BIR Ruling

August 24, 1971 Mr. Honesto O. Francisco Director Department of Rural Banks Central Bank of the Philippines Manila S i r : This refers to your letter dated November 17, 1970 requesting information as to whether or not Rural Banks whose net assets do not exceed P1,000,000.00 are exempt from the payment of all taxes, charges and fees of whatever nature and description, and from the filing of income tax returns. cdta In reply thereto, I have the honor to inform you as follows: Section 24 of the Tax Code, as amended by Republic Act 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 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 Republic Act 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 Republic Act No. 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 Republic Act No. 5939 amending Republic Act No. 720 otherwise known as the Rural Banks Act. Section 14 of Republic Act No. 720 as amended, is further amended by Republic Act No. 5939 to read as follows: "Section 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 Sections seven and eight of this Act, shall be exempt from the payment of all taxes, charges and fees of whatever nature and description : 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 ." (Emphasis supplied) In view thereof, this Office is of the opinion and so holds that Rural Banks are subject to income tax on income received or earned by them starting July 1, 1968 until June 11, 1969, the tax to be computed at the increased rates prescribed by Section 24 of the Tax Code, as amended by Republic Act No. 5431. Income received by Rural Banks during that period are returnable for income tax purposes. Thereafter, its liability to income tax as well as its obligation to file the corresponding income tax return shall be determined in accordance with the aforequoted provision of Section 14, Republic Act No. 720, as amended by Republic Act No. 5939. aisa dc Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue