Taxability of Interest Earned on Deposits and on Income Realized from the Rental of a Portion of the Municipal Building

January 13, 1992 BIR RULING NO. 048-92 24 (c) 011-91 048-92 The Sangguniang Bayan Catarman, Northern Samar Attention: Hon . Eduardo D . de la Cruz Municipal Mayor Gentlemen : This refers to your Resolution No. 91-07-04, current series, requesting exemption from the withholding tax on interest earned on deposits and on income realized from the rental of a certain portion of the municipal building occupied by the Philippine National Bank (PNB). In reply, please be informed that your request cannot be granted for lack of legal basis. Presidential Decree No. 1921 dated June 11, 1984 has withdrawn the tax and duty exemption privileges, including preferential tax treatment of all units of government, i.e., the National Government, its agencies and political subdivision, 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. Tax exemption laws are strictly construed. One claiming the benefit thereof must bring himself substantially within the terms of the statute or justify his claim by the clearest grant of the organic or state law (House vs. Posadas, 51 Phil. 332; Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466). Accordingly, in the absence of a clear grant of tax exemption, your municipality's interest income on deposits is subject to the 20% final withholding tax pursuant to Section 24(e) in relation to Section 50(a) of the Tax Code, as amended. (RMC No. 1-95 dated January 10, 1985) Moreover, your municipality shall also be subject to the creditable expanded withholding tax of 5% on the gross monthly rental paid or payable by PNB for that portion of the municipal building occupied by it. (Rev. Regs. No. 6-85 as amended by Rev. Regs. No. 8-90) iatdc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue