Explaining the 2% local tax on business enterprises
By: Atty. Euney Marie J. Mata-Perez on August 7,2025
THE Create More Act or Republic Act (RA) 12066 amended Section 294 of the National Internal Revenue Code (Tax Code) to introduce a local tax of not more than 2 percent, which can be imposed by local government units (LGUs) on registered business enterprises or RBEs.
LGUs are empowered to charge the RBELT through an ordinance issued by the concerned Sanggunian. It is done when the RBE is under ITH (income tax holiday) and EDR (enhanced deduction regime).
The RBELT shall be in lieu of all local taxes and local fees and charges imposed by the LGU under RA 7160, or the Local Government Code of 1991 (LGC).
Also, the RBELT is not imposed on RBEs enjoying the 5-percent special corporate income tax (SCIT), which is based on gross income earned by the RBE. The SCIT is an incentive granted to export enterprises, and such tax shall be in lieu of all national and local taxes, fees and charges.
It should be recalled that Create More Act also amended Section 294(B) of the Tax Code to clarify that the 5 percent SCIT incentive is in lieu of all national and local “taxes and local fees and charges.”
Prior to such amendment, Section 294(B), which was amended by the original Create Act or RA 11534, said that the SCIT is in lieu of all “national and local taxes.” The original phrase, which was a carryover of the provisions in various incentives law, led to the interpretation that LGUs can impose fees on registered enterprises.
Difference between fees, taxes
There is a significant difference between fees and taxes. Fees are imposed pursuant to the LGU’s police power or power to regulate, while taxes are in pursuant to the LGU’s taxing power or the power to raise revenues.
LGUs that desire to impose the RBELT should do so through ordinances enacted by their respective Sanggunian.
Notably, RBEs certified by the Board of Investments as pioneer or non-pioneer shall be exempt from the local business tax, and thus, the RBELT as well, for a period of six or four years, respectively, from the date of registration, pursuant to Section 133(g) of the LGC.
This exemption was not amended or repealed by Create More and will still be in effect, notwithstanding the LGU’s power to impose the RBELT.
The imposition of the RBELT will not prevent investment promotion agencies (lPAs) with regulatory powers as provided in their charters, or by special laws, to continue exercising their authority in relation to the imposition of fees and charges within their respective territorial areas or jurisdictions.
The RBELT shall be imposed on an RBE for as long as it meets the conditions for its registration during the period of their availing of the ITH and EDR. The determination of compliance by the RBE with its terms and conditions shall be with the concerned IPA.
Upon the expiration of the income tax-based incentives of the RBE, the LGU may continue to impose RBELT or local business tax exemption pursuant to its authority under the LGC. The RBELT shall be directly remitted by the RBE to the treasurer’s office of the municipality or city where the enterprise is located.
Explicit provision
The provision on RBELT is explicit: It shall be IN LIEU (or instead) of ALL taxes, fees, and charges imposed by the local government unit on the RBE under the local government unit. A plain reading of the provision would mean that the RBE local tax cannot be imposed with any other tax, fee, or charge in the LGC.
Thus, it replaces the following taxes, fees and charges: real property tax, local business tax, franchise tax and service fees and charges which LGUs have the power to impose under the LGC.
Where two or more LGUs cover the same enterprise, the total RBELT to be imposed shall not exceed 2 percent of the gross income of the project or activity, and the sharing of the RBELT imposed among such LGUs shall be as follows:
a. 50 percent of revenues shall be shared equally among the LGUs;
b. 50 percent of revenues shall be apportioned based on the population of the LGUs.
Fifty percent of the share of the municipality based on the foregoing allocation shall be remitted to the province where the said municipality is located. Cities, however, shall be entitled to retain 100 percent of their share.
LGUs may reduce the rate of tax or waive their share thereof in the case of two or more LGUs covering the same enterprise.
An LGU imposing the RBELT under this section shall transmit a copy of the enacted ordinance to the FIRB and the concerned lPAs within 15 days upon its approval.
Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer and has been ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal and is the Chair of the Tax Committee of the Management Association of the Philippines. She acknowledges the contribution of Mr. Rey Christian M. Guintibano in this article. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.