Whether the Industrial Guarantee & Loan Fund (IGLF) is Exempt from the Payment of Income Tax as Well as Withholding Taxes on Interest Earnings on Government Securities, Savings/Time Deposits and Other Duties and Assessments

February 7, 1994 BIR RULING NO. 034-94 24 (e) (1) 011-91 034-94 Development Bank of the Philippines Financial Institutions Group Makati, Metro Manila Attention: Mr . Victor G . Villar Executive Vice President Gentlemen : This refers to your letter dated August 24, 1992 stating that to encourage the establishment and expansion of viable cottage, small and medium industries, the Government of the Republic of the Philippines and the United States of America established in 1952 the Industrial Guarantee & Loan Fund (IGLF); that the fund is owned by the National Government represented by the National Economic & Development Authority (NEDA) and is funded thru borrowings from the United States Agency for International Development (USAID), World Bank (WB) and Asian Development Bank (ADB); that the Fund was previously administered by the Central Bank but as one of the conditions of the financial sector adjustments loan, its administration was transferred to DBP by virtue of a Memorandum Agreement executed between NEDA and DBP on July 24, 1990; that IGLF is a vehicle of the National Government to promote the development of cottage, small and medium enterprises in the countryside; that all earnings generated from its operation accrue to the government and are used partly to service its loans with funders and for operational expenses; that loan collections and surplus earnings are plowed back to the fund for further relending to other qualified projects; and that excess funds which are not loaned out are temporarily invested in government securities and/or placed in time deposits. cdtech In view of the nature of ownership of the Industrial Guarantee & Loan Fund (IGLF), you now posed the query on whether it is exempt from the payment of income tax as well as withholding taxes on interest earnings on government securities, savings/time deposits and other duties and assessments. In reply, please be informed that Presidential Decree No. 1931 dated June 11, 1984 has withdrawn the tax and duty exemption privileges, including the preferential tax treatment of all units of government, i.e., the National Government, its agencies and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. Further, it has been the constant and uniform holding 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 exemption from taxation, hence, an exempting provision should be construed strictissimi juris . (Catholic Church vs. Hastings, 5 Phil. 70; Esso Standard Eastern, Inc. vs. Acting Commissioner of Customs, L-D1841, Oct. 28, 1966, 18 SCRA 488; Phil. Acetylene vs. Comm. of Int. Rev., L-19701, Aug. 17, 1967; 20 SCRA 1056; Comm. of Int. Rev. vs. Guerrero, L-20942 Sept. 22, 1967, 21 SCRA 180; Manila Electric Co. vs. Vera, L-29987, Oct. 22, 1975, 67 SCRA 351) In view thereof, this Office is of the opinion as it hereby holds that the Industrial Guarantee and Loan Fund is subject to income tax and consequently to the 20% withholding tax on interest income derived from investments in Philippine currency savings/time deposits as well as in government securities unless otherwise tax exempt under the law authorizing the issue thereof. (Section 28(b)(4), Tax Code) cdt Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue