VAT Ruling No. 044-99

April 8, 1999 VAT RULING NO. 044-99 Sec. 121 000-00 044-99 Mr . Froilan Ampil De Guzman/Vinzons Sts., Obrero, Davao City Thru: Ms . Teodorica R . Arcega BIR Regional Director Revenue Region No. 19 Dear Sir : This has reference to your letter dated December 16, 1998, requesting, for the administrative and legal interpretation of Section 121 of the Tax Code of 1997 pertaining to the gross receipts tax imposed on Banks and Non-Bank Financial Intermediaries in relation to the tax exemptions granted to rural banks under Section 15 of Republic Act No. 7353, otherwise known as the "New Rural Banks Act", which provides: "Section 15. All rural banks created and organized under the provisions of this Act shall be exempt from the payment of all taxes, fees and charges of whatever nature and description, except the corporate income tax and local taxes, fees and charges for a period of five (5) years from the date of the commencement of business operations. cdll "All rural banks in operation as of the date of approval of this Act shall be exempt from the payment of taxes, fees and charges of whatever nature and description, except corporate income tax and local taxes, fees and charges for a period of five (5) years from the approval of this Act." Corollary to the above, you would like to know if there is a Revenue Regulation relative to the implementation of Section 121 under RA 8424 because in the seminar attended by your staff sponsored by the Tax Studies & Research Center, you were told by the resource speaker, Atty. Victoria Go Reinante, that Section 121 of the CTRP is suspended for implementation because there is no implementing revenue regulations issued. In reply, please be informed that Section 3 of Republic Act No. 7716, otherwise known as "The Expanded VAT Law", amended Section 102 of the Tax Code (now Section 108) to read as follows: "SEC. 102. Value-added tax on sale of services and use or lease of properties . (a) Rate and base of tax There shall be levied assessed and collected a value-added tax equivalent to 10% of gross receipts derived from the sale or exchange of services including the use or lease of properties. "The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration including those performed or rendered by construction and service contractors; . . ., services of banks non-bank financial intermediaries and finance companies and . . ." (emphasis supplied) Based on the abovementioned provision, the law clearly intended to include in the coverage of VAT the services performed by banks and non-bank financial intermediaries. However, Section 17(b) of the said Act allowed for the deferment of imposition VAT on such services for a period of two (2) years following the effectivity thereof. This Act was consequently amended by Republic Act No. 8241 and then by Republic Act No. 8424, which further deferred the imposition of VAT on such services until December 31, 1999 unless Congress deems otherwise. Further, RA 8424 provided that said services shall continue to pay the applicable tax prescribed under the present provisions of the National Internal Revenue Code. Thus, for the meanwhile that the imposition of VAT is deferred on such services, banks and non-bank financial intermediaries shall continue to be subject to gross receipts tax imposed under Section 121 of the Tax Code of 1997 until December 31, 1999 and, hence, shall be governed by Revenue Regulations No. 12-80 dated November 7, 1980 pending the issuance of the new revenue regulations implementing the provisions of RA 8424, which drafts have already been submitted by the Bureau to the Secretary of Finance for his consideration. LibLex With respect to the tax exemptions granted to rural banks under Republic Act No. 7353 and to thrift banks under Republic Act No. 7906, it is important to note that while Section 7 of RA 8424 repealed the tax exemptions granted to thrift banks under Section 17 of RA 7906, thereby subjecting all thrift banks to taxes, fees and charges in the same manner and at the same rate as banks and other financial intermediaries effective January 1, 2000, no similar repealing clause was provided for the tax exemptions granted to rural banks under RA 7353. As such, rural banks shall continue to enjoy exemption from the payment of all taxes, fees and charges of whatever nature and description, except corporate income tax and local taxes, fees and charges for a period of five (5) years from date of commencement of operations or for a period of five (5) years from the approval of said Act, as the case may be, pursuant to Section 15 of RA 7353 as implemented by Revenue Regulations No. 16-93. This ruling is being issued on the basis of the facts represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue