Finance Secretary Benjamin Diokno issued Local Finance Circular (LFC) No. 001.2022 on September 1, 2022, which provides guidelines on the imposition of local business tax (LBT), fees and charges on service contractors.

The LFC states that service contractors that provide temporary or outsourced personnel, including those in a work from home (WFH) arrangement, for clients in local government units (LGUs) where it does not maintain any office, are not liable to pay a Mayor’s or business permit fee.

“We issued the circular to address the concerns this Department has been receiving from taxpayers since 2015, specifically on the imposition of Mayor’s or business permit fee on service contractors deploying temporary and outsourced personnel in the local government outside its principal office,” he added.

The LFC will be effective September 24, 2022, which is 15 days after its filing with the Office of the National Administrative Register (ONAR) of the UP Law Center last September 9, 2022, as required by law.

Prior to the issuance of the circular, LGUs would collect LBT and Mayor’s permit fees from business process outsourcing (BPO) employees in a WFH setup.

Similarly, food delivery services that are being contracted for their transportation services were held liable to pay for a Mayor’s or business permit fee in the LGUs where they conduct their services.

The circular was issued pursuant to the Local Government Code of 1991 and its Implementing Rules and Regulations (IRR), which provides that all sales or transactions made by a service contractor in an LGU where there is no branch or sales office must be recorded in its principal office, and the LBT due thereon must be paid to the LGU where its principal office is located.

On the other hand, all sales or transactions made by a service contractor in an LGU where it has a branch or sales office must be recorded in the said branch or sales office, and the LBT due thereon must be paid to the LGU where such branch or sales office is located.

Secretary Diokno reminded LGUs that they cannot simply impose LBT on personnel who are in WFH setups, since sales or transactions have to be recorded either in their principal or branch or sales offices.

However, LGUs may impose occupation fees on outsourced personnel temporarily deployed and engaged in the practice of occupation not requiring government examination, including those in a WFH arrangement.

Furthermore, LGUs may impose fees and charges on the principal, branch or sales, project, and administrative offices of a service contractor where such offices are located.

This is to recover the cost of services that the LGU concerned may render as a function of regulation and/or service provision, and as may be provided under a duly enacted local ordinance.

“I enjoin all city and municipal treasurers to comply with the provisions of LFC No. 001.2022. The DOF, through the Bureau of Local Government Finance (BLGF), shall monitor the compliance of the LGUs, through the concerned local treasurers, and provide the necessary technical assistance to local governments,” said Secretary Diokno.

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