BIR Ruling No. 001-09

January 21, 2009 BIR RULING NO. 001-09 000-00 Technical Education and Skills Development Authority TESDA Complex, South Expressway Taguig City, Metro Manila Attention: Secretary Augusto Boboy Syjuco Director General Gentlemen : This refers to your letter dated August 28, 2007 requesting for exemption from final tax on income from bank deposits of the Technical Education and Skills Development Authority ("TESDA" for brevity) Development Fund and documentary stamp tax (DST) on the purchase or acquisition of government securities such as but not limited to retail treasury bills and retail treasury bonds: As represented, the TESDA Development Fund was established through Republic Act No. 7796 otherwise known as "TESDA Act of 1994" under Section 31 thereof which states that "A TESDA Development Fund is hereby established, to be managed/administered by the Authority, the income from which shall be utilized exclusively in awarding of grants and providing assistance to training institutions, industries, local government units for upgrading their capabilities and to develop and implement training and training-related activities." As a result, the TESDA Development Fund-Investment Committee (TDF-IC) was created by the TESDA Board through Board Resolution No. 2002-17 "Declaring the Establishment and Operationalization of the TESDA Development Fund", and another Board Resolution No. 2002-18 wherein one of its functions is to recommend feasible and realistic investment policies that would optimize investment income on a continuing basis. SDHETI At the moment, the TESDA Board has authorized the TESDA Secretariat to invest in Retail Treasury Bonds (RTBs) at the Landbank of the Philippines. The TESDA Board, however, has given instructions to look for other high yielding investment options such as buying directly from the Bureau of Treasury. In reply, please be informed that the act of opening and investing in "other high yielding investment options" is an economic activity or profitable business pursuit not essential to or necessarily connected to TESDA's governmental functions. In other words, when TESDA pursues investment activities through direct instruction to its trustee bank, Land Bank, it is deemed to have actively engaged in profitable business pursuit. Accordingly, interest income from TESDA's investment activities are subject to final tax at source. AcTHCE On the other hand, your request for exemption from the payment of DST, on the purchase or acquisition of government securities such as but not limited to retail treasury bills and retail treasury bonds in the amount of PhP1.00 on each PhP200.00 or fraction of the issue price thereof under Section 179 of the Tax Code of 1997, as amended, cannot be granted for lack of legal basis. Presidential Decree No. 1931 dated June 11, 1984 has withdrawn the tax and duty exemption privileges, including the preferential tax treatment of all units of government, i.e., the National Government, its agencies and political subdivisions, as well as the government-owned or -controlled corporations. Corollary to this, Executive Order No. 93 effective March 10, 1987 withdrew all tax and duty incentives granted to government and private entities subject to certain exceptions. TcAECH Finally, 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, an exempting provision should be construed strictissimi jurist. ( Catholic Church vs. Hastings, 5 Phil. 701; Esso Standard Eastern, Inc. vs. Acting Commissioner of Customs, 18 SCRA 488; Philippine Acetylene vs. CIR, 20 SCRA 1056; Commissioner of Internal Revenue vs. Guerrero, 21 SCRA 180; and Manila Electric Co. vs. Vera, 67 SCRA 351). Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue