Are you interested about the new regulations issued by the bureau recently with regards to Revenue Regulations (RR) No. 3-2017, Implementing the Tax Provisions of Republic Act (RA) No. 10693, Otherwise Known As, The "MICROFINANCE NGOs ACT."?
Republic Act (RA) No. 10693, otherwise known as the “Microfinance NGOs Act”, was signed into law on November 3 2015. The Act is pursuant to the declared policy of the State to pursue a program of poverty eradication wherein poor Filipino families shall be encouraged to undertake entrepreneurial activities to meet their minimum basic needs including income security. It aims to encourage non-government microfinance institutions to work with the government to pursue community development and improvement in the socio-economic welfare of the poor and other basic and marginalized sectors through financially inclusive and pro-poor financial and credit policies and mechanisms, such as microfinance and its allied services.
On August 16, 2016, the Implementing Rules and Regulations of RA No. 10693 were duly approved by the concerned government agencies. Subsequently, this Bureau issued Revenue Memorandum Circular (RMC) No. 124-2016 dated November 25, 2016, circularizing the said Implementing Rules and Regulations.
SECTION 4. – Accreditation of Microfinance NGOs Microfinance NGOs must secure a Certificate of Accreditation from the Council as a condition for the availment of the incentives of RA No. 10693. As required under the said Act, a Microfinance NGO must be a non-stock, non-profit corporation with a capital contribution of at least One Million Pesos (P1,000,000.00) and must conform to the following requirements:
(1) The word “Microfinance” shall be included in the corporate and trade name of the Microfinance NGO; and
(2) Its Articles of Incorporation and By-Laws shall specifically state that:
(a) It is “non-stock and non-profit”; RA NO. 10693 (MICROFINANCE NGOs ACT)
(b) It has the primary purpose of implementing a microenterprise development strategy and providing microfinance programs, products, and services for the poor;
(c) Shall specifically provide that upon dissolution, the net assets shall be distributed to another NGO organized for similar purposes, or the State for public purpose/s or as may be determined by a competent court of justice;
(d) No part of the property or income shall inure to the benefit of any member, officer, organizer or any individual person;
(e) The trustees shall not receive any compensation or remuneration, except reasonable per diem;
(f) The level of administrative expenses shall not exceed thirty percent (30%) of the total expenses for the taxable year; and
(g) Other requirements which the Council may deem necessary.
Only Microfinance NGOs with duly issued Certificates of Accreditation from the Council shall be eligible to avail of the 2% gross receipts tax on income from microfinance operations as set forth under Section 6 hereof.
SECTION 5. Transitional Accreditation Microfinance NGOs which have been certified by the Securities and Exchange Commission (SEC) to have no derogatory information and are deemed accredited, in accordance with Section 2, Rule 11 of the IRR, as Microfinance NGOs for a period of one (1) year from the effectivity of RA No. 10693, unless sooner revoked, shall be entitled to avail of the 2% gross receipts tax on its income from microfinance operations.
SECTION 6. - Taxation of Microfinance NGOs
(1) A duly registered and accredited Microfinance NGO shall pay a two percent (2%) tax based on its gross receipts from microfinance operations in lieu of all national taxes: Provided, that preferential tax treatment shall be accorded only to NGOs whose primary purpose is microfinance and only on their microfinance operations catering to the poor and low-income individuals in alignment with the main goal of RA No. 10693 to alleviate poverty. Provided, further, that the Certificate of Accreditation issued by the Council or the Certificate of No Derogatory Information issued by the SEC, as the case may be, shall be an essential requirement for granting the 2% preferential tax treatment of Microfinance NGOs.
(2) The preferential rate of two percent (2%) tax based on gross receipts from microfinance operations should only refer to lending activities and insurance commission which are bundled and forming integral part of the qualified lending activities of the Microfinance NGOs.
(3) All other income by the Microfinance NGOs which are not generated from the lending activities and insurance commissions shall be subject to all applicable taxes, which shall include but not limited to the following: RA NO. 10693 (MICROFINANCE NGOs ACT)
(1) Interest income derived from loans other than those extended to qualified borrowers under RA No. 10693;
(2) Commission fees and other charges on the provision of electronic payment system such as mobile or any innovative digital platforms or channels;
(3) Commission fees and other charges on the provision of money transfer and other related remittance services;
(4) Interest income from any currency bank deposit, yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements including a depository bank under the expanded foreign currency deposit system;
(5) Royalties;
(6) Prizes and other winnings;
(7) Cash and/or property dividends;
(8) Capital gains from the sale or dispositions of real property;
(9) Capital gains tax on the sale, barter, exchange or other disposition of shares of stock in a domestic corporation;
(10) Stock transaction tax on the sale, barter, or exchange of shares of stock listed and traded through the local stock exchange;
(11) All other forms of income not related to microfinance operations (lending activities and insurance commission) catering to the poor and low-income individuals.
(4) The availment of the benefits under RA No. 10693 by Microfinance NGOs for their microfinance operations shall be evaluated in conjunction with their other lines of business in order to determine the appropriate tax treatment of revenues derived from those other activities.
(5) The Microfinance NGOs shall be constituted as a withholding agent for the government if they act as employer and any of their employees received compensation income subject to compensation withholding tax, or if they make payments to individuals or corporations subject to the withholding taxes at source as required under Chapter XIII and Section 57 of the Tax Code of 1997, as amended and implemented by Revenue Regulations (RR) No. 2-98, as amended.
(6) Finally, the Microfinance NGOs’ books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purpose of ascertaining whether they are complying with the conditions under which they have been granted tax incentives and their tax liability, if any, pursuant to Section 235 of the Tax Code of 1997, as amended.
SECTION 7. Update of Registration with the Revenue District Office. Duly registered and accredited Microfinance NGOs, including those deemed accredited as Microfinance NGOs under Section 2, Rule 11 of the IRR, must update their registration with their concerned Revenue District Offices to reflect their accreditation as Microfinance NGOs. Moreover, their clients shall likewise be required to have a Taxpayer Identification Number (TIN). The documentary requirements for the application of TIN are provided under Revenue Memorandum Circular (RMC) No. 93-2016, as amended by RMC No. 137-2016.
In order to assist their clients in securing TIN, the Microfinance NGO, with proper authorization from the clients, may apply for the issuance of TIN in behalf of their clients, by collating the duly accomplished BIR Form 1904 of the clients and valid identifications in support thereof, which shall be submitted to the concerned RDO for the processing and issuance of the TIN.
Please refer: http://www.bir.gov.ph/images/bir_files/internal_communications_1/Full%20Text%20RR%202017/RR%20No.%203-2017.pdf of the definition of terms and full text of RR No. 3-2017.
