The Local Tax Of An I-Café

Local tax is the percentage of the gross sales that a local government unit (LGU) charges a business before it is given a permit to operate in a locality. The power of an LGU to impose local tax on businesses in its area is derived from Book II of the Local Government Code of the Philippines. The local tax is a component in the total amount that a businessman has to pay his LGU when he applies for a permit to operate a new business and when he renews it annually. The other amounts included in the payment for a business permit are the administrative and service fees that an LGU collects from its local taxpayers.

An i-café, just like any business that provides service to its customers is subject to local tax. When registering an i-cafe business for the first time, the LGU uses the paid-up capital (amount of investment) as the tax base. Usually, three-fourth (0.75%) percent of the amount is levied as local tax for a new i-café business.

When renewing a business permit during January of each year, the gross income in the previous year of operation will be the basis of the local tax that an i-café owner has to pay. The presumptive income level or PIL may be used by the LGU in computing the local tax of an i-café business if the owner cannot show the proof of income that can support the figure he wrote on his application for renewal of business permit. This shows how important it is to keep book of accounts on any business. PIL is an estimated figure or an intelligent guess of how much does an i-café earns as applied to all i-cafés in general.

By way of an example, let us say that an investment of P200,000 was declared by an owner of a ten-seater café that started operation in the month of March. His local tax computed at 3/4 percent of the capital will be P1,500 only. On renewing his permit in January of the succeeding year, his gross income may be assessed using PIL of PhP100.00/PC/day so that for the ten (10) months operation, his tax base will be P300,000 in which 2% will be due as local tax or a total of P6,000 as compared to only P1,500 on his first year of operation.