Clarification of Presidential Decree No. 1931

January 10, 1985 REVENUE MEMORANDUM CIRCULAR NO. 01-85 SUBJECT : Clarification of Presidential Decree No. 1931 TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, there are quoted hereunder Sections 1 and 5 of P.D. No. 1931: casia "Sec. 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the payment of duties, taxes, fees, imposts and other charges heretofore granted in favor of government-owned or controlled corporations including their subsidiaries, are hereby withdrawn. "Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws, decrees, executive orders, administrative orders, rules, regulations or parts thereof which are inconsistent with this Decree are hereby repealed amended or modified accordingly". Under the above-quoted provisions of Section 1 of P.D. No. 1931, the tax exemption granted in favor of government-owned or controlled corporations, including subsidiaries, are withdrawn. This withdrawal of tax exemption includes in its coverage all other units of government, as clearly manifested in the WHEREAS CLAUSE of P.D. No. 1931, quoted as follows: cdt "WHEREAS, there is a need for government-owned or controlled corporations and all other units of government enjoying tax privileges to share in the requirements of development, fiscal or otherwise, by paying the duties, taxes and other charges due from them" (emphasis supplied). Under P.D. No. 1177, "All units of government, including government-owned or controlled corporations, shall pay income taxes, customs duties and other taxes and fees as are imposed under revenue laws" (Section 23). P.D. No. 1931 reiterated the taxable status of units of government and government corporations. This law, however removed the government subsidy feature of P.D. No. 1177 which allows the payment of taxes, duties and fees thru "payment compliance certificate" in accordance with Joint Budget Circular No. 289 and pars. 4, 6 and 9, Finance Circular No. 2-78, implementing Sec. 23, P.D. No. 1177. Under P.D. No. 1931, government units and government-owned or controlled corporations are no longer entitled to tax subsidy or payments constituting equity contributions. They are now required to pay cash or its equivalent . Consequently, the revenue collecting agencies will no longer issue a "Payment Compliance Certificate" but the corresponding revenue tax receipts for cash payments of taxes. By reason of the taxability of government units, i.e., the National Government, its agencies and political subdivisions, as well as the government-owned or controlled corporations, as previously pointed out, the interests on their bank deposits as well as the yield on deposit substitutes are now subject to the 15% withholding tax. The depository bank should, therefore, withhold the tax and remit the same to this Bureau within the period provided by law. And this position is further bolstered by the provisions of P.D. No. 1959 which abolished all kinds of tax exemptions and preferential tax treatment on interests of bank deposits, deposit substitutes, trust funds and similar arrangements [Revenue Memorandum Circular No. 31-84 publishing Sections 21(d), 24(cc) and 53(a)(1), Tax Code, as amended by P.D. No. 1959]. acd All concerned are hereby enjoined to give this Circular as wide a publicity as possible. RUBEN B. ANCHETA Acting Commissioner