BIR Ruling No. 290-15

August 26, 2015 BIR RULING NO. 290-15 Section 30 (G) of the Tax Code of 1997; BIR Ruling No. 111-2014 St. Elizabeth Community Development Program (SECDEP), Inc. Room 3, Ground Floor, 402 Arguelles Bldg. E. Lopez Street, Jaro, Iloilo City Attention: Luzviminda B. Coronado Executive Director Gentlemen : This refers to your letter dated December 20, 2013 duly indorsed by Revenue Region No. 11-Iloilo City requesting for the issuance of a certificate of tax exemption enjoyed by a civic league or organization not organized for profit but operated exclusively for the promotion of social welfare pursuant to Section 30 (G) of the Tax Code of 1997, as amended. It is represented that St. Elizabeth Community Development Program (SECDEP), Inc. with Taxpayer's Identification No. 005-982-090-000, is a non-stock, non-profit corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. E200000167; and that the purposes for which it was incorporated are the following: TCAScE 1. To facilitate self employment among poor women through capital assistance; 2. To promote awareness and enhance leadership skills by forming them into groups/committees with responsible leaders; 3. To assist and sustain the income generating activities through regular meetings; and 4. To improve health and nutrition practices among poor households by conducting trainings and seminar. In support of its request, St. Elizabeth Community Development Program (SECDEP), Inc. has completely submitted on April 15, 2014 the following documents: 1) Letter application for tax exemption; 2) Certified true copy of the Certificate of Registration with the SEC; 3) Certified true copy of the Articles of Incorporation; 4) Certified true copy of the By-Laws; 5) BIR Certificate of Registration; 6) Original Copy of the Certification under Oath stating that there has amendments/changes in the Articles of Incorporation and By-laws; 7) Original Certification under Oath of the Treasurer certifying that the officers, executive officers and trustees does not receive compensation or fixed remuneration directly or indirectly from any income derived from donations to the agency; 8) Original Copy of Certificate issued by RDO No. 74-Iloilo City stating that it "is not subject of any pending investigation, on-going audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificates, collection proceedings nor a judicial appeal"; 9) Certified true copies of the Annual Income Tax Returns and Financial Statements for the last three (3) years of operation; 10) Original Copy of the Statement under Oath as to its Modus Operandi ; and 11) Other pertinent documents . In reply, please be informed that 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 operated primarily for the purpose of bringing about civic betterment and social improvements. Perusal of the documents submitted by SECDEP, particularly its audited financial statements, show that the primary source income from its operations is interest on loans. Loans that are contracted under its microfinance activities. Statement of its Modus Operandi affirms that the primary purpose is to conduct microfinance operations. Its stated corporate purposes of facilitation of self-employment among poor women; promotion of awareness and enhancement of leadership skills, assistance in the income generation; and improvement of health and nutrition practices among poor households are but secondary to such activities. SECDEP is therefore engaged in an activity and manner similar to microfinance organizations conducted for profit. 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 microfinance cannot be presumed to be a social welfare organization under Section 30 (G) of the Tax Code of 1997, as amended because microfinance is a business activity conducted by organizations operated for profit such as banks. (BIR Ruling No. 111-14 dated April 21, 2014) 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. cTDaEH IN VIEW OF THE FOREGOING, this Office is of the opinion SECDEP does not qualify for exemption under Section 30 (G) of the NIRC, as amended. It is therefore liable for Income Taxes imposed under Title II of the same Code and other applicable taxes such as Value-Added Tax (VAT) or Percentage Tax. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue