Local Finance Circular No.

1-93
June 16, 1993

SUBJECT : PRESCRIBING THE GUIDELINES GOVERNING THE POWER OF

MUNICIPALITIES AND CITIES T IMPOSE A BUSINESS TAX ON
BANKS AND OTHER BANKING INSTITUTIONS PURSUANT TO
SECTIONS 143 (f) AND 151 OF REPUBLIC ACT NO. 7160
OTHERWISE KNOWN AS THE LOCAL GOVERNMENT CODE OF
1991, AND ITS IMPLEMENTING RULES AND REGULATIONS
(IRR).

TO : ALL REGIONAL DIRECTORS, BUREAU OF LOCAL

GOVERNMENT FINANCE; DISTRICT TREASURERS OF
METROPOLITAN MANILA; PROVINCIAL, CITY, AND
MUNICIPAL TREASURERS; AND OTHERS CONCERNED.

Pursuant to the provisions of Sections 143 (f) and 151 of republic Act No. 7160,
otherwise known as the Local Government Code of 1991 (LGC), as implemented by
Article 232 (f) and 237 of the Implementing Rules and Regulations (IRR), municipalities
and cities may impose taxes on businesses, including banks and banking institutions.

Accordingly, the following guidelines are hereby prescribed in accordance with

Art. 287 of the IRR, to ensure the proper and effective exercise by cities and
municipalities of their taxing powers and under the LGC, as implemented under Rule
XXX of the IRR, for guidance and compliance of all concerned;

Section 1. Coverage. (a) As used herein, the term “banks or banking institutions”
shall refer to persons or entities engaged in the lending of funds obtained from the public
through the receipt of deposits or the sale of bonds, securities or obligations of any kind
and all entities regularly conducting such operations. The terms “banking” or “banking
institutions” are synonymous and interchangeable.

For purposes of this Circular, banks shall be classified as follows:

(1) Commercial banks;

(2) Thrift banks composed of –
(i) Savings and Mortgage Banks
(ii) Stock savings and loan associations
(iii) Private development banks
(3) Regional unit banks consisting of rural banks;
(4) Specialized and unique Government banks like the Development Bank
of the Philippines, which are governed by their respective charters.
 (5) Other classes of banks as may be authorized by the Monetary Board of
the Central Bank of the Philippines

Banking institutions include the following:

(1) Entities regularly engaged in the lending of funds or purchasing of

receivables or other obligations with funds obtained from the public
through the issuance, endorsement or acceptance of debt instruments
of any kind for their own account , or through the issuance of
certificates of assignments or similar instruments with recourse, trust
certificates or of repurchases agreements, whether any of these means
of obtaining funds from the public is done on a regular basis or only
occasionally;
(2) Entities regularly engaged in the lending of funds which receive
deposits only occasionally; and
(3) Trust companies, building and loan associations, non-stock savings
and loan associations.

(b) Head Office - shall refer to the main office of the banking institution
indicated in the pertinent documents submitted to the Securities and Exchange
Commission (SEC) and to other appropriate agencies; the city or municipality
specifically mentioned in the Articles of Incorporation and other official registration
papers as being the official address of said “Head Office” shall be considered as the site
thereof.
(c) Branch – a fixed place in a locality established as a branch of a banking
institution, as authorized by the Monetary Board of the Central Bank of the Philippines.
However, a regional or extension offices of banks and banking institutions shall not be
considered as a branch.

Section 2. Tax on the Gross Receipts of Banks and Banking Institutions. (a) The
tax on banks and banking institutions maybe levied on their gross receipts for the
preceding calendar year, as follows:

(1) By municipalities, at a rate not exceeding fifty percent (50%)

of one percent (1%) of the gross receipts for the preceding calendar
year; and
(2) By cities including municipalities within the Metropolitan
Manila area, at a rate not exceeding seventy five percent (75%) of one
percent (1%) of the gross receipts for the preceding calendar year.

(b) For the purpose, gross receipts shall only include the following:

(1) Interest from loans and discounts – this represents interest earned and
actually collected on loans and discounts. The following is a
breakdown:
 (i) Discounts earned and actually collected in advance on bills
discounted;
(ii) Interest earned and actually collected on demand loans
(iii) Interest earned and actually collected on time loans,
including the earned portions of interest collected in
advance;
(iv) Interest earned and actually collected on mortgage
contracts receivables;

(2) Interest earned and actually collected on interbank loans.

(3) Rental of Property - this represents the following rental income:

(i) Earned portion of rental collected in advance from lessees

of safe deposit boxes;
(ii) Rental earned and actually collected from lessees on bank
premises and equipment

(4) Income earned and actually collected from acquired assets

(5) Income from sale or exchange of assets and property
(6) Cash dividends earned and received on equity investments.
(7) Bank Commissions from lending activities.
(8) Income component of rentals from financial leasing.

At the time of annual payment of the tax due, the Head Office or branch of a bank
shall submit to the LGU concerned a Schedule of Annual Income for the preceding
calendar year, in accordance with the sample from hereto attached as “Annex A”.

(c) Income and receipts of banks and banking institutions not otherwise
enumerated above shall be excluded from the taxing authority of the LGU concerned,
such as:

(4) Interest earned under the expanded foreign currency deposit system.
(5) Interest accumulated by lending institutions on mortgages insured
under Republic Act No. 580, as amended, otherwise known as Home
Financing Act
(6) Receipts from filing fees, service and other administrative charges.

Section 3. Non-Separability of Banking Business. – Activities which are inherent,

related, necessary or incidental to the banking business shall be treated as one business
activity subject to the same tax thereon, which shall be computed on the basis of the
combined gross receipts of all said banking activities, as defined above.

In view thereof, the provisions of Art. 242 of the IRR requiring a person or entity
to get a separate mayor’s permit for each business activity shall not apply to the banking
activities, as defined above.
 Section 4. Procedures for the Enactment of Tax Ordinances. – (a) The tax on
banks and banking institutions as provided herein may be imposed by a city or
municipality only through an appropriate ordinance enacted by the Sangguniang
Panlungsod or Sangguniang Bayan, as the case may be. Such ordinance shall be enacted
and approved in accordance with Arts. 107, 108, 275 and 276 of the IRR.

(b) Pursuant to the procedures on the conduct of public hearings as prescribed in

Art. 276 (b) of the IRR, the Sanggunians concerned shall cause the sending of written
notices of public hearings for proposed ordinances to the branch manager or the highest
officer of the Head Office of affected banks and banking institutions within their
territorial jurisdictions.

(c) Any tax ordinance which does not comply with the above provisions shall be
deemed null and void. Enforcement of such ordinance shall be a ground for disciplinary
action against the officials or employees responsible therefore as provided for in Art. 280
of the IRR.

Section 5.; Situs of the Tax. – For purposes of collection of the tax, the
following shall apply – (a) All transactions filed with or negotiated in the branch shall
be recorded in the said branch and the gross receipts derived from said transactions shall
be taxable by the city or municipality where such branch is located. This rule shall be
applied to :

(1) transactions negotiated with and approved by the branch manager

under his own authority ; or
(2) transactions filed and negotiated in the branch but being beyond the
approving authority of the branch manager, are forwarded to the
Head Office for final approval.

(b) The gross receipts derived from transactions made by the Head Office, except
gross receipts recorded in the branches shall be taxable by the city or municipality where
said Head Office is located.

(c) In case there is a transfer or relocation of the Head Office or of any branch to
another city or municipality, the bank shall give due notice of such transfer or relocation
to the chief executives of the cities or municipalities concerned within fifteen (15) days
after such transfer or relocation is effected.

Section 6. Time of Payment. – The tax on banks due and accruing to the LGUs
shall be payable within the first twenty (20) days of January or of each subsequent
quarter, as the case may be, unless otherwise fixed in the corresponding local tax
ordinance.

Section 7. Examination of Books of Accounts and Pertinent Records. – (a) The

Treasurer of the LGU concerned or through any of his deputies duly authorized in writing
may examine the books of accounts and other pertinent records of banks in order to
ascertain, assess, and collect the correct amount of tax due.

(b) The examination shall be made during regular office hours not oftener than
once a year for every tax period, which shall be limited to verifying the summary of
transactions contained in the prescribed form (see Annex “A”) submitted by the bank
upon which the declaration of gross receipts for the preceding calendar year has been
based and the tax paid thereon. Such examination shall be certified by the examining
official, which certification shall be made of record in the books of accounts of the bank
examined.

Section 8. Repealing Clause. – All rules, regulations, orders, and/or circulars

which are contrary to, or inconsistent with, the provisions of this Circular are hereby
repealed or modified accordingly.

Section 9. Effectivity. – This Circular shall take effect immediately.

The Regional Directors of the Bureau of Local Government Finance and District
Treasurers of Metropolitan Manila Area are hereby instructed to disseminate the contents
of this Circular to all Provincial, City and Municipal Treasurers within their respective
jurisdictions for their information and guidance.

Original Signed
ROMEO L. BERNARDO
Undersecretary of Finance
Officer-in-Charge
 “ANNEX A”

SCHEDULE OF ANNUAL INCOME

SUBJECT TO GROSS RECEIPTS TAX
PURSUANT TO SECTION 143 OF
THE LOCAL GOVERNMENT CODE
For the Year ended
Date

(In Thousand Pesos)

ACCOUNTS REC. AMOUNT

NO.
A. INTEREST INCOME
1) Interbank Loans Receivable
2) Loans and discounts
3) Agrarian Reform/Other Agricultural Credit Loans
4) Bills Purchased
5) Import and domestic Bills Under LC & or TR
6) Past Due Items/Items in Litigation
B. BANK COMMISSIONS – LENDING ACTIVITIES
C. EXTRAORDINARY CREDITS/(CHARGES)
1) Income From Assets Acquired
2) Profits/(Losses) from Assets Sold/Exchange
3) Dividends – Equity Investments
D. RENT INCOME
1) Safe Deposit Boxes
2) Bank Premises and Equipment
E. INTEREST INCOME IN FINANCIAL LEASING
F. TOTAL INCOME SUBJECT TO GRT (A+B+C+D+E)
G. TAX DUE (_________% OF F)
H. QUARTERLY AMOUNT DUE (G Divided by 4)

_/ This includes interest income on demand loans, time loans, discounts earned,
and mortgage contract receivables as defined in the Central Bank Manual of Accounts for
Commercial Banks only.