BIR Ruling [DA-046-00]

January 20, 2000 BIR RULING [DA-046-00] Baguio General Hospital Baguio City Attention: Mr . Napoleon O . Javier Chairman, BGHMC Advisory Board Gentlemen : . This refers to your letter dated September 12, 1997 requesting for exemption from the payment of the 20% withholding tax on bank deposits. It is represented that Baguio General Hospital and Medical Center Advisory Board is composed of representatives from the professional, business and industrial, labor, religious, educational, cultural, civic, peace and order, barangay and government sectors of the Baguio community; that it assists in improving the services, facilities and management of the hospital; that the Board launched a fund-raising campaign in 1994 to help indigent patients in the hospital with their medicines; that other donations came from individuals, corporations and non-government organizations; that the Handog Fund was deposited with the Philippine National Bank as an endowment fund; that the principal is never touched and only the interest is withdrawn every month; that this will insure that the assistance for the needy in the hospital will be in perpetuity; that because donations continue to come, the Handog Fund has grown to P719,809.89 as of August 15, 1997; that the monthly interest from the deposit averages to about P5,000.00; that in its desire to increase the number of needy patients that it can assist in the hospital, the Board decided to seek exemption from the 20% withholding tax on interest earned on its deposit with the PNB; and that they were informed that only this Office can grant said exemption. In reply, please be informed that pursuant to Sections 24 (B)(1) and 27(D)(1) in relation to Section 57(A) of the Tax Code of 1997, interest income from currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements are subject to the 20% final withholding tax. It has been the constant and uniform holding of this Office that exemption from taxation is not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively put, the law frowns on exemptions from taxation, hence, as exempting provision should be construed strictissimi juris . (Catholic Church vs. Hastings, 5 Phil 70; Esso Standard Eastern, Inc. vs. Acting Commissioner of Customs, 18 SCRA 48; Phil. Acetylene vs. CIR, 20 SCRA 1056; CIR vs. Guerrero, 21 SCRA 180; and Manila Electric Co. vs. Vera, 67 SCRA 351) Moreover, Executive Order No. 93 effective March 10, 1987 withdrew all tax and duty incentives granted to government and private entities subject to certain exceptions. Even corporations organized for charitable and social welfare purposes which are exempt from the payment of income tax on income received by it as such organization are subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation, hence, its interest income from Philippine currency bank deposits and yield or other monetary benefits from deposit substitute instruments are subject to the 20% final withholding tax pursuant to Section 27 (D)(1), in relation to Section 57 (A), both of the Tax Code of 1997. (BIR Ruling No. 204-90 dated October 23, 1990 and BIR Ruling No. 4-90 dated January 12, 1990) In view of the foregoing, your request for exemption from the payment of the 20% withholding tax on bank deposits is hereby denied for lack of legal basis. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group