BIR Ruling

December 6, 1968 1st Indorsement Respectfully returned to the Honorable, the Secretary of Finance, Manila, the attached papers relative to the request of the Rural Bankers' Association, Far East Building, Buendia Avenue, Makati, Rizal, for information as to the effect of Section 1, Republic Act No. 5431 on the tax exemption of Rural Banks created and organized under Republic Act No. 720 as amended. Section 14 Republic Act No. 720 as amended provides as follows: "Sec. 14. All Rural Banks created and organized under the provisions of this Act, with net assets not exceeding one million pesos (P1,000,000.00), excluding the counterpart capital subscribed and paid in by the government under sections seven and eight of this Act, shall be exempt from the payment of all taxes, charges, and fees of whatever nature and description. (As amended by Section 4, Republic Act No. 1097 and Section 1, Republic Act No. 3128, and Republic Act No. 4106.)" However, a pertinent provision of Section 24 of the Tax Code as amended by Republic Act No. 5431 reads thus: "xxx xxx xxx "(d) The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers not specifically exempt under Sections twenty-four (c)(1) and twenty-seven of this Code shall pay the rates provided in this Section. All corporations agencies, or instrumentalities owned or controlled by the Government, including the Government Service Insurance System and the Social Security System but excluding educational institutions, shall pay such rate of tax upon their taxable net income as are imposed by this section upon associations or corporations engaged in a similar business or industry." It is clear from the aforequoted provision of Section 24(d) of the Tax Code that all corporate taxpayers, like the Rural Banks, which are not specifically exempt from the payment of income tax under Sections 24(c)(1) and 27 of the Tax Code, are subject to tax on income received by them as such, the provisions of existing special or general laws to the contrary notwithstanding. In other words, notwithstanding the tax exemption provision of a previously existing special law, e.g., Republic Act No. 720 as amended, Rural Banks created and organized under the said Act are now subject to tax on their corporate income. In view thereof, this Office is of the opinion that the said Rural Banks are now subject to the corporate income at the new rates prescribed by Republic Act No. 5431 on income earned beginning July 1, 1968. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue