Request for Exemption from Withholding Tax of Interest Income from Bank Deposits of the Municipality of Muntinlupa

May 2, 1984 BIR RULING NO. 085-84 053-(d) (1)-030-83-085-84 S i r : This refers to your letter dated October 25, 1983 requesting that the interest income from the bank deposits and yield from deposit substitutes of the Municipality of Muntinlupa be exempt from the withholding tax. In reply, please be informed that Presidential Decree No. 1177, effective July 30, 1977 requires all government units, government-owned or controlled corporations to pay income taxes, customs duties and other taxes and fees as are imposed under revenue laws (See Opinion No. 133, S. 1977, Secretary of Justice). Accordingly, since the Municipality of Muntinlupa is liable to income tax, the interest on its bank deposits shall be subject to 15% withholding tax in case of savings deposits and 20% in the case of time deposits and yield from deposit substitutes in accordance with Section 24(cc) in relation to Section 53(d)(1) both of the Tax Code, as amended by Presidential Decree No. 1739 and Batas Pambansa Blg. 135. However, inasmuch as the Municipality of Muntinlupa is a government unit, it is entitled to either a tax subsidy or payments constituting equity contributions in which case, it shall not be required to pay cash or its equivalent. The revenue collecting agencies shall instead issue a "Payment Compliance Certificate" indicating the nature of the assessment and amount due. The subsidy shall be effected through journal vouchers or their equivalent. (See Joint Budget Circular No. 289 and pars. 4, 6 and 9, Finance Circular No. 2-78, implementing Section 23 of Presidential Decree No. 1177). This serves as authority of the depository banks to forego withholding of the 15% tax on interests of savings deposit and 20% tax in case of time deposits and yield from deposit substitutes maintained by the Municipality of Muntinlupa with them. aisadc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner