BIR Ruling

April 5, 1974 Mr. Gregorio O. Calit P. O. Box 33 Oroquieta City S i r : This refers to your letter dated February 22, 1974, requesting a ruling on the effect of Sec. 24(d) of the Tax Code, as amended, on this exemption granted rural banks from the payment of income tax under Sec. 14 of R.A. No. 720, as amended. In reply, I have the honor to inform you that Sec. 24 of the Tax Code, as amended by R.A. No. 5431, subjects all corporate taxpayers other than those exempted under subsection (c)(1) of Section 24 and Section 27 of the said Code to the corporate income tax, the provisions of existing special or general laws to the contrary notwithstanding. By virtue of the aforesaid amendment, the only corporations, associations and organizations exempt from corporate income tax under the National Internal Revenue Code are the purely cooperative companies or associations as provided for under Section 24(c)(1) and the organizations specifically exempt under Section 27. All other corporations, including those which under special laws are exempt from income tax are now subject to tax. Since rural banks are not among those corporations or organizations expressly exempted under R.A. No. 5431, they are subject to income tax on income received or earned by them starting July 1, 1968 pursuant to Section 10 thereof. In fact, this liability to tax of rural banks as a consequence of the passage of R.A. 5431 had been upheld by the Secretary of Justice, in his 3rd Indorsement dated March 28, 1968 to the Secretary of Finance. However, effective June 12, 1969, the tax exemption of rural banks had been restored by the subsequent enactment of R.A. No. 5939, amending R.A. No. 720 otherwise known as the Rural Banks Act, Sec. 14 of which reads as follows: "SEC. 14. All rural banks created and organized under the provisions of this Act with net assets not exceeding one million pesos, excluding the counterpart capital subscribed and paid in by the Government under Section seven and eight of this Act, shall be exempt from the payment of all taxes, charges and fees of whatever nature and descriptions; Provided, however, That when the net assets of a rural bank exceed one million pesos, the taxes, charges and fees shall be levied in the proportion that such excess bears to the said net assets; Provided, finally, That when the net assets of a rural bank exceed three million pesos, it shall pay all taxes, fees and charges like any other bank." cd Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5