Time and again, the BIR has reminded us that taxes are the lifeblood of the nation. True to this timeless doctrine, the Bureau of Internal Revenue (BIR) on Jan. 12, issued Revenue Memorandum Circular (RMC) No. 09-2016 effectively tightening the rules on tax exemptions of non-stock savings and loan associations.
Under Republic Act (RA) No. 8367 or the Revised Non-Stock Savings and Loan Association Act of 1997, NSSLAs are defined as non-stock non-profit corporations engaged in the business of accumulating the savings of its members and using such accumulation for loans to members to service the needs of households by providing long term financing for home building and development and for personal finance. To encourage the creation of NSSLAs, RA 8367 provided for tax exemption of NSSLA, to wit:
“Section 5. Tax Exemption. An NSSLA shall be exempt from payment of tax in respect to income it receives, including interest on its deposits with any bank. Provided, however, that income derived from any of its properties, real or personal, or any activity conducted for profit, regardless of the disposition thereof, is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code.
Interest earnings on deposits of members with the association as well as the shares of its members from the net income of the associations shall be exempt from income tax.”
More than 18 years after the enactment of RA 8367, the BIR issued RMC No. 09-2016, clarifying the taxability of NSSLAs for purposes of income tax, gross receipt tax and documentary stamp tax.
Under RMC 09-2016, for purposes of income tax, NSSLA shall be exempt from payment of tax in respect to income tax receives, including interest on its deposits with any bank. However, income derived from any of its properties, real or personal, or any activity conducted for profit, regardless of the disposition thereof, is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code (NIRC). Thus, any disposition of property by the NSSLA shall be subject to applicable taxes.
RMC 09-2016 further clarifies that RA 8367 only grants the NSSLAs exemption from income tax. Hence, NSSLA shall be subject to Gross Receipts Tax. Since the NSSLAs are under the direct supervision and regulation of the Bangko Sentral ng Pilipinas (BSP), and under the BSP Manual of Regulation, NSSLAs are classified as non-bank financial intermediaries, subject to GRT under Section 122 of the NIRC, which states as follows:
“There shall be collected a tax of five percent on gross receipts derived by other non-bank financial intermediaries doing business in the Philippines, from interest, commissions, discounts and all other items treated as gross income under the Tax Code. Provided that interest, commissions and discounts from lending activities, as well as income from financial leasing, shall be taxed on the basis of the remaining maturities of the instruments from which such receipts are derived:
Maturity period is five years or less five percent
Maturity period is more than five years one percent”
Lastly, the RMC clarifies that NSSLAs are subject to documentary stamp tax, particularity on loan agreements, mortgages, pledges, foreclosures and sales, among others.
We note, however, that, Section 199 of the National Internal Revenue Code, as amended, provides DST exemption of loan agreements or promissory notes, the aggregate of which does not exceed P250,000, executed by an individual for his purchase on installment for his personal use or that of his family and not for business or resale, barter or hire of a house, lot, motor vehicle, appliance or furniture.
The issuance of RMC 09-2016 clearly manifests the BIR’s strict implementation of the policy limiting the tax exemptions granted by law. Unfortunately, schools, charitable organizations, homeowners associations, and other non-stock non-profit organizations have not been spared from this strict implementation of the policy by the BIR.
Jose Bernard V. Basallaje is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice and Tier 1 leading tax transactional firm in the Philippines by the International Tax Review.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.