BIR Ruling

August 13, 1970 Mr. Eusafe T. Soberano Cabugao, Ilocos Sur S i r : This has reference to your letter dated February 20, 1970 requesting the opinion of this Office as to whether or not the contractee, the Rural Bank of Sta. Maria, Inc. of Sta. Maria, Ilocos Sur, in the construction of its building was justified in its refusal to pay you the 3% contractor's tax in the sum of P660.00 as part of the consideration in the contract on the ground that it is exempt from the payment of internal revenue taxes. In reply thereto, I have the honor to inform you that being the contractor in the construction of the building for the Rural Bank of Sta. Maria, Inc., you are the party directly liable to the 3% contractor's tax imposed by Section 191 of the Tax Code. But the question as to whether you can pass on the tax to the contractee by requiring it to pay the same to you as part of the consideration in the contract is not within the competence of this Office to determine. It must be stated however, that the bank may not refuse payment by invoking the tax exemption granted to rural banks. Under Section 14 of Republic Act No. 720, as amended by Republic Act No. 5939, Rural Banks with net assets not exceeding one million pesos excluding the counterpart capital subscribed and paid by the Government under Sections 7 and 8 of said Act shall be exempt from the payment of all taxes, charges and fees of whatever nature and description. Said exemption contemplates taxes to which Rural Banks are directly liable and not to taxes which are the direct liability of other taxpayers. aisadc Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue