Local Business Tax in the Philippines: How LGUs Levy It Under the Local Government Code

Local business tax in the Philippines is a tax imposed by cities and municipalities on persons engaged in business within their territorial jurisdiction. It is authorized by Republic Act No. 7160, the Local Government Code of 1991, which gives local government units the power to create their own sources of revenue and to levy taxes, fees, and charges that accrue exclusively for their use. Businesses pay this tax to the LGU where they operate, usually together with the mayor's permit. Rates and exact deadlines depend on the local revenue ordinance, so the specific figures are set locally rather than nationally.

Who has the power to levy local business tax?

Under Section 18 of the Local Government Code, local government units have the power and authority to create their own sources of revenues and to levy taxes, fees, and charges. These revenues accrue exclusively for the LGU's use and disposition and are retained by the LGU.

This is the statutory foundation of local taxation. The national government does not collect local business tax; the city or municipality does. The province, city, or municipality exercises this power through an ordinance passed by its sanggunian.

Who pays local business tax?

Local business tax is paid by persons and entities engaged in business within the LGU's territory. This generally covers proprietors, manufacturers, wholesalers, retailers, and other establishments operating in the locality.

The tax is tied to the privilege of doing business in that jurisdiction. A business operating in more than one city or municipality may be subject to the tax in each LGU where it maintains operations, subject to the rules on allocation and the limitations in the Local Government Code.

How does the LGU impose the tax?

The LGU imposes local business tax through a revenue ordinance enacted by its sanggunian. The ordinance sets the tax rates, the tax base, the manner of payment, and the deadlines. Because these details are fixed locally, the amount a business pays in one city may differ from the amount paid in another.

The Local Government Code also requires that local taxes, fees, and charges be fair and based on the taxpayer's capacity to pay, and that they be imposed only for public purposes. The sanggunian must observe the procedural requirements in the Code when enacting tax ordinances, including public hearings in the case of certain impositions.

How does local business tax relate to other local taxes and fees?

Local business tax is only one of several impositions an LGU may collect. A business may also pay:

• Real property tax on land, buildings, and machinery it owns, administered by the local assessor and treasurer.
• Regulatory fees and charges for permits, licenses, and inspections.
• Other local taxes authorized by the Local Government Code, such as taxes on the transfer of real property ownership and on businesses enjoying a franchise.

The Real Property Valuation and Assessment Reform Act (Republic Act No. 12001) and its Implementing Rules and Regulations govern the valuation side of real property taxation. The IRR of R.A. No. 12001 states that one of the Act's purposes is to promote the fiscal autonomy of local government units by enhancing their capacity to generate local revenues from real property. The IRR also provides that the Bureau of Local Government Finance shall develop, adopt, maintain, and implement uniform valuation standards for real property, known as the Philippine Valuation Standards, and that all real properties, whether taxable or exempt, shall be valued or appraised based on prevailing market values in the locality where the property is situated. The specific Bureau of Internal Revenue issuance circularizing these rules is not in the ASG law library.

How is the tax collected and paid?

Collection is handled by the local treasurer's office of the city or municipality. Payment is typically made when the business registers or renews its permit, and often in installments if the local ordinance allows.

Businesses should secure the following from the LGU where they operate:

1. A business permit from the mayor's office.
2. Payment of the local business tax to the local treasurer.
3. Payment of regulatory fees for the specific type of business.
4. A community tax certificate (cedula), if required locally.

The exact order and requirements vary per LGU, so it is best to confirm with the city or municipal hall's business permit and licensing office.

Frequently asked questions

Is local business tax the same as national income tax? No. Local business tax is imposed by the city or municipality under the Local Government Code, while income tax is imposed by the national government through the Bureau of Internal Revenue. A business may be liable for both.

Where do I pay local business tax in the Philippines? You pay it to the city or municipal treasurer of the LGU where your business is located, usually as part of the business permit process.

Can an LGU impose any business tax it wants? No. The LGU may only levy taxes, fees, and charges authorized by the Local Government Code, and it must do so through a valid ordinance enacted by its sanggunian.

Practical takeaways

• Local business tax is levied by cities and municipalities, not by the national government, under the Local Government Code of 1991.
• The LGU's revenue ordinance determines the rate, base, and deadline, so these differ from one locality to another.
• Payment is made to the local treasurer, typically alongside the mayor's permit and other regulatory fees.
• Businesses operating in multiple LGUs may face the tax in each jurisdiction where they operate.
• Real property owned by the business is separately subject to real property tax, now governed alongside R.A. No. 12001 and its IRR.

Primary sources

The rules discussed above are drawn from the following primary sources. Where the firm's library holds the document as a PDF it is embedded here in full; the rest are cited by title.

RMC No. 30-2025 — Circularizing the Implementing Rules and Regulations of RA No. 12001, titled "An Act Instituting Reforms in Real Property Valuation and Assessment in the Philippines, Reorganizing the Bureau of Local Government Finance, Granting Tax Amnesty on Real Property and Special Levies on Real Property, and Appropriating Funds Therefor"Open in Law LibraryDownload PDF

• REPUBLIC ACT NO. 7160 - AN ACT PROVIDING FOR A LOCAL GOVERNMENT CODE OF 1991

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.