Solon entertains tax exemption proposal

CAGAYAN DE ORO – Senate President Franklin Drilon declared his willingness to sit with the rural bankers to discuss possible incentive schemes for the industry.

Drilon said that the Senate was open to exploratory talks such as the exemption from withholding tax on deposits with the rural banks.

"I am willing to sit down with them on discussions to help them develop the industry, and that includes issues of withholding taxes," the Senate president said in an interview during the 49th annual convention of the Rural Bankers Association of the Philippines (RBAP) in this city. "I want specific proposals."

Rural banks account for roughly two percent of the total resources of the country’s entire financial system. Rough estimates calculate that withholdings taxes from deposits with rural banks could amount to merely P400 to P600 million a year.

"It is a drop in the bucket," one rural banker from Los Baños said. "If the government can help the Philippine National Bank from its losses amounting to billions of pesos, then they should also be able to help the entire rural banking system."

Rural bankers have also complained that they had been inadvertently been excluded from the formulation of the proposed special purpose asset vehicle (SPAV) bill. They claimed that the bill favored saving the country’s thrift and commercial banking system but failed to address the needs of the poorer rural banks.

The SPAV bill introduces various fiscal incentives to entities interested in buying bad assets of thrift or commercial banks. Aside from exemption from the documentary stamp tax (DST) and the withholding tax, it also allows foreign entities to get a discount of up to 90 percent of the assets "for sale."

The non-performing assets (NPAs) of the entire commercial banking system is said to amount to over a trillion pesos while the rural banks are facing an estimates NPAs of between P14 to P16 billion.

RBAP officials explained that relieving the rural banking system of its NPAs as well as the exemption of the withholding taxes on deposits could free more credit top the countryside.

The Agricultural Credit and Policy Council said that over 70 percent of small farmers nationwide turn to informal sources for credit such as the so-called five to six lenders. They are slapped lending rates from 30 percent to 60 percent per annum.

That in turn could result in higher production costs for the farmers, who then pass this on to the consuming public. – TPT