Gross Receipts Tax on Banks and Quasi-Banks

Law Summary

Definitions of Key Terms

Financial Institution: Banks, non-bank financial intermediaries performing quasi-banking functions, finance companies but excludes insurance companies.
Banks: Entities as per General Banking Law (R.A. 8791), including universal, commercial, thrift, cooperative, rural, Islamic banks.
Non-bank Financial Intermediaries: Persons/entities primarily engaged in lending, investing, or placement of funds or evidences of indebtedness, including activities like purchasing of receivables.
Quasi-banking Activities: Borrowing funds from 20 or more lenders via debt instruments for relending or purchasing receivables; excludes commercial or industrial firms borrowing for their own limited needs.
Deposit Substitutes: Alternative forms of obtaining funds from the public via instruments like bankers' acceptances, promissory notes, repurchase agreements (excluding inter-bank call loans up to 5-day maturity).
Insurance Companies: Entities indemnifying others against loss/damage/liability from contingent events.
Financing Companies: Corporations primarily extending credit through lending, discounting, factoring, buying/selling contracts, or financial leasing.
Financial Leasing: Non-cancellable lease with lessee paying fixed amounts amortizing at least 70% purchase cost over not less than 2 years, lessee bears maintenance, no purchase obligation.
Operating Lease: Any lease other than financial lease by financing companies.
Interest Income: Interest and discounts earned on loans/investments.
Securities: Shares, bonds, notes, certificates evidencing indebtedness including government securities.
Gross Receipts: Compensation from all financial and non-financial services by financial institutions, including fees, rentals, royalties, commissions, trading gains, and gains from sale of foreclosed properties.

Imposition of Gross Receipts Tax on Banks and Quasi-banking Non-Bank Intermediaries

Tax imposed on gross receipts from sources within the Philippines according to:
- Interest, commissions, discounts from lending and financial leasing:
  - Maturity ≤ 5 years: 5%
  - Maturity > 5 years: 1%
- Dividends and equity shares of subsidiaries: 0%
- Royalties, rentals, exchange profits, and other similar gross income: 5%
- Net trading gains on foreign currency, debt securities, derivatives: 5%
Net trading losses can only offset net trading gains within the taxable year, not other income items.
Financial leasing taxable gross receipts comprise interest income only; operating leases taxed on gross rental.
Classification of lease transactions based on substance over form.
Pretermination shortens maturity period, affecting applicable tax rate.
Taxable gross receipts calculations must conform to generally accepted accounting principles prescribed by Bangko Sentral ng Pilipinas (BSP).

Imposition of Gross Receipts Tax on Other Non-Bank Financial Intermediaries

Applies to non-bank financial intermediaries not performing quasi-banking functions.
GRT rates:
- Interests, commissions, discounts, and other gross income: 5%
- Lending and financial leasing income based on maturity:
  - Maturity ≤ 5 years: 5%
  - Maturity > 5 years: 1%
Financial leasing income excludes principal recovery; operating leases taxed on gross rentals.
Classification of leases based on substance.
Pretermination of loan shortens maturity period affecting tax rate.
Computation based on generally accepted accounting principles prescribed by the Securities and Exchange Commission (SEC).

Pretermination of Loan or Lease Agreements

Maturity period adjusted to date of pretermination for tax classification.
Tax adjustments due to pretermination must be reflected as a separate item in the monthly GRT return.
Illustrative example shows recomputation and additional tax payable upon pretermination.

Filing and Payment of Gross Receipts Tax

GRT due must be paid monthly within 20 days after the taxable month.
Payment to the assigned Accredited Agent Bank (AAB) of the Revenue District Office (RDO) where taxpayer is registered.
Electronic Filing and Payment System (EFPS) taxpayers to follow prescribed EFPS rules.

Transitory Provisions

Conversion from VAT-registered to Non-VAT status required by July 31, 2004 for affected financial institutions.
Submission of inventory of unused VAT receipts as of February 13, 2004.
Unused VAT receipts may be used until July 31, 2004 if stamped "Non-VAT receipts" and countersigned.
Tax treatment of collections:
- Collections before December 31, 2003 subject to VAT are not subject to GRT.
- Services rendered before Dec. 31, 2003 with payment received later are subject to GRT.
Transition filing requirements:
- VAT returns and payments for January 2004 filed by Feb 20/25, 2004.
- GRT returns for January and February 2004 filed accordingly.
- Quarterly VAT return for Q1 2004 covering all transactions from Jan 1 to Feb 16, 2004 is the last VAT return for financial institutions.
Excess input tax credits governed by Section 112 of the Tax Code.
Refund period for erroneously paid VAT from Jan 1 to Feb 13, 2004 is until June 30, 2004 upon surrender and cancellation of VAT receipts.
Financial institutions may credit erroneously collected VAT against March or April 2004 GRT liabilities.
VAT and percentage tax returns requiring amendment may be filed without penalty until July 31, 2004.

Separability Clause

If any provision is declared unconstitutional or invalid, other provisions remain effective.

Repealing Clause

Revenue Regulations Nos. 18-99, 12-2003, and 20-2003 are repealed.
Other conflicting revenue issuances amended or revoked accordingly.

Effectivity Clause

These regulations take effect immediately unless otherwise stated in Republic Act 9238.