Interest Income from Senior Citizens' Time Deposit Subject to Final Withholding Tax

November 27, 2000 BIR RULING NO. 066-00 Mr. Faustino D. Almeda 19 Graham Street, EBB Olongapo City 2200 S i r : This refers to your letters dated October 20, 1999 and November 16, 1999 which were referred to this Office by the Department of Finance, bearing on your request for a ruling as to whether or not interest income from your time deposit is subject to the 20% final withholding tax considering that you are a senior citizen. It is represented that you have a joint account (husband and wife) time deposit with the Metro Bank, Olongapo Branch; that the interest income on the said time deposit does not exceed P5,000.00 during any given month; and that the depository bank has been continuously deducting the 20% final withholding tax on the interest from your said time deposit. In reply, please be informed that as a qualified senior citizen, you are exempt from the payment of income tax provided your annual taxable income does not exceed the poverty level of P60,000.00 or such amount as may be determined by the National Economic and Development Authority (NEDA) for a certain taxable year. However, the interest income from your time and/or savings deposit with the Metro Bank (Olongapo Branch) is subject to 20% final withholding tax imposed under Section 24(B)(1) of the Tax Code of 1997. This is explicitly provided for under Section 6(c) of Revenue Regulations No. 2-94 implementing Sections 4 and 5(a) of Republic Act No. 7432, otherwise known as the "Senior Citizen Act", pertinent portion of which is quoted hereunder, viz: "Sec. 6. Taxability of Senior Citizens to Other Internal Revenue Taxes . xxx xxx xxx c. He shall be subject to the 20% final withholding tax on interest income from Philippine Currency bank deposit, yield and other monetary benefit from deposit substitutes, trust fund and similar arrangements; royalties, prizes (except prizes amounting to P10,000 or less which shall be subject to income tax at the rates prescribed under Section 24(A)(1)(c) of the Tax Code of 1997) as the case may be, and winnings (except Philippine Charity Sweepstakes winnings)." DHIcET Your contention that the withholding of 20% final tax on the interest income from your time deposit may result to double taxation allegedly because whatever you have saved from your salary is what is now being deposited with the bank upon your retirement, has no merit. It must be emphasized herein that the withholding tax on your salary when you were still employed is a method of collecting the income tax at source and applies to all employed individuals, whether citizens or aliens, deriving income from compensation for services , rendered in the Philippines. On the other hand, the 20% final tax is limited to your income tax liability on a particular income , e.g., interest income from bank deposit. Hence, there is no double taxation because the subjects of taxation are different from each other. Double taxation means taxing the same person twice by the same jurisdiction over the same thing (Victorias Milling Co. vs. Municipality of Victorias, L-21183, Sept. 27, 1965). Besides, there is no prohibition against double taxable in this jurisdiction ( Commissioner vs. Hawaii Phil. Co. , L-16315 May 30, 1964; Pepsi Cola Bottling Co. vs. City of Butuan , L-22814, Aug. 28, 1968). Very truly yours, (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue