by: Razor U. Bucatcat
The Bangko Sentral ng Pilipinas or the BSP was established on July 3, 1993 under Republic Act (RA) No. 7653, otherwise known as “The New Central Bank Act” as the Central Monetary Authority of the Republic of the Philippines (RP). Under its charter, the BSP functioned and operated as an independent and accountable corporate body in the discharge of its mandated responsibilities concerning money, banking and credit. As an independent central monetary authority, it enjoys fiscal and administrative autonomy. It further enjoyed tax-exempt status under Section 125 thereof wherein it declared that BSP shall be exempt from income tax for a period of five (5) years from the approval of the said Act (June 1993) from all national, provincial, municipal and city taxes, fees, charges and assessments.
Moreover, Revenue Memorandum Circular No. 65 on 2008 was issued to clarify the taxation status of the BSP. The BSP shall be exempt from business taxes for its revenues and receipts derived from the exercise of essential governmental functions but subject to business taxes in the exercise of purely proprietary functions.
After the expiration of the five (5) year tax exempt period, the BSP began to pay national, provincial and city taxes, fees, charges and assessments to the government. Under the New Central Bank Act, the national taxes payable by the BSP consist of documentary stamp taxes, tax on rental income, capital gains tax, tax on underwriting commitments, and assumed tax on interest on bonds payable and foreign exchange contracts. The local taxes payable include real property tax, firearms license fees, radio telecoms taxes and licenses, vehicle registration, notarial and other fees.
Republic Act No. 11211, signed by President Duterte on 14 February 2019, amended the New Central Bank Act and, with it the BSP’s charter. Under the new law, the BSP now enjoys exemption from income tax on its governmental functions provided under its Charter. This was further clarified in BIR Revenue Regulations No. 2-2020 dated January 16, 2020 and took effect on January 31, 2020. Under the aforementioned Revenue Regulations No. 2-2020, the BSP shall be exempt from all national internal revenue taxes on income derived from its governmental functions, specifically: (a) income from its activities or transactions in the exercise of its supervision over the operations of banks and its regulatory and examination powers over non-bank financial institutions performing quasi-banking functions, money service businesses, credit granting businesses and payment system operators; and (b) income in pursuit of its primary objective to maintain price stability conducive to a balanced and sustainable growth of the economy, and the promotion and maintenance of monetary and financial stability and the convertibility of the peso. All other incomes not included in the above enumeration shall be considered as proprietary income and shall be subject to all applicable national internal revenue taxes.
Thus, if the activities or transactions of the BSP partake of the nature of governmental functions, then the same are exempted from Income Tax. It is a cardinal rule in taxation that the sovereign government may not ordinarily tax itself or its subdivisions unless it appears from the tax statutes themselves that it subjects itself or any subdivision or instrumentality thereof to such statutes Thus, the State in the exercise of sovereignty does not tax itself or any of its political subdivisions but it may tax any of its government-owned or-controlled corporations exercising proprietary functions. By exempting the BSP from taxes on its governmental functions while imposing taxes on its proprietary ones, RA 11211 strengthens the government’s adherence to this rule.
Razor U. Bucatcat is a Supervisor from the Tax Group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.
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