Double taxation
Is there a difference between “gross receipts” and “gross revenues” for purposes of assessing local business taxes? If there is, should the business taxes imposed by local governments be based on gross receipts or gross revenues? These are the questions raised and answered in this case of a corporation engaged in design, engineering and marketing of telecommunication facilities/system (ETI).
On October 25, 2000, ETI received from the City Treasurer of Pasig an Assessment Notice for business tax deficiency for the years 1998 and 1999 amounting to P9.5 million and P4.9 million respectively, based on its gross revenues as reported in its audited financial statements for the years 1997 and 1998. ETI protested said assessment claiming that the computation of said taxes should be based on gross receipts and not on gross revenues.
But instead of acting on said protest the Pasig City Treasurer issued another assessment notice on November 19, 2001 for local business tax deficiencies this time for the years 2000 and 2001 amounting to P4.6 million and P4.7 million respectively again based on ETI’s gross revenues this time for the years 2000 and 2001. Again ETI filed a protest on
The City Treasurer then denied ETI’s protests and gave the latter 30 days within which to appeal the denial. Thus ETI filed a petition for review before the Regional Trial Court praying for the annulment and cancellation of the assessments for local business tax deficiencies totaling P17.2 million. It insisted that that only the portion of the revenues which were actually and constructively received should be considered in determining the tax base for the computation of the business tax deficiencies. But the Pasig City Treasurer argued that the term “gross receipts” is synonymous with gross earnings/revenue which includes uncollected earnings. Was the Treasurer correct?
No. Under the Local Government Code (LGC Section 143 [e]) the Municipality may impose taxes base on gross receipts. Gross receipts under Section 131 of the LGC include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased. There is constructive receipt when the consideration for the articles sold, exchanged or leased, or the services rendered has already been placed under the control of the person who sold the goods or rendered the services without any restriction by the payor.
In contrast, gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. It is the gross inflow of economic benefits (cash, receivables and other assets) arising from the ordinary operating activities of an enterprise, measured at the fair value of the consideration received or receivable. Revenue from services rendered is recognized when the services have been performed and are billable. It is recorded at the amount received or expected to be received.
The audited financial statement of ETI uses the accrual method of accounting where income or revenue which accrued to it during the taxable period is already reflected although not yet actually or constructively received or paid. Under the accrual method the right to receive income and not the actual receipt determines the amount to be included in the gross income.
The imposition of local business tax based on the gross revenue of ETI will inevitably result in the constitutionally proscribed double-taxation — taxing the same person twice by the same jurisdiction for the same thing — in as much as ETI’s revenue or income for a taxable year definitely includes its gross receipts already reported during the previous year and for which local business tax has already been paid. Hence the assessments of Pasig City Treasurer should be cancelled and set aside (Ericsson Telecommunications Inc. vs. City of Pasig etc. G.R. 176667,
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