DECLARING THE BANKING INDUSTRY AS INDISPENSABLE TO THE GROWTH OF NATIONAL ECONOMY AND FOR OTHER PURPOSES.

• Number: Presidential Decree No. 1738
• Sections: 5

Preamble

WHEREAS, it is recognized that the attainment of development

goals for industry and agriculture depends, to a large extent, on the capability

of banks to sustain the investment and credit requirements of industrial and

agricultural projects;

WHEREAS, to insure that funds are available for investment

and credit requirements, there is a need to increase the resources of banks;

and

WHEREAS, to create the ideal climate conducive to the

increased capitalization of banks, certain changes in the fiscal regime appeal

warranted;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers in me vested by the Constitution, do hereby

order and decree:

Section 1

SECTION 1. The banking industry is hereby declared as

indispensable to the growth of national economy and, the provisions of the

National Internal Revenue Code to the contrary notwithstanding, gain realized

from the following sales or exchanges of property for a period of five years

from the date of approval of this Decree shall not be subject to tax:

Gains arising from merger or consolidation whereby: (i) a bank, a non-bank

financial intermediary or a finance company exchanges property solely for stock

in another bank, a nom-bank financial intermediary or a corporation organized

primarily for the purpose of owning equity in banks and (ii) a shareholder

exchanges stocks in a bank, a non-bank financial intermediary or a finance

company solely for the stocks of another bank, an no-bank financial intermediary

or a corporation organized primarily for the purpose of owning equity in banks:

Provided, That the shares of stocks which are subject of the exchanges

are not disposed of, transferred, assigned or conveyed, except in cases of

transmission on account of death, within a period of five (5) years from the

date of issue; otherwise all the taxes due including interest on the gains

realized from the original transfer, sale or disposition of the assets shall

immediately become due and payable, subject to the provisions of Section 51 (d)

of the National Internal Revenue Code.

Gains arising from the disposition of property, real or personal, that

corresponds to the portion of the proceeds of the sale that is invested, within

six (6) months form the date the gains were realized, in new issues of capital

stock of banks, non-bank financial intermediaries existing as of the date

approval of this Decree, or a corporation organized primarily for the purpose of

owning equity in banks; Provided, (i) That the disposition and the

investment of the proceeds thereof are registered with the Central Bank and the

Bureau of Internal Revenue; and (ii) that the shares of stock representing the

investments are not disposed of, transferred, assigned or conveyed, except in

cases of transmission on account of death, within a period of five (5) years

from the date of issue otherwise all the taxes due including interest on the

gains realized form the original transfer, sale or disposition of the assets

shall immediately become due and payable, subject to the provisions of Section

51 (d) of the National Internal Revenue Code: Provided, further, That

the final scheduler income tax income tax under the National Internal Revenue

Code paid on gains from the disposition of real estate, that corresponds to the

proceeds of the sale that is invested, shall be refunded by the Bureau of

Internal Revenue within six (6) months from the date of payment but subject to

the same conditions as in (i) and (ii) above.

Gains realized from exchange of property, real or personal, for new issues

of capital stock in banks or non-bank financial intermediaries existing as of

the date of approval of this Decree, or a corporation organized primarily for

the purpose of owning equity in banks if as a result of such exchange, the

paid-in capital of such institution is increased: Provided, That the

shares of stocks are not disposed of, transferred, assigned or conveyed, except

in case of transmission on account of death within a period of five (5) years

from the date of issue; otherwise all the taxes due including interest on the

gains realized from the original sale or disposition of the assets shall

immediately become due and payable, subject to the provisions of Section 51(d)

of the National Internal Revenue Code.

For purposes of paragraphs (a), (b), and (c) above –

Every original share of capital stock issued shall be stamped on its face

with the words “EXEMPT UNDER PRESIDENTIAL DECREE NO.”, and no bank, non-bank

financial intermediary or a corporation organized primarily for the purpose of

owning equity in banks shall cause the transfer of ownership of the same in its

stock and transfer book within five (5) years counted from the date of issue,

without evidence of tax payment inclusive of interest. Any bank or corporate

official who shall cause the transfer of ownership of shares of stock in its

stock and transfer book contrary to the provisions of this Decree, shall be

punished by a fine of not less than Five Thousand pesos and imprisonment of not

less than two (2) years.

a bank or a non-bank financial intermediary resulting from a consolidation

or merger effective after April 1, 1980 of an existing bank, a non-bank

financial intermediary or a corporation organized primarily for the purpose of

owning equity in banks shall also be considered as a bank, non-bank financial

intermediary or a corporation primarily organized for the purpose of owning

equity in banks as of the date of approval of this Decree.

a corporation organized primarily for the purpose of owning equity in banks

must register and be authorized by the Central Bank of the

Philippines.

Section 2

SEC. 2. For purposes of this Decree, the following

definitions of terms shall apply:

The term “bank” means every banking institution as defined in Section 2 of

the General Banking Act, Republic Act No. 337, as amended. A bank may either be

a commercial bank, a thrift bank, a rural bank or a specialized government bank.

The term “non-bank” financial intermediary” means financial intermediary as

defined in Section 2-D(c) of the General Banking Act, Republic Act No. 337, as

amended, authorized by the Central Bank of the Philippines to perform

quasi-banking functions.

The term “quasi-banking functions” means borrowing funds, for the borrower’s

own account, through the issuance, endorsement or acceptance of debt instruments

of any kind other than deposits, or through the issuance of participations,

certificates of assignment, or similar instrument with recourse, trust

certificated, or of repurchase agreements, from twenty or more lenders at any

one time, for purposes of relending or purchasing of receivables 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.

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 3

SEC. 3. The Ministry of Finance, upon the recommendation of

the Bureau of Internal Revenue and in consultation with the Central Bank of the

Philippines, shall promulgate the implementing rules and regulations which shall

include appropriate provisions for an independent appraisal of the property

sold, transferred or exchange under the provisions of this Decree.

Section 4

SEC. 4. This Decree 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.

(Sgd.) FERDINAND E. MARCOS

President of the

Philippines

By the President:

(Sgd.) JOAQUIN T. VENUS, JR.

Presidential

Assistant