City Legal Office: Exercise of profession or business?

"There should be distinction between tax on the exercise of profession and tax on business income for which the city has the right to collect."

This was the reply of the City Legal Office to the Cebu City Treasurer's Office that requested for its legal opinion whether or not doctors, lawyers, dentists and other professionals practicing their profession in the city should secure a business permit.

The consultation was done after some professionals have accordingly opposed to pay for permits and local taxes, saying they are exempted from these matters and that they shall pay for their professional tax only.

Professional tax is required by the Cebu City government to every person legally authorized to practice a profession in Cebu City wherein they will also be issued a Professional Tax Receipt before they can exercise their profession.

This is in accordance with Section 139 of the Local Government Code which states that "the province may levy an annual professional tax on each person engaged in the exercise or practice of his profession requiring government examination at such amount and reasonable classification as the Sangguniang Panlalawigan may determine but shall in no case exceed P300."

In the letter from the CTO, city treasurer Diwa Cuevas said that when a professional establishes a medical or dental clinic or office, the office shall be subjected already to the Mayor's Permit fee and such other regulatory fees, citing Section 147 of the LGC.

"The municipality may impose and collect such reasonable fees and charges on business and occupation and, except as reserved to the province in Section 139 of this code, on the practice of any profession or calling, commensurate with the cost of regulation, inspection and licensing before any person may engage in such business or occupation, or practice such profession or calling," read the Section 147 of the LGC.

These kinds of fees include Office of the Building Official fees, sanitary or City Health Inspection Fee, fire safety inspection fee, garbage fee and among others.

Moreover, Cuevas also said in the letter that professionals who also earn incidentally from their exercise of such profession, such as selling dental products or eye care products, shall be subjected to the local taxes and fees and shall be required to secure a business permit.

Cuevas said that their office was about to issue the notice to comply and notice of tax delinquencies to concerned professionals in order to secure a Mayor's Permit and mayor's business permit.

However, the professionals opposed the matter, which prompted them to ask legal opinion from the CLO, whose assistant department head, Lyndon Bernardo Basan, drafted an answer.

The letter, though, still needs approval from the city attorney Jerone Castillo.

In the letter, Basan said the CLO believes that there should be distinction between tax on the exercise of profession and tax on business income wherein the city has the right to collect on the latter.

He made example a pharmacist who is in the exercise of his or her profession that he or she can only be imposed professional tax, but the sales of the pharmacy, which he or she owns or manages, can be assessed business taxes.

But in the case of doctors, lawyers, accountants and other professionals who are not selling product or items but are paid because of the services rendered to their clients, Basan said they cannot be considered to be engaged in business for which a license or mayor's permit is required.

"And consequently, professional fees or payment derived from their services cannot also be considered as ' business income', it is to be treated as personal income for which the city is prohibited to tax under Section 133-a of the Local Government Code," read the letter.

Section 133- a of the LGC states that "unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the income tax, except when levied on banks and other financial institutions."

However, Basan also said in the letter that nothing in his opinion prohibits the CTO or any other agency from imposing regulatory fees of the professionals' respective offices such as fees on zoning, garbage and among others.

Castillo said he agrees with Basan's opinion and that he will inform the CTO about it.—

Ma. Fatima R. Secuya/ ATO