Bureau of Local Government Finance Opinion

July 23, 1996 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned, thru the Regional Director, Bureau of Local Government Finance, Department of Finance, Region IV, People's Mansion Compound, Batangas City, to the City Treasurer, San Pablo City. This refers to the letter dated January 17, 1996 of Mr. Emilio R. Pilar, Manager, Philippine National Bank (PNB),San Pablo City Branch, which was referred to this Bureau for appropriate action, requesting refund of business taxes paid for the year 1993 and 1994 amounting to P779.37 and P5,938.10, respectively. The PNB San Pablo Branch paid the business taxes for CYs 1993 and 1994, in which foreign exchange profits were included in the computation of gross receipts. Hence, the above claim for refund on the ground that Local Finance Circular (LFC) No. 1-93 dated June 16, 1993, prescribing the guidelines on the imposition by LGUs of the business tax on banks and other banking institutions pursuant to Sections 143(f) and 151 of the Local Government Code of 1991 (LGC), excludes foreign exchange profits from the computation of gross receipts. Sec. 2 of the LFC provides as follows: "Sec. 2. Tax on the Gross Receipts of Banks and Banking Institutions. (a) ... "(b) For this purpose, gross receipts shall only include the following: "(1) Interest from loans and discounts this represents interest earned and actually collected on loans and discounts. The following is a breakdown: "(i) Discounts earned and actually collected in advance on bills discounted; "(ii) Interest earned and actually collected on demand loans;" "(iii) Interest earned and actually collected on time loans, including the earned portions of interest collected in advance; "(iv) Interest earned and actually collected on mortgage contracts receivables. "(2) Interest earned and actually collected on interbank loans. "(3) Rental of property this represents the following rental income: "(i) Earned portion of rental collected in advance from lessees of safe deposit boxes; "(ii) Rental earned and actually collected from lessees on bank premises and equipment. "(4) Income earned and actually collected from acquired assets. "(5) Income from sale or exchange of assets and property. "(6) Cash dividends earned and received on equity investments. "(7) Bank commissions from lending activities. "(8) Income component of rentals from financial leasing. "xxx xxx xxx". "(c) All other income and receipts of banks and banking institutions not otherwise enumerated above shall be excluded from the taxing authority of the LGU concerned, ..." It is evident from the aforequoted provisions that "foreign exchange profits" are not among those enumerated as taxable gross receipts of banks. Accordingly, that Office is hereby instructed to recompute the business taxes of PNB excluding the foreign exchange profits from its gross receipts and to communicate with the Branch Manager of PNB for the purpose of refunding the excess amount paid thereto by way of tax credits to be applied to future tax obligations of PNB. Be guided accordingly. (SGD.) LORINDA M. CARLOS Executive Director