THE BUREAU of Internal Revenue has issued a circular clarifying the proper tax treatment of gross receipts taxes (GRT) “passed on” by banks to their clients.
Revenue Memorandum Circular No. 62-2016, dated June 13, states the shifting of the 5% GRT to the client would still incur tax on the bank’s part, as it is considered a form of “other fees and charges.”
The circular noted that “the ‘passed-on’ GRT shall be considered as receipt of income as specified under Section 32 of the Tax Code.”
It also clarified that the “passed-on” GRT still forms part of the tax base for the purpose of computing a bank or financial institution’s gross receipts.
The circular noted that under Section 121 and 122 of the Tax Code, all banks, non-bank financial intermediaries and financing companies doing business in the Philippines are “directly liable” for GRT.
The circular presented an example in which a bank passes on the 5% GRT worth P500 to a client who is due to pay P10,000 interest.
In this case, the bank is still liable for a 5% GRT on the P10,000 interest (or P500), plus a 7% GRT on the P500 it “passed on” to the borrower (or P35).
The circular said that considering the “passed-on” tax as a bank fee is consistent with Section 2 of the Bangko Sentral ng Pilipinas Circular No. 370 (Updated Rules Implementing the Truth in Lending Act to Enhance Loan Transaction Transparency).
At the same time, the circular also stated the borrower can claim the “passed-on” GRT as a deductible expense under Section 34 of the Tax Code, subject to requirements set by Section 2.58.5 of Revenue Regulation No. 2-98.
The lender, should it pay the GRT itself, can claim it as a deductible expense under Section 34 (c) of the Tax Code. -- Vince Alvic Alexis F. Nonato
SOURCE: Businessworld
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