Tax Liability of Banks

December 11, 1989 BIR RULING NO. 245-89 24-00 77-87 245-89 Gentlemen : This refers to your letter dated February 21, 1989 in relation to similar letter dated December 8, 1988 by the President of the Rural Bank of El Salvador (Mis. Or.) Inc. requesting a ruling on whether Banks are still obliged to pay the following: "1. Corporate Income Tax "2. 5% Gross Receipts Tax (before rural banks were not required to pay this 5% GRT under R.A. 720, as amended) "3. Withholding tax on our interest income from our deposits with commercial banks "4. Capital Gains Tax on our asset acquired properties." 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. 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 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 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9-86 dated May 8, 1986) However, the said tax exemptions and/or preferential tax privileges of Rural Banks were again withdrawn by and upon the effectivity of Executive Order No. 93 on March 10, 1987.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 are subject to the corporate income tax of 35% [Sec. 24(a), Tax Code], to gross receipts tax (Sec. 119, Ibid ); 20% final withholding tax on interest income from deposits with commercial banks [Sec. 24(e), Ibid ] and to the 5% capital gains tax based on the selling price as shown in the mortgage foreclosure sales. (par. 3.1, Revenue Memorandum Order No. 29-86) cdt Very truly yours, (SGD.) JOSE U. ONG Commissioner