BIR Ruling

November 26, 1970 MEMORANDUM FOR: The Commissioner This is in connection with your Memorandum dated May 20, 1970 instructing this Department to study and/or rule on the taxability of Rural Banks for income tax purposes. On December 11, 1969, this Office in a letter to the Guagua Rural Bank, Inc. of Guagua Pampanga, a copy of which is herewith attached, ruled that 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. The position of this Office that Rural Banks are subject to income tax as a consequence of the passage of Republic Act No. 5431 was upheld by the Secretary of Justice in his 3rd Indorsement dated March 28, 1969 to the Secretary of Finance. However, effective June 12, 1969, and not June 21, 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. In fine, Rural Banks created and organized under the provisions of Republic Act No. 720 as amended are subject to income tax on income received or earned by them from July 1, 1968 to June 11, 1969 only, the tax to be computed at the increased rates prescribed by Section 24 of the Tax Code, as amended by Republic Act No. 5431. Thereafter, their liability to income tax shall be determined in accordance with Section 14 of Republic Act No. 720, as amended by Republic Act No. 5939. cdta Respectfully submitted: PRISCILLA R. GONZALES Acting Revenue Operations Head (Legal)