Untangling the local tax maze
By Maricel Alisuag
The Department of the Interior and Local Government (DILG), Department of Finance (DOF) and the Department of Trade and Industry’s (DTI) Joint Memorandum Circular (JMC) 01-2026 stands as one of the most consequential tax-related issuances released in recent years.
The circular is intended to foster alignment between local government units (LGUs) and registered business enterprises (RBEs) enjoying fiscal incentives under the Corporate Recovery and Tax Incentives for Enterprises (Create) Act and the Maximize Opportunities for Reinvigorating the Economy Act (Create More) framework.
At the heart of the circular is a longstanding issue in local taxation. For years, investors operating within economic zones and investment areas faced inconsistent interpretations by LGUs concerning local business taxes, permit fees, and regulatory charges. While national investment laws granted fiscal incentives through investment promotion agencies, some LGUs continued to impose local taxes and fees that businesses believed were already covered by statutory exemptions.
One of the key issues that Create More itself sought to address was the uncertainty surrounding the scope of local tax exemptions granted to RBE under the five-percent gross income tax (GIT) regime. Prior to Create More, the extent of exemption was subjected to varying interpretations and inconsistent application across different LGUs.
In practice, many RBEs experienced situations where the LGU imposed numerous permit fees, regulatory charges and other local assessments, which in some cases resulted in a heavier financial burden than if the enterprises had simply been subjected to the regular local business tax. Create More clarified this ambiguity by expressly providing that the exemption enjoyed by RBE under the five-percent GIT covers not only local taxes but also local fees and charges.
JMC 01 seeks to operationalize and reinforce this policy direction by prescribing uniform guidelines on the imposition of local taxes, fees and charges on RBE availing of tax incentives.
Among the circular’s most notable features is the introduction of the Registered Business Enterprise Local Tax (RBELT). Under the guidelines, the LGU may impose an RBELT at a rate not exceeding two percent of the RBE’s gross income during the period of the enterprise’s availment of income tax holiday (ITH) and enhanced deductions regime (EDR).
The circular further clarifies that when two or more LGUs have jurisdiction over the same RBE, the aggregate RBELT imposed must still not exceed two percent of the enterprise’s gross income. This provision is particularly significant for businesses operating across multiple local jurisdictions, where overlapping tax assessments have historically created administrative and financial uncertainties.
Equally significant are the provisions governing pre-Create RBEs, or enterprises registered prior to the effectivity of the Create Act.
The JMC provides that pre-Create RBEs availing of ITH followed by the five-percent GIT regime will remain exempt from all local taxes, fees and charges during the availment of the five-percent regime until Dec. 31, 2034. The circular expressly prohibits the LGU from imposing the RBELT during the period in which enterprises are subject to the GIT.
For Create RBEs and enterprises covered by Create More, however, the rules are more nuanced. Enterprises availing of the ITH or EDR may still be subject to certain local taxes, fees and charges unless exemptions are expressly granted by law or by the LGU itself. In contrast, RBEs enjoying the five-percent GIT remain exempt from all local taxes and charges throughout the incentive period.
From a tax administration standpoint, the circular promotes greater predictability and uniformity. Investors have long argued that inconsistent local tax practices undermine the Philippines’ competitiveness as an investment destination. A company operating in one city may encounter a vastly different interpretation of local tax rules from another city, even when both enterprises enjoy identical national incentives.
By standardizing the treatment of local taxes for RBEs, the government aims to strengthen investor confidence and minimize disputes between businesses and the LGU.
Nevertheless, the circular also raises legitimate concerns from the perspective of local governments. LGUs rely heavily on local business taxes to finance essential public services, including health care, infrastructure maintenance, waste management and disaster response. Restricting its ability to impose taxes on large enterprises may reduce local revenues, particularly in highly industrialized cities hosting economic zones and export processing areas.
This tension reflects a broader constitutional and policy issue: the need to balance local fiscal autonomy with national economic objectives.
The Local Government Code grants the LGU the authority to generate its own revenue sources and impose taxes within their territorial jurisdictions. At the same time, the national government uses fiscal incentives as a strategic tool to attract investments, create employment opportunities, and stimulate industrial growth. JMC 01 attempts to reconcile these competing interests by clarifying the boundaries of local taxing powers without entirely diminishing the LGU’s authority.
The circular likewise reinforces the government’s broader ease-of-doing-business agenda. Earlier DILG and DTI issuances had already pushed for streamlined business permit systems, simplified assessments, and more uniform licensing procedures. JMC 01 extends these reforms into the sphere of local taxation.
Still, implementation remains the real challenge.
The Philippines has over 1,700 LGUs, each with its own tax ordinances, fiscal priorities and administrative capacities. Even with national guidelines in place, disputes may persist if local ordinances are not updated or if enforcement practices continue to vary across jurisdictions.
Ultimately, JMC 01 is more than a technical tax issuance. It represents a broader effort to create a more coherent and predictable investment environment by clarifying the interaction between national fiscal incentives and local taxing powers.
For investors, the circular offers much-needed certainty. For LGUs, however, it also serves as a reminder that local fiscal authority operates within the broader framework of national economic policy. The effectiveness of the circular will depend not only on the clarity of its language, but also on whether local governments will implement its provisions fairly, consistently, and in good faith.
Maricel Alisuag is a director with the Tax & Legal practice of Deloitte Philippines, a member firm of the Deloitte network.
