BIR Ruling No. 111-14

April 21, 2014 BIR RULING NO. 111-14 SEDP-Simbag sa Pag-asenso, Inc. 3F Social Action Center, Cathedral Compound Legazpi City Attention: Rev. Fr. Jose Victor E. Lobrigo CEO/President Gentlemen : This refers to your letter dated October 7, 2013 requesting for confirmation of SEDP-Simbag sa Pag-asenso, Inc. as an exempt organization under Section 30 (G) of the National Internal Revenue Code of 1997, as amended (NIRC). It is represented that SEDP-Simbag sa Pag-asenso, Inc. is a nonstock nonprofit association organized, among others, to conduct microfinance operations pursuant to Republic Act No. 8425, otherwise known as the Social Reform and Poverty Alleviation Act. It earns income from interest on loans, service fees and interests on bank deposits. Section 30 (G) provides for exemption of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare. An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community. An organization embraced within this section is one which is operated primarily for the purpose of bringing about civic betterments and social improvements. Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute. Tax exemptions must be construed strictly against the taxpayer and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. In case of doubt, non-exemption must be favored. Taxes being the lifeblood of the government that should be collected without unnecessary hindrance, every precaution must be taken not to unduly suppress it. (BIR Ruling No. 310-2011 dated August 22, 2011) HCDaAS A perusal of the documents submitted by SEDP-Simbag sa Pag-asenso, Inc. shows that it is primarily engaged in micro-finance. The bulk of its revenues come from interest income and service fees from loans. Such proceeds were used almost exclusively for its perpetuation. It appears that this activity is being carried on by SEDP-Simbag sa Pag-asenso in a manner similar to organizations operated for profit. There is no evidence to show that it offers its services only to the disadvantaged and that the fees and interest it charges are nominal. Organizations that promote social welfare should primarily promote the common good and general welfare of the people of the community as a whole. An organization is not operated exclusively for the promotion of social welfare if its primary activity is carrying on a business with the general public. An organization that is engaged in micro-finance cannot be presumed to be a social welfare organization under Section 30 (G) of the NIRC because micro-finance is a business activity conducted by organizations operated for profit such as banks. IN VIEW OF THE FOREGOING, this Office is of the opinion that SEDP-Simbag sa Pag-asenso, Inc. does not qualify for exemption under Section 30 (G) of the NIRC. It is therefore liable for income taxes imposed under Title II of the NIRC. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue