Presidential Decree No. 1739 (PD 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 complementary
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-baking activities” means borrowing funds from twenty or
more personal or corporate lenders at any one time, through the issuance,
endorsement or acceptance of debt instrument of any kind other than deposits 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.”
SEC. 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.
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xxx xxx xxx
Interest from Philippine Currency bank deposits and yield from deposit
substitutes whether received by citizens of the Philippines to the final tax as
follows:
(a) 15% of the interest on savings deposits, and (b) 20% of the
interest of 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 preferential
tax rates income tax treatment then the preferential tax rates so
provided shall be imposed.”
SEC. 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 the 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.
SEC. 4. Section 24(e) of the same Code is hereby amended by
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 stocks
of bank 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 shares are owned by the same person or so related
persons.”
SEC. 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
corporations 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 corporation, through the medium of permitting its gains and
profits to accumulate instead of being divided or distributed, there 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. – The 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
the 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, nonblank 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.
SEC. 6. Paragraph (1) of Section 27 of the same Code is
hereby deleted.
SEC. 7. Sub-paragraph (b) (8) (D) of Section 29 of the same
Code is hereby amended to read as follows:
“SEC. 29(b) (8) (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.”
SEC. 8. Section 34(g). The provisions of paragraph (b) of
this section to the contrary notwithstanding, net capital gains realized during
each taxable year by individuals 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 defined in Section 96 of the Corporation
Code of the Philippines, shall be subject to tax as follows:
Not over P50, 000 . . . . . . . . . 10%
Over 50,000 . . . . . . . . . . .
. . . 20%
Capital losses sustained from the sale 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 a 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.
SEC. 9. Section 53(e) of the same Code is hereby amended to
read as follows:
“SEC. 53(e) Withholding of the 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 substitute a final bank 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 any
one bank at any time during the taxable period does not exceed Eight Hundred
Pesos a year of 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 the 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 pacer/investors, the tax shall be withhold 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.”
SEC. 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
SEC. 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 in
SEC. 12. Section 209 of the same Code is hereby amended to
read as follows:
“SEC. 209. Percentage tax on dealers in securities, lending
Investors shall pay a tax equivalent to five per centum on their gross
income.
SEC. 13. Section 210 of the same Code is hereby
repealed.
SEC. 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 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 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
SEC. 15. Section 261 of the same Code is further amended to
read as follows:
“SEC. 261. Tax on finance companies. – There shall
be collected a tax of five per centum on the gross receipts derived by all
finances companies as well as other financial intermediaries not performing
quasi-banking functions, doing business in the Philippines from the 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.”
Rules and regulations.
SEC. 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.
Repealing Clause.
SEC. 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.
Effectivity.
SEC. 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.
(Sgd.) FERDINAND E. MARCOS
President of the
Philippines
By the President:
(Sgd.) JOAQUIN T. VENUS, JR.
Presidential Assistant
Section 20(x) of this Code.
(ee) The term “finance companies” refers to corporations or partnerships
other than 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 27, a bank or non-bank financial intermediary, a corporation organized
primarily, and authorized by the Central bank, to hold shares of stocks of bank
pursuant to Sections 12-C of the General Banking Act, a life insurance company,
or a foreign personal holding company as defined in Section
67.”
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 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.”
Source: Supreme Court E-Library, Republic of the Philippines. Philippine laws are public documents (works of the government).
