tax rates in Cebu City.

With gross sales or receipts for the Rate of Tax per annum
preceding calendar year of:

P 50,000 or less 2 1/2 %

For every P1,000.00 or fraction thereof

in excess of P50,000, add an annual tax
of P10.00 to P1,250.00

Schedule 2 – The current tax rates in Mandaue City:

Gross annual
sales and/or
receipts for the
preceding
calendar year in Amount of tax
Class the amount of: per annum

Less than P 2,
1 000.00 P 20.00

P2,000.00 or more
but less than
2 P3,750.00 30.00

P3,750.00 or more
but less than
3 P4,500.00 40.00
 P4,500.00 or more
but less than
4 P6,125.00 50.00

P6,125.00 or more
but less than
5 P7,250.00 60.00

P7,250.00 or more
but less than
6 P8,750.00 70.00

P8,750.00 or more
but less than
7 P10,275.00 80.00

P10,275.00 or
more but less than
8 P12,125.00 100.00

P12,125.00 or
more but less than
9 P15,250.00 140.00

P15,250.00 or
more but less than
10 P16,750.00 160.00

P16,750.00 or
more but less than
11 P18,250.00 180.00

P18,250.00 or
more but less than
12 P20,625.00 200.00

P20,625.0 or more
but less than
13 P23,375.00 230.00

P23,375.00 or
more but less than
14 P27,000.00 260.00
 P27,000.00 or
more but less than
15 P30,000.00 300.00

P30,000.00 or
more but less than
16 P33,000.00 360.00

P33,000.00 or
more but less than
17 P35,875.00 400.00

P35,875.00 or
more but less than
18 P40,625.00 460.00

P40,625.00 or
more but less than
19 P45,500.00 500.00

P45,500.00 to
20 P50,000.00 550.00

For every
P1,000.00 or
fraction thereof in
excess

of P50,000.00 0.60

Current Tax Rates of Lapu-Lapu City and Talisay City

Lapu-Lapu Talisay City

2.5% on the gross sales and/or receipts 1.75% on the gross sales and/or
of the preceding calendar year receipts of the preceding calendar year
Current Tax Rates of Danao City

GROSS SALES/RECEIPTS DANAO

ANNUAL TAX IN (Php)

LESS THAN 2,000 49.00

2,000-LESS THAN 3,750 82.00

3,750-LESS THAN 4,500 115.00

4,500-LESS THAN 6,125 148.00

6,125-LESS THAN 7,250 180.00

7,250-LESS THAN 8,750 214.00

8,750-LESS THAN 10,275 247.00

10,275-LESS THAN 12,125 297.00

12,125-LESS THAN 15,250 363.00

15,250-LESS THAN 16,750 412.00

16,750-LESS THAN 18,250 445.00

18,250-LESS THAN 20,625 478.00

20,625-LESS THAN 23,375 577.00

23,375-LESS THAN 27,000 660.00

27,000-LESS THAN 30,000 742.00

30,000-LESS THAN 33,000 825.00

33,000-LESS THAN 35,875 907.00

35,875-LESS THAN 40,625 1,006.00

40,625-LESS THAN 45,500 1,085.00

45,500-LESS THAN 50,000 1,237.00

50,000-UP TO 400,000 2%

400,000 AND ABOVE 1%