Cooperatives and Rural Banks Exempt from Final Tax on Interest Income from Bank Deposits/Yield from Deposit Substitutes

July 31, 1986 BIR RULING NO. 134-86 24 21-86 34-86 Gentlemen : This refers to your letter dated May 26, 1986 requesting a ruling as to whether cooperatives and rural banks are exempt from the 17 1/2% final withholding tax on interest and/or yield from deposit substitute instruments as well as on interest income from bank deposits or on any monetary benefit from trust funds and similar arrangements. It appears that P.D. No. 2026 added paragraph (f) to the enumeration of several tax exemptions and privileges not abolished by P.D. No. 1955 in effect, restoring all tax exemptions and/or preferential tax treatment previously enjoyed by rural banks prior to their abolition on October 15, 1984 (date of effectivity of P.D. No. 1955). P.D. No. 2026 is explicit that the tax exemption benefits which were restored by said decree shall apply only to rural banks whose net assets are less than P30,000,000 and the same shall only be enjoyed for a period of five (5) years from the date of its effectivity which is February 3, 1986 subject to further extension as may be recommended by the Minister of Finance. In other words, the restoration of the aforementioned tax exemptions and/or preferential tax privileges shall be effective only from and after February 3, 1986. (Revenue Memorandum Circular No. 9-86 dated May 8, 1986) Moreover, P.D. No. 2008 which took effect on January 8, 1986 restored the exemption from income and sales taxes of cooperatives, likewise abolished by P.D. No. 1955. The said tax exemption of cooperatives shall be effective only until December 31, 1991. (Revenue Memorandum Circular No. 10-86 dated May 12, 1986). In reply, please be informed that since the exemption from income tax, among others, of rural banks whose net assets are less than P30,000,000 and cooperatives are respectively restored by P.D. No. 2026 and P.D. No. 2008 which are laws promulgated later than P.D. No. 1959 (effective October 15, 1984) cooperatives are exempt from the 17 1/2% final tax on interest income from the Philippine currency bank deposits and yield from deposit substitutes from January 8, 1986 until December 31, 1991 while rural banks whose net assets are less than P30,000,000 shall be exempt from the said 17 1/2% final tax for a period of five (5) years reckoned from February 3, 1986. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner