Page 1 of 6 | TAX 11

LOCAL AND PREFERENTIAL TAXATION

BANGGAWAN, SORIANO, ESGUERRA, DELA CRUZ

LOCAL AND PREFERENTIAL TAXATION

BANGGAWAN, SORIANO, ESGUERRA, DELA CRUZ

LOCAL TAXATION

Problem 1
Fresh Fruit Drink Co. (FFDC) maintains a fruits plantation in Pinukpuk, Kalinga. It operates a beverage processing plant in
its head office in Trancoville, Baguio City, a highly urbanized city in the Province of Benguet. Details of FFDC’s property
and gross sales and receipts from beverages are as follows:

Pinukpuk, Kalinga Baguio City, Benguet

Total land fair value P 2,000,000 P 5,000,000
Total improvement assessed value 800,000 1,200,000
Property classification Agricultural Industrial
Delivery trucks - 6 for beverages
Gross sales or receipt - P 40,000,000
Applicable business tax rate 40% of 1% 50% of 1%

Determine the following:

1. What is the real property tax due, including SEF, of the property in Kalinga?
2. What is the share of the Municipality of Pinukpuk from the real property tax?
3. What is the real property tax due, including SEF, of the property in Benguet?
4. What is the share of Baguio City in the real property tax?
5. Community tax due of BBC and the venue of payment.
6. What is the total tax for delivery trucks?
7. Local business tax due to Baguio City
8. Local business tax due to Pinukpuk
9. Assuming half of FFDC’s sales are export sales, compute the local business tax due in Baguio City.
10. Assuming FFDC is a BOI-registered enterprise, compute the local business tax due for Pinukpuk and Baguio City
respectively.

Problem 2
Ivan Pogi, a CPA-Lawyer, is also a CIA and a CMA. He is practicing his professions in Makati City while at the same time
engaged in retailing car accessories in his residence and hometown, Binan, Laguna. He derived a total of P2,000,000 from
his practice of profession and made P1,000,000 in retail sales. He also sold a 500 sqm residential lot in Baguio City at 10%
discount on its fair value of P10,000,000 to a nearby school to be used by the latter as laboratory building site.

Determine the following:

1. Local business tax due in Makati City
2. Local business tax due in Binan
3. What is Ivan’s local business tax due in Laguna if he is retailing books and school supplies
4. Professional tax due from Ivan and venue of payment
5. If Ivan is a full-time state prosecutor with P2M annual compensation income, what is the professional tax due?
6. Community tax due from Ivan and venue of payment
7. Sales tax on the sale of the lot and venue of payment
8. Sales tax on the sale of lot assuming it is situated in Binan, Laguna and the venue of payment
9. Ivan’s annual real property tax, excluding SEF, on the commercial lot

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BANGGAWAN, SORIANO, ESGUERRA, DELA CRUZ

LOCAL AND PREFERRENTIAL TAXATION

10.Expected annual real property tax due of the school on the property

BASIC CONCEPTS
1. Which LGU has the widest tax base?
a. Municipalities
b. Provinces
c. Cities
d. Barangay

2. What is the source of local taxation power?

a. Constitution
b. Local Government Code
c. Sanggunian
d. Local treasurer

3. What is the operating framework of local taxation in the Philippines?

a. Constitution
b. Local Government Code
c. Bureau of Local Government Finance
d. Local treasurer

4. Implementation of local taxes is a responsibility of the

a. Local chief executive
b. Local assessor
c. Local financing division
d. Sanggunian

5. The decision on enactment of local taxes must be made by

a. Sanggunian
b. Local courts
c. Bureau of Local Government Finance
d. BIR

6. The local taxing power is

a. a delegation of the power which was exclusively granted by the Constitution to Congress.
b. a direct grant of power by the Constitution.
c. an inherent power to LGUs.
d. None of these

7. The local taxing power is not

a. An indirect grant of power
b. Limited
c. Legislative
d. Territorial

8. Which is not part of the taxation powers of LGUs?

a. Power to impose reasonable fee and charges, public utility charges and toll fees
b. Power to levy community tax
c. Power to impose taxes
d. Power to impose charges on goods produced and passing through the LGU

9. Can the Sanggunian of the City of Manila impose a P10/sqm tax on real property?

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BANGGAWAN, SORIANO, ESGUERRA, DELA CRUZ

LOCAL AND PREFERRENTIAL TAXATION

a. Yes, since a city has the power to levy real property tax.
b. No. since only provinces can levy real property tax.
c. Yes, since the Sanggunian is the proper local authority to impose the tax.
d. No, since real property tax must be an ad valorem tax.

10. Municipalities have no power to impose real property tax, except

a. Municipalities who nearly qualify as cities.
b. Municipalities in Class A provinces.
c. Municipalities in the Metro Manila area.
d. Class A municipalities.

11. It is an imposition on land only

a. Real property tax
b. Sales tax
c. Idle land tax
d. Special education fund tax

12. Which handles the assessment and collection of tax?

a. Assessor’s office
b. Local treasurer
c. Licensing division
d. Bureau of Local Government Finance

13. Which is not a basis of real property tax condonation or reduction by the Sanggunian?
a. When the province incurred a budget deficit.
b. General failure of crops
c. Substantial decrease in the price of agricultural or agri-based products
d. Calamity in the province, municipality or city

14. Real property tax condonation or reduction, if applicable, must be recommended by the
a. Sanggunian.
b. local executive.
c. Disaster Risk Reduction and Management Council.
d. Secretary of Finance.

15. Which tax is imposable by provinces?

a. Community tax
b. Local business tax
c. Professional tax
d. None of these

16. Which is a purely specific tax?

a. professional tax
b. community tax
c. franchise tax
d. transfer tax

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LOCAL AND PREFERRENTIAL TAXATION

PREFERENTIAL TAXATION

1. These refer to government entities created by law, executive order, decree or other issuance, in charge of promoting
investments, granting and administering tax and non-tax incentives, and overseeing the operations of the different
economic zones and freeports in accordance with their respective special laws.
a. Registered Business Enterprises
b. Strategic Investment Priority Plan
c. Fiscal Incentives Review Board
d. Investment Promotion Agencies

2. Refers to any individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity organized
and existing under Philippine laws and registered with an Investment Promotion Agency excluding service enterprises
such as those engaged in customs brokerage, trucking or forwarding services, janitorial services, security services,
insurance, banking, and other financial services, consumers' cooperatives, credit unions, consultancy services, retail
enterprises, restaurants, or such other similar services, as may be determined by the Fiscal Incentives Review Board,
irrespective of location, whether inside or outside the zones, duly accredited or licensed by any of the Investment
Promotion Agencies and whose income delivered within the economic zones shall be subject to taxes under the National
Internal Revenue Code of 1997, as amended.
a. Registered Business Enterprises
b. Strategic Investment Priority Plan
c. Fiscal Incentives Review Board
d. Investment Promotion Agencies

3. Refers to any individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity organized
and existing under Philippine laws and registered with an Investment Promotion Agency (IPA) to engage in
manufacturing, assembling, or processing activity, and services such as information technology (IT) activities and
business process outsourcing (BPO), and resulting in the direct exportation, and/or sale of its manufactured,
assembled, or processed product or IT/BPO services to another registered export enterprise that will form part of the
final export product or export service of the latter, of at least seventy percent (70%) of its total production or output.
a. Registered Export Enterprise
b. Domestic Market Enterprise
c. Registered Business Enterprises
d. Investment Promotion Agencies

4. This refers to any enterprise registered with an IPA other than an export enterprise.
a. Registered Export Enterprise
b. Domestic Market Enterprise
c. Registered Business Enterprises
d. Investment Promotion Agencies

5. Registered Export Enterprise or Export Oriented Enterprise, and Domestic Market Enterprise, may be granted an
Income Tax Holiday for a period of:
a. Three years
b. Four years
c. Seven years
d. Either B or C, depending on location and industry priorities

6. During the effectivity of the ITH, the following taxes shall not be imposed except:
a. RCIT
b. MCIT
c. Local taxes, licenses, imposts and fees
d. Income tax on unregistered activity

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LOCAL AND PREFERRENTIAL TAXATION

7. The following are outside of the coverage of the ITH, except:

a. Value-added tax
b. Final withholding tax on passive income
c. RPT on machinery and equipment within three (3) years from acquisition
d. Documentary Stamp Tax

8. A Registered Business Enterprise enjoying ITH shall still be subject to the following:
I. RCIT on income from its unregistered activities
II. MCIT on income from its unregistered activities

a. I only
b. II only
c. Both I and II
d. Neither I nor II

9. Which of the following is not covered by income tax holiday from an RBE’s registered activities?
a. RCIT
b. MCIT
c. Final withholding tax on passive income
d. All of the above

10. This refers to a tax incentive at a tax rate of five percent (5%) effective July 1, 2020, based on the gross income earned
of registered business enterprises, in lieu of all national and local taxes
a. Income Tax Holiday
b. Special Corporate Income Tax
c. Enhanced Deductions
d. None of the above

11. This refers to gross sales or gross revenue derived from registered project or activity, net of sales discounts, sales
returns and allowances, and minus cost of sales or direct cost, but before any deduction is made for administrative
expenses and incidental losses during a given taxable period.
a. Gross sales/receipts
b. Cost of sales or services
c. Operating expenses
d. Gross income

12. After ITH period, Five percent (5%) Special Corporation Income tax may be availed by:
a. Registered Export Enterprises
b. Domestic Market Enterprises
c. Both A and B
d. Neither A nor B

13. After ITH period, Enhanced Deduction may be availed by:

a. Registered Export Enterprises
b. Domestic Market Enterprises
c. Both A and B
d. Neither A nor B

14. Enhanced Deduction/Special Corporation Income Tax may be availed by a Registered Export Enterprise for a period
of:
a. 2 years

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LOCAL AND PREFERRENTIAL TAXATION

b. 3 years
c. 5 years
d. 10 years

15. Enhanced Deduction may be availed by a Domestic Market Enterprise for a period of
a. 2 years
b. 3 years
c. 5 years
d. 10 years

16. For export enterprise, domestic market enterprise, and critical domestic market enterprise, which of the following may
be allowed as deductions?
a. Depreciation allowance of the assets acquired for the entity's production of goods and services (qualified capital
expenditure) - additional ten percent (10%) for buildings; and additional twenty percent (20%) for machineries and
equipment.
b. Fifty percent (50%) additional deduction on the labor expense incurred in the taxable year;
c. One hundred percent (100%) additional deduction on research and development expense incurred in the taxable
year
d. All of the above

17. For export enterprise, domestic market enterprise, and critical domestic market enterprise, which of the following may
be allowed as deductions?
a. One hundred percent (100%) additional deduction on training expense incurred in the taxable year.
b. Fifty percent (50%) additional deduction on domestic input expense incurred in taxable year.
c. Fifty percent (50%) additional deduction on power expense incurred in the taxable year.
d. All of the above

18. For export enterprise, domestic market enterprise, and critical domestic market enterprise, which of the following may
be allowed as deductions?
a. Deduction for reinvestment allowance to manufacturing industry
b. Enhanced Net Operating Loss Carry-Over (NOLCO)
c. Both A and B
d. Neither A nor B

19. Statement 1: Under the CREATE Act, the option to avail of either SCIT or Enhanced Deduction after ITH period shall
be exercised by the RBE at the time of application for registration for the project.
Statement 2: The option to avail of either SCIT or Enhanced Deductions shall be revocable at any time.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

20. All registered business enterprises shall be subject to which types of taxes after the expiration of the period of incentives
of their registered project or activity?
I. RCIT
II. MCIT
III. 12% VAT
a. I only
b. I and II only
c. I, II and III
d. None of the above
--END OF HANDOUT--

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