Request for Exemption from Withholding Tax of Interest Income from Bank Deposits of MSSD

May 25, 1984 BIR RULING NO. 096-84 053-(d) (1)-056-83-096-84 M a d a m : This refers to your letter dated October 27, 1983 to the Honorable, the Prime Minister requesting exemption from the withholding tax of the interest income from bank deposits of the Ministry of Social Services & Development (MSSD) in implementation of the Self-employment Assistance (SEA) Program of the Government. It is represented that MSSD in pursuance of the National Livelihood Program is implementing the Self-Employment Assistance (SEA) Program; that the MSSD, through its provincial, City and Municipal offices extends capital assistance without interest and collateral free to deserving disadvantaged persons to engage in income producing projects intended to augment family income; that the program is implemented through loanable scheme payable in two to three years, and that the rolled back funds are deposited in various government and private banks to increase the number of enrollees through what is called SEA Rollback to Roll-on Funding Scheme. 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 MSSD is liable to income tax, the interest on its bank deposits shall be subject to the 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. However, inasmuch as the MSSD is a government agency, 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 the amount due. The subsidy shall be effected through journal vouchers or their equivalent (See Joint Budget Circular No. 289 and paragraphs 4, 6, and 9, Finance Circular No. 2-78, implementing Section 23 of P.D. No. 1177). This serves as authority of the depository banks to forego withholding of the 15% tax on interest of savings deposits and 20% tax in case of time deposits and yield from deposit substitutes maintained by the MSSD-SEA with them. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner