New Local Tax Introduced to Impact Business Incentives
A significant change has been implemented in the national tax code with the enactment of the “Create More Act,” or Republic Act 12066. This legislative amendment grants local government units (LGUs) the authority to impose a new local tax, officially referred to as the Registered Business Enterprise Local Tax (RBELT). This new tax can be levied at a rate of up to 2% on a specific category of companies known as registered business enterprises (RBEs), particularly those that are currently benefiting from an income tax holiday (ITH) or an enhanced deduction regime (EDR). The most critical aspect of the RBELT is its nature as a replacement tax. It is explicitly designed to be imposed in lieu of all other local taxes, fees, and charges that LGUs are typically authorized to collect from these businesses. This provision is intended to simplify the tax landscape for affected enterprises while providing a stable revenue stream for local governments, though its full impact on the business community and on foreign investment in the country remains to be seen as companies adjust to the new regulations.
Understanding Exemptions and Tax Incentives
The new local tax is not universally applied to all registered business enterprises. It is important to note that RBEs that are already enjoying the 5% special corporate income tax (SCIT) are exempt from the RBELT. The SCIT itself serves as a key incentive for export enterprises and, similar to the RBELT, is a consolidated tax that replaces all other local taxes, fees, and charges. This is a crucial distinction that prevents double taxation on companies that are already contributing to the national economy through a special tax scheme. Furthermore, the legislation also respects long-standing exemptions for certain pioneer and non-pioneer enterprises. Those that have been certified as such by the Board of Investments still enjoy a local business tax exemption for a period ranging from four to six years, depending on their classification. This exemption now also applies to the RBELT, ensuring that these newly established or pioneering businesses are not burdened with additional taxes during their crucial startup and growth phases, which is vital for attracting and nurturing innovative new industries in the country.
Implementation and Revenue Sharing Mechanisms
For the RBELT to be implemented, each local government unit must first enact a specific ordinance. Once the tax is officially in place, registered business enterprises are required to remit the tax directly to the treasurer’s office of the municipality or city where their operations are based. For businesses that have a presence in two or more LGUs, a special provision is in place to ensure fair taxation and revenue allocation. The total RBELT levied on such an enterprise cannot exceed 2% of the project’s total gross income, regardless of the number of localities it operates in. The collected revenue is then shared among the relevant LGUs, with a portion allocated based on population and another portion shared equally. A key element of the revenue-sharing scheme dictates that cities are entitled to retain their full share of the revenue, while municipalities are required to remit 50% to the province, ensuring a balanced distribution of funds across different government levels and helping to provide essential services to all citizens.
