BIR Ruling [UN-361-95]

October 5, 1995 BIR RULING [UN-361-95] Export Development Council 6th Floor, New Solid Bank 357 Sen. Gil J. Puyat Avenue Makati, Metro Manila Attention: Mr . Michael M . David Gentlemen : This refers to your fax message dated August 25, 1995 requesting this office to manifest its official position relative to the proposed Executive Order providing for the suspension of Executive Order No. 10, requiring all government and private financial institutions to use income tax returns and financial statements duly filed with and certified by the Bureau of Internal Revenue in evaluating the borrower's capacity to pay. cdtech It appears that the President on 14 February 1995 issued a directive to all government financing institutions (GFIs) on the operationalization of Art. 111, Sec. 16(F) of Republic Act 7844, otherwise known as the Export Development Act, re: the development of long term peso and dollar credit facilities, preferential and simplified for exporters within the year; that in response to this directive, the six GFIs, namely: the DBP, Land Bank, PNB, SBGFC, GFSME and PHILGUARANTEE; the EDC; and PHILEXPORT signed in the presence of the President, a Memorandum of Agreement on 22 June, otherwise known as the "Tulong sa Exporters Phase-1(TSEP-1) Program a financing package that has been specifically developed for the micro, cottage and small exporters, as they comprise the majority of the export sector; that many of the small enterprises do not go to formal lending institutions because of their seemingly stringent requirements, and bureaucratic procedures that the ultimate goal is to professionalize the small enterprises of the country today; that Executive Order No. 10 which requires all borrowers to submit ITRs and financial statements duly filed and certified by the BIR has prevented many micro, cottage, and small enterprises from pursuing loan availments as they are not able to comply with this mandate; that while available funds for development loans are left unutilized in governmental financial institutions in particular, the micro, cottage and small enterprises which are in need of investment loans are not able to access such funds because of their inability to submit their income tax returns and financial statements for purposes of credit evaluation as provided for under the adverted Executive Order No. 10. As result, they resort to informal and unrecognized financing alternatives; thus, tolerating and further reinforcing the activities of loan sharks and usurers. It is understood that micro, cottage and small enterprises shall refer to a company or business with an asset not exceeding P15 Million. In reply, please be informed that on the basis of the foregoing facts, this Office shall interpose no objection to the proposed Executive Order suspending the effectivity of Executive Order No. 10 for purposes of credit evaluation of the micro, cottage and small enterprises with an asset not exceeding P15 Million, subject to the following conditions: 1. The proposed Executive Order shall not be understood as an exemption of the adverted enterprises from filing their income tax returns and financial statements; 2. With respect to those who operated underground business long before they availed of the loan from the government financial institutions, it is understood that this Bureau shall not be precluded from developing assessments based on the best evidence obtainable; and 3. The benefit of the proposed Order shall be availed of only once; hence, for the second and subsequent loans by the adverted business enterprises, the government financial institutions shall require strict observance of Executive Order No. 10. In other words, as part of credit evaluation procedure, the government financial institutions shall require the prospective borrowers to submit their income tax returns and financial statement duly filed with and certified by the Bureau of Internal Revenue. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue