The national government has streamlined the taxes and fees imposed by local government units (LGUs) on businesses enjoying tax incentives, a move aimed at addressing investor concerns about unfair tax policies.

Under Joint Memorandum Circular (JMC) No. 1 dated March 23, the government affirmed that the Local Government Code (LGC) of 1991, which grants autonomy to LGUs, mandates a uniform taxation procedure.

The JMC was signed by the secretaries of the departments of trade and industry, finance, and the interior and local government.

The circular noted that the LGC requires LGUs to ensure that the imposition of taxes, fees, and charges is “equitable” and “based as far as practicable on the taxpayer’s ability to pay.”

Further, the law makes it clear that such policies must not be “unjust, excessive, oppressive, or confiscatory,” nor “contrary to law, public policy, national economic policy, or in restraint of trade.”

Business groups have long raised concerns that the LGC is being sidestepped by some LGUs, which allegedly exploit their autonomy to extract more money from the registered business enterprises (RBEs) they host.

Such a practice is counterintuitive to the government’s efforts to cut red tape and encourage investment, especially at a time when countries are becoming more competitive in attracting capital.

Under the LGC, RBEs enjoying incentives prior to the passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act shall remain exempt from local taxes, fees, and charges.

This covers RBEs availing themselves of an income tax holiday (ITH) and certified as pioneer or non-pioneer for a period of four or six years; those availing themselves of the five percent tax on gross income earned (GIE) until Dec. 31, 2034; and those availing themselves of both the ITH and the five percent tax on GIE, also until Dec. 31, 2034.

RBEs granted incentives under CREATE, availing themselves of the ITH or the enhanced deductions regime (EDR), and certified as pioneer or non-pioneer, shall be granted relief from local business tax for a period of four or six years.

The same applies to RBE projects registered under the CREATE MORE Act, which amended CREATE.

In addition, RBEs benefiting from the five percent special corporate income tax (SCIT) shall enjoy immunity from local taxes, fees, and charges for a specified period.

RBEs are also exempt from these local impositions when the corresponding LGU has granted tax exemptions, incentives, or reliefs, as well as in transactions that provide for such tax breaks.

These exemptions shall apply only to the extent of the registered project or activity of the RBE. As such, non-registered projects or activities of the RBE shall remain subject to applicable taxes, fees, and charges.

Through the JMC, LGUs may impose an RBE local tax (RBELT) at a rate of not more than two percent, based on the gross income of the registered project during its availment of the ITH and EDR.

However, the circular noted that when two or more LGUs cover the same RBE, the total RBELT shall not exceed two percent of the gross income of the RBE’s project or activity.