Philippines: Banks told to stop withholding taxes on deposit fees

• Feb 11, 2020

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has instructed banks and financial institutions to stop withholding taxes on all income derived from the BSP’s government functions.

The regulator issued Memorandum 2020 – 002 instructing authorized agent banks to discontinue withholding the two percent tax on service fees arising from bank deposit transactions with the central bank’s cash department.

“Accordingly, the cash department shall collect 100 percent of the service fees through the demand deposit accounts of authorized agent banks,” the BSP stated in the memo.

The exemption, the BSP added, is subject to the issuance of a Revenue Memorandum Circular (RMC) by the Bureau of Internal Revenue (BIR) on the details of the implementation of the tax exemption of the BSP under Republic Act 11211 otherwise known as the New Central Bank Act.

Last Jan. 15, Finance Secretary Carlos Dominguez and BIR Commissioner Caesar Dulay signed Revenue Regulation 2-2020, exempting the BSP from paying taxes on income derived from its governmental functions.

These include income from activities done in the exercise of the central bank’s regulation and supervision over banks, non-bank financial institutions performing quasi-banking functions, money service businesses, credit granting businesses and payment system operators.

Also exempted are income from transactions in pursuit of the BSP’s primary objective to maintain price stability conducive to a balanced and sustainable growth of the economy, the promotion and maintenance of monetary and financial stability, and the convertibility of the peso.

However, all other incomes not included in the regulation shall be considered as proprietary income and shall be subject to all applicable national internal revenue taxes.

President Duterte signed the New Central Bank Act on Feb. 14 last year to amend the BSP’s old charter, as contained in RA 7653.

Under Section 125 of the law, the BSP is exempted from all national, provincial, municipal and city taxes on income derived from its governmental functions.

Source: https://www.philstar.com/business/2020/02/11/1992013/banks-told-stop-withholding-taxes-deposit-fees