Whether Rural Banks are Exempt from Payment of Documentary Stamp Tax on Original Issuance of Shares of Stock

August 31, 1998 BIR RULING NO. 124-98 000-00-124-98 First Coconut Rural Bank, Incorporated P. Burgos St. Batangas City Attention: Mr . Eliseo A . Panahon President Gentlemen : This refers to your letter dated February 20, 1998 requesting for a ruling as to whether or not rural banks are exempt from the payment of documentary stamp tax on the original issuance of shares of stock imposed under Section 175 of the Tax Code of 1997, pursuant to Section 15 of R.A. No. 7353 otherwise known as the "Rural Banks Act of 1992." prLL In reply, please be informed that Section 15 of R.A. No. 7353, as implemented by Revenue Regulations No. 16-93 provides that: "SEC. 15. All rural banks created under its provisions and those already in operation as of the date of the approval thereof shall be exempt from the payment of all taxes, fees and charges of whatever nature and description, except the corporate income tax and local taxes, fees and charges, for a period of five (5) years from the date of commencement of operations." Based on the foregoing, rural banks are exempt from the documentary stamp tax imposed under Section 175 of the Tax Code of 1997 on the original issuance of shares of stock to the stockholders. However, Section 173 of the same Code provides that, "whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto, who is not exempt shall be the one directly liable for the tax." Accordingly, since rural banks are exempt from the documentary stamp tax, the stockholders are the ones liable for the payment of the documentary stamp tax due on said certificates of stock to be issued by the former. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue