Press Release
September 8, 2019

Sotto moves to boost LGU revenue collection by amending Situs of Taxation

In a bid to increase the local government units' (LGU) revenue collection, Senate President Vicente C. Sotto III has proposed to amend the "Situs of the Tax" provision in RA 7160 or the Local Government Code of 1991.

Situs, in tax parlance, refers to the place of taxation.

Prior to the passage of RA 7160, the practice of allowing businesses to pay their taxes in Metro Manila where they keep their principal offices, even if most of their earnings come from their operations in provinces, has been the subject of numerous complaints of local government units (LGUs), Sotto said.

"The Local Government Code of 1991 provided solution for such grievances. However, from the time of its effectivity on Jan. 1, 1992, most LGUs outside Metro Manila were left behind by those within the metropolis in terms of providing basic services, development and economic growth," he said.

Senate Bill No. 494, Sotto said, seeks to address these complaints by proposing an amendment to RA 7160, specifically the provision on the "Situs of the Tax" under Section 150.

The measure provides for the allocation of the value-added tax (VAT) paid by manufacturers, assemblers, contractors, producers and exporters with factories, project offices, plants and plantations to the municipality or city where they are operating. It further provides that the allocation of VAT on payments of sale to the principal office be reduced and that of the municipality or city where the factory, project office, plant or plantation is located be increased.

In proposing the amendment, Sotto sought to increase to 90 percent the current 70 percent of all sales recorded in the principal office which shall be taxable by the city or municipality where the factory, project office, plant or plantation is located.

From the present 30 percent, only 10 percent of all sales or transaction made in the principal office shall be taxable by the city or municipality where such principal office is located, the senator said.

In cases where the producer, manufacturer, assembler, exporter or contractor has two or more factories, project offices, plants or plantations located in different localities, Sotto said the 70 percent sales allocation prorated among the localities where the factories, project offices, plants and plantations are located in proportion to their respective volumes of production during the period for which the tax is due will be increased to 90 percent.

In case of a plantation that is located at a place other than the place where the factory is located, the said 90 percent sales allocation will be divided as follows: 60 percent to the city or municipality where the factory is located and 40 percent to the city or municipality where the plantation is located.

The proposed amendment could help cities and municipalities outside Metro Manila cope with their financial and infrastructure needs and provide additional source of funding for improving basic services, Sotto said.

The Senate leader added this would make the LGUs outside Metro Manila more attractive for investments and local migration as it can create more job opportunities, tourism and other beneficial programs for their constituents.

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