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PRESIDENTIAL DECREE NO. 1739
PRESIDENTIAL DECREE NO. 1739
- PROVIDING FISCAL INCENTIVES BY AMENDING CERTAIN PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AND FOR OTHER PURPOSES
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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;chanroblesvirtualawlibrary
NOW, THEREFORE, I, FERDINAND E. MARCOS, by virtue of the powers vested
in me by the Constitution, do hereby decree and order:cralaw:red
Section 1. Section 20 of the National Internal
Revenue Code is hereby amended by adding the following definitions as
follows:cralaw:red
"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:cralaw:red
"Sec. 21. Rates of tax on citizens or residents. —chanroblesvirtualawlibrary
xxx
xxx
xxx
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:cralaw:red
"(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:cralaw:red
"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:cralaw:red
"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:cralaw:red
"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:cralaw:red
"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:cralaw:red
Not over P50,000 10%
Over P50,000 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:cralaw:red
"Sec. 53(e). Withholding of final tax on interest on
bank deposits and yield from deposit substitutes. —chanroblesvirtualawlibrary
(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:cralaw:red
"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:cralaw:red
"Section 187 —chanroblesvirtualawlibrary
(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:cralaw:red
"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:cralaw:red
"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:cralaw:red
(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:cralaw:red
"Sec. 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:cralaw:red
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.
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