5% on Interest Income on Bank Deposits and Investment in Government Securities and Private Banks

August 23, 1988 BIR RULING NO. 405-88 119-c 000-00 405-88 S i r : This refers to your letter dated June 14, 1988 requesting a ruling as to whether interest income on bank deposits and investment in government securities and private banks which have been subjected to final tax is still subject to the 5% gross receipts tax imposed under Section 119 of the Tax Code, as amended. In reply, please be informed that the 5% tax is imposed on banks and non-bank financial intermediaries with respect to their gross receipts which consist of royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income under Section 28 of the Code . [Sec. 119(c), Tax Code, as amended by Executive Order No. 273] Under Section 28 of the Tax Code, one of the items treated as gross income is interest while among the items not included in gross income are interest on government securities to the extent provided in the Act authorizing the issue thereof (Subsection (c)(4) and interest earned from deposits maintained with a bank under the expanded foreign currency deposit system [Subsections (b)(4) and (b)(8)(D)]. Such being the case, interest on government securities which are "exempt from taxation" or "exempt from all taxes" not being included in gross income is not included as part of the gross receipts subject to the 5% bank tax. On the other hand, interest derived from Philippine currency bank deposit and interest on government securities which is not exempt from taxation form part of the gross receipts subject to the bank tax. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner