MALACAŅANG
M a n i l a
PRESIDENTIAL DECREE No. 1739
PROVIDING FISCAL INCENTIVES BY AMENDING CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AND FOR OTHER PURPOSES
WHEREAS, studies and surveys indicate the need for more long-term funds to support the investment and credit requirements of industry and agriculture; and
WHEREAS, the laws restructuring the banking system to allow it to re-channel its resources to long-term investments require a complimentary change in the applicable tax structure to provide adequate incentives for long-term funds;
NOW, THEREFORE, I, FERDINAND E. MARCOS, by virtue of the powers vested in me by the Constitution, do hereby decree and order:
Section 1. Section 20 of the National Internal Revenue Code is hereby amended by adding the following definitions as follows:
"Sec. 20. (v) The term "bank" means every banking institution as defined in Section 2 of the General Banking Act, Republic Act 337, as amended. A bank may either be a commercial bank, a thrift bank, a development bank, a rural bank or a specialized government bank.
(w) The term "non-bank financial intermediary" means financial intermediary as defined in Section 2-D (c) of the General Banking Act R.A. No. 337, as amended, authorized by the Central Bank of the Philippines to perform quasi-banking activities.
(x) The term "quasi-banking activities" means borrowing funds from twenty or more personal or corporate lenders at any one time, through the issuance, endorsement or acceptance of debt for the borrower's own accounts, or through the issuance certificates of assignment or similar instruments, with recourse, or of repurchase agreements for purposes of relending or purchasing receivable and other similar obligations: Provided, however, That commercial, industrial and other non-financial companies which borrow funds through any of these means for the limited purpose of financing their own needs or the needs of their agents or dealers, shall not be considered as performing quasi- banking functions."
Section 2. Section 21 of the same Code is hereby amended by adding a new paragraph to read as follows:
"Sec. 21. Rates of tax on citizens or residents.
x x x x x x x x x
Interest from Philippine Currency bank deposits and yield from deposit substitutes whether received by citizens of the Philippines or by resident alien individuals, shall be subject to the final tax as follows: (a) 15% of the interest on savings deposits, and (b) 20% of the interest on time deposits and yield from deposit substitutes, which shall be collected and paid as provided in Sections 53 and 54 of this Code: Provided, That no tax shall be imposed if the aggregate amount of the interest on all Philippine Currency deposit accounts maintained by a depositor alone or together with another in any one bank at any time during the taxable period does not exceed Eight Hundred Pesos (P800.00) a year or Two Hundred Pesos (P200.00) per quarter; Provided, further, That if the recipient of such interest is exempt from income taxation, no tax shall be imposed and that, if the recipient is enjoying preferential income tax treatment, then the preferential tax rates so provided shall be imposed."
Section 3. Section 24 of the same Code is hereby amended by adding a new subsection (cc) between subsections (c) and (d) to read as follows:
"(cc) Rates of tax on interest from deposits and yield from deposit substitutes. Interest on Philippine Currency bank deposits and yield from deposit substitutes received by domestic or resident foreign corporations shall be subject to a final tax on the total amount thereof as follows: (a) 15% of the interest on savings deposits; and (b) 20% of the interest on time deposits and yield from deposit substitutes which shall be collected and paid as provided in Sections 53 and 54 of this Code: Provided, That if the recipient of such interest is exempt from income taxation, no tax shall be imposed and that, if the recipient is enjoying preferential income tax treatment, then the preferential tax rates so provided shall be imposed.
Section 4. Section 24(e) of the same Code is hereby amended be adding a new paragraph to read as follows:
"Sec. 24(e). The foregoing provisions shall not apply to banks, non-bank financial intermediaries or corporations organized primarily, and authorized by the Central Bank of the Philippines to hold shares of stock of banks unless (A) more than twenty (20%) per cent of all classes of stock entitled to vote of such corporation is held by: (i) persons related to each other within the third degree of consanguinity or affinity, or (ii) a corporation the majority of the shares are owned by such related persons, or (iii) two or more corporations the majority of the shares are owned by the same person or so related persons."
Section 5. Section 25 of the same Code is hereby amended to read as follows:
"Sec. 25. Additional tax on corporations improperly accumulating profits or surplus.
"(a) Imposition of tax. If any corporation is formed or availed of for the purpose of preventing the imposition of the tax upon its shareholders or members or the shareholders or members of another corporations, through the medium of permitting its gains and profits to accumulate instead of being divided or distributed, there is levied and assessed against such corporation, for each taxable year, a tax equal to 25% of the undistributed portion of its accumulated profits or surplus which shall be in addition to the tax imposed by Section 24, and shall be computed, collected and paid in the same manner and subject to the same provisions of law, including penalties, as that tax.
"(b) Prima facie evidence. That fact that any corporation is a mere holding company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members. Similar presumption will lie in the case of an investment company where at any time during the taxable year more than fifty per centum in value of its outstanding stock is owned, directly or indirectly, by one person.
"(c) Evidence determinative of purpose. That fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid that tax upon its shareholders or members unless the corporation, by clear preponderance of evidence, shall prove the contrary.
"(d) Exception. The provisions of this section shall not apply to banks, non-bank financial intermediaries, corporations organized primarily, and authorized by the Central Bank of the Philippines to hold shares of stock of banks, insurance companies, or personal holding companies, whether domestic or foreign."
Section 6. Paragraph (1) of Section 27 of the same Code is hereby deleted.
Section 7. Sub-paragraph (b) (8) (D) of Section 29 of the same Code is hereby amended to read as follows:
"Sec. 29(b). (D) Interest earned on Philippine Currency bank deposits and yield from deposit substitutes subjected to the final tax under Sections 21 and 24 of this Code."
Section 8. Section 34(g) of the same Code is hereby amended to read as follows:
"Sec. 34(g). The provisions of paragraph (b) of this section to the contrary notwithstanding, net capital gains realized during each taxable year by individual or corporations from sale or exchange of shares of stock shall be taxed at the rate of 10%: Provided, however, That net capital gains realized from the sale of shares of stock in a close corporation as defined in Section 96 of the Corporation Code of the Philippines, shall be subject to tax as follows:
| Not over P 50,000 | 10% |
| Over P 50,000 | 20% |
Capital losses sustained from the sale of shares of stock in a close corporation shall be allowed to be offset against capital gains from sale or exchange of shares of stock in any corporation. Capital losses sustained from the sale or exchange of shares of stock in a corporation not qualifying as a close corporation shall be allowed to be offset only against capital gains from sale of stock in corporation not qualifying as a close corporation.
The capital gains tax herein imposed shall be paid in a manner provided for by regulations to be promulgated by the Minister of Finance."
Section 9. Section 53(e) of the same Code is hereby amended to read as follows:
"Sec. 53(e). Withholding of final tax on interest on bank deposits and yield from deposit substitutes.
"(1) Withholding of final tax. Every bank or non-bank financial intermediary shall deduct and withhold from the interest on bank deposits or yield from deposit substitutes a final tax equal to fifteen (15%) per cent of the interest on savings deposits and twenty (20%) per cent of the interest on time deposits or yield from deposit substitutes: Provided, however, That no withholding tax shall be made if the aggregate amount of the interest on all deposit accounts maintained by a depositor alone or together with another in any one bank at any time during the taxable period does not exceed Eight Hundred Pesos a year or Two Hundred Pesos per quarter. For this purpose, interest on a deposit account maintained by two persons shall be deemed to be equally owned by them.
"(2) Depositors or placers/investors enjoying tax exemption privileges or preferential tax treatment. In all cases where the depositor or placer/investor is tax-exempt or is enjoying preferential income tax treatment under existing laws, the withholding tax imposed in this paragraph shall be refunded or credited as the case may be upon submission to the Commissioner of Internal Revenue of proof that the said depositor, or placer/investor is a tax exempt entity or enjoys a preferential income tax treatment.
"(3) Manner of withholding. Without divulging the names of the depositors, or placer/investors, the tax shall be withheld by the bank or non-bank financial intermediary and paid in the same manner and subject to the same conditions provided in Section 54 of this Code."
Section 10. Section 64(b) of the same Code is hereby amended to read as follows:
"Sec. 64(b). Exceptions. The term "personal holding company" does not include a corporation, firm or association exempt from taxes under Section 27, a bank or non-bank financial intermediary, a corporation organized primarily, and authorized by the Central Bank, to hold shares of stocks of banks pursuant to Section 12-C of the General Banking Act, a life insurance company, or a foreign personal holding company as defined in Section 67."
Section 11. Section 187 of the same Code is hereby amended by adding after subparagraph (aa) the following definitions:
"Section 187
(bb) The term "bank" shall have the same meaning as in Section 20 (v) of this Code.
(cc) The term "non-bank financial intermediary" shall have the same meaning as in Section 20 (w) of this Code.
(dd) The term "quasi-banking activities" shall have the same meaning as in Section 20(x) of this Code.
(ee) The term "finance companies" refers to corporations or partnerships other than a bank, or insurance company, primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial or agricultural enterprises whether by granting direct loans or by discounting or factoring commercial papers or accounts receivables for profit, buying and selling contracts, leases, chattel mortgages and other evidences of indebtedness arising out of one or more of the steps in the distribution and sale of commodities."
Section 12. Section 209 of the same Code is hereby amended to read as follows:
"Sec. 209. Percentage tax on dealers in securities, lending investors. Dealers in securities and lending investors shall pay a tax equivalent to five per centum on their gross income.
Section 13. Section 210 of the same Code is hereby repealed.
Section 14. Section 260 of the same Code is further amended to read as follows:
"Sec. 260. Tax on banks and non-bank financial intermediaries. There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule:
(a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived.
Short-term maturity not in excess of two (2) years 5%
Medium-term maturity over two (2) years but not exceeding four (4) years 3%
Long-term maturity
i. over four (4) years but not exceeding seven (7) years 1%
ii. over seven (7) years 0%
(b) On dividends 0%
(c) On royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income under Section 29 of this Code 5%
Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru pretermination, then the maturity period shall be reckoned to end as the date of pretermination for purposes of classifying the transaction as short, medium or long term and the correct rate of tax shall be applied accordingly.
Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar banking activities."
Section 15. Section 261 of the same Code is further amended to read as follows:
Section 261. Tax on finance companies. There shall be collected a tax of five per centum on the gross receipts derived by all finance companies as well as other financial intermediaries not performing quasi-banking functions, doing business in the Philippines from interests, discounts, and all other items treated as gross income under this Code: Provided, That, interest, commissions and discounts from lending activities, as well as income from financial leasing shall be taxed, on the basis of remaining maturities of the instruments from which such receipts are derived in accordance with the following schedule:
Short-term maturity not in excess of two(2) years 5%
Medium-term maturity over two (2) years but not exceeding four (4) years 3%
Long-term maturity
i. over four (4) years but not exceeding seven (7) years 1%
ii. over seven (7) years 0%
Provided, however, That in case the maturity period is shortened thru pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction as short, medium or long term and the correct rate of tax shall be applied accordingly.
Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar financing activities."
Section 16. Rules and Regulations. The Minister of Finance, upon recommendation of the Commissioner of Internal Revenue and in consultation with the Governor of the Central Bank of the Philippines, shall promulgate the implementing rules and regulations for the effective achievement of this Act.
Section 17. Repealing Clause. All acts, laws, decrees, executive orders, rules and regulations, or parts thereof, which are contrary to or inconsistent with this law, are hereby repealed, amended or modified accordingly.
Section 18. Effectivity. This Act shall take effect immediately.
Done in the City of Manila, this 17th day of September, in the year of Our Lord, nineteen hundred and eighty.
The Lawphil Project - Arellano Law Foundation
