Rural Banks, Taxability (RA 5939)

August 6, 1970 BIR RULING NO. 039-70 Rural banks, taxability (RA 5939) This refers to your letter dated February 13, 1970 requesting information on the following queries regarding taxes on banks, viz.: QUERY: 1. Under Section 27 of the Tax Code, as amended by R.A. No. 6110, only development banks are expressly exempted from income tax. In the light of the provision of this Amendatory Act to the effect that 'all Acts, special laws, executive orders, proclamations, rules and regulations, or parts thereof, inconsistent with any of the provisions of this Act are repealed or modified accordingly' does exemption enjoyed by other banks, like the Rural banks, by virtue of their special charter, still apply? 2. A fixed tax of P500.00 is imposed on banks by Section 182(A)(3)(gg) of the Tax Code, as amended by R.A. No. 6110. Since the law does not qualify, are all banks doing business in the Philippines, including development and rural banks, subject to the said Tax? aisa dc 3. What banks, in particular, are comprehended by Section 249 of the Tax Code which prescribes a percentage tax of 5% on their gross receipts? Are development and rural banks included in the purview of this provisions? REPLY: 1. Pursuant to Sections 27(b) and 27(1) of the Tax Code, as amended by Republic Act No. 6110, mutual savings banks not having a capital stock represented by shares; cooperative banks without capital stock organized and operated for mutual purposes and without profit; and development banks are exempt from the payment of the income tax imposed in Section 24(a) of the Tax Code, as amended. Consequently, all other banks are subject to income tax. Nevertheless, notwithstanding said provisions of Section 27 of the Tax Code, as amended, rural banks with net assets not exceeding P1,000,000.00, excluding the counterpart capital subscribed and paid in by the Government as exempt from the payment of the income tax imposed in Section 24 (a) of the Tax Code, as amended. Section 14 of Republic Act No. 720, as amended by Republic Act No. 5939 provides 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, if shall pay all taxes, fees and charges like any other bank." cd It should be noted that R.A. 5939, amending certain sections of R.A. No. 720 otherwise known as the Rural Bank Act took effect on June 12, 1969. The Omnibus Tax Law (R.A. No. 6110), notwithstanding its effectivity on September 1, 1969 which is of a later date, has not in any manner affected the exemption from the payment of income tax granted to rural banks under R.A. NO. 5939, since there is nothing in the Omnibus Tax Law which expressly or impliedly repealed said exemption. 2. All banks are now subject to the annual fixed tax of P500.00 pursuant to Section 182 (A) (3) (gg) of the Tax Code as amended by Republic Act No. 6110. Every branch of said banks is considered a separate or distinct establishment or place where business is conducted; and therefore, every branch is likewise subject to the said annual fixed tax of P500.00 (BIR Ruling No. 70-019 dated April 13, 1970). Rural banks however, which are exempt from income tax are also exempt from the said annual fixed tax of P500.00 under the above quoted provision of Republic Act No. 720, as amended (BIR Ruling No. 70-022, dated April 20, 1970). For the same reasons, private development banks, with net assets not exceeding P10,000,000.00 for class C, P20,000,000.00 for Class B, and P30,000,000.00 for Class A banks, excluding the counterpart capital subscribed and paid-in by the Development Bank of the Philippines, are also exempt from the annual fixed tax of P500.00, pursuant to Section 10 of Republic Act No. 4093 as amended by Republic Act No. 4887 which provides as follows: "SECTION 10. All private development banks, with net assets not exceeding ten million pesos for Class C, twenty million pesos for Class B, and thirty million for Class A banks, excluding the counterpart capital subscribed and paid-in by the Development Banks of the Philippines, shall be totally exempt from payment of all taxes charges and fees of whatever nature and description except from compensating tax and tariff duties. For this purpose the net assets of all private development banks shall be determined as of December thirty-one (31) of each year and if such are in excess of the limits prescribed by this section they shall be liable for payment of taxes for the following calendar year; said taxes to be assessed, levied and collected in a proportionate amount as the excess shall bear in relation to the total net assets." 3. All banks doing business in the Philippines are subject to the 5% tax imposed in Section 249 of the Tax Code. However, as herein before explained, private development banks and rural banks are exempt from the payment of taxes, pursuant to the aforequoted provision as Republic Act Nos. 4887 and 5939, respectively.