35% Income Tax Imposed on Rural Banks

August 13, 1990 BIR RULING NO. 149-90 24 (a) 088-90 149-90 Gentlemen : This refers to your letter dated April 5, 1990 requesting exemption of the Rural Bank of Guihulngan (Negros Oriental), Inc. from the payment of all taxes, charges and fees of whatever nature and description, as provided in Section 14 of R.A. 720, as amended. It is represented that since 1982, said bank had been granted rehabilitation program by the Central Bank under C.B. Circular No. 772 and C.B. Circular No. 1172 in 1988 due to financial difficulties; that fortunately, the bank is slowly recovering since 1982, when you took over the management; that you were surprised to receive an assessment from the Bureau of Internal Revenue amounting to more than P100,000.00 for the year 1987, when all the time you thought that the bank was exempted from it; that you believe that if the bank will pay the assessment, the bank will go back to its previous "Distress" standing and can no longer provide loans to small farmers in the countryside. In reply, please be informed 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 by P.D. No. 1955 which took effect on October 15, 1984. 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 P30,000,000.00 and the same shall only be enjoyed for a period of five (5) years from the date of its effectivity which is February 3, 1983 subject to further extension as may be recommended by the Minister of Finance. In other words, the restoration of the aforementioned tax exemption 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9-86 dated May 8, 1986) However, the said tax exemptions and/or preferential tax privileges of Rural Banks were again withdrawn by and upon the effectivity of Executive Order No. 93 on March 10, 1987 (BIR Ruling Nos. 077-87 and 182-87). In view thereof, effective March 10, 1987 Rural Banks, like the Rural Bank of Guihulngan (Negros Oriental), Inc. are subject to all taxes, e.g., 35% income tax imposed under Section 24 (a) of the Tax Code and to all other charges and fees. cdta Very truly yours, (SGD.) JOSE U. ONG Commissioner