Interest Earnings from Bank Deposits Are Subject to 20% Final Withholding Tax

April 3, 1991 BIR RULING NO. 055-91 24 (e) (1) 487-88 055-91 S i r : This refers to your letter dated April 3 and December 17, 1990 requesting exemption of the Provincial Government of Pangasinan from the 20% withholding tax on interest on bank deposits. It is represented that the Provincial Government of Pangasinan deposited some of its limited funds under time deposit, savings and Combo accounts with the official depository banks of the government on a staggered scheme; and that the accrued interest will be added to the limited income of the province and thereby enhance the delivery of services to its constituents. In reply, please be informed that under P.D. No. 1931 (effective June 11, 1984) and E.O. No. 93 (effective March 10, 1987), the tax exemptions and/or preferential tax treatment in favor of government-owned and controlled corporations including their subsidiaries and all other units of government have been withdrawn. Such being the case, income payment to the National Government and its instrumentalities, including provincial, city or municipal governments, as well as government-owned or controlled corporations consisting of interests on Philippine currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements shall be subject to a 20% final withholding tax. In view thereof, this Office is of the opinion as it hereby holds that the Provincial Government of Pangasinan is subject to the 20% final withholding tax imposed by Section 24 (e) (1) of the Tax Code as amended, on its interest earnings from bank deposits. Very truly yours, (SGD.) JOSE U. ONG Commissioner