Higher costs, more tedious work await banks, clients under new BIR order

MANILA, Philippines — Higher costs and more accounting work could face banks and borrowers under a new Bureau of Internal Revenue (BIR) issuance clarifying treatment on "passed-on" tax from lenders.

 

Under Revenue Memorandum Circular 62-2016 dated June 13, the tax agency cleared that banks and non-bank financial institutions may pass to their clients' gross receipt tax (GRT) their transactions.

 

One of those is through bank lending, where borrowers shoulder 5 percent GRT for income that banks generate from lending their money at an interest. For non-banks, this rises to 7 percent.

 

"The passed-on GRT is considered as other fees and charges," the circular stated.

 

Lenders, in turn, should include this passed-on tax under their total gross receipts as a form of "constructive" income. BIR said this is because their non-payment means additional funds for them.

 

Effectively, banks lending funds will have to settle two levies: one, on the actual loan interest, and another on the income they supposedly generated for passing the GRT first to borrowers. 

 

The former is charged 5 percent, while the latter is 7 percent, BIR said.

 

"The issuance can actually be considered as a tax on tax," said Benedict Tugonon, president of industry group Tax Management Association of the Philippines.

 

"This will affect the borrowers as the banks may likely find ways to recover the additional tax from their clients," he said in a text message.

 

For Lina Figueroa, tax partner at P&A Grant Thorton auditing firm, charging different levies on interest income and passed-on GRT means more accounting work for banks.

 

"What the BIR wants to do will make accounting/reporting more complex. Banks normally don't break up their fees to account for GRT," Figueroa said in an e-mail.

 

Under the circular, borrowers may claim as tax deduction the GRT passed to them by banks once they file their income taxes.

 

But Figueroa said this may not compensate for a more tedious tax payment system.

 

"On the part of the bank clients, it will likewise complicate accounting if (GRT) has to be in a different account. Even withholding taxes may have to be accounted for separately," she explained.

 

The memorandum was signed 17 days before the turnover to the next government by noon of June 30.

 

This followed similar orders issued this month by BIR Commissioner Kim Henares, one of which implied property buyers or sellers may be subjected to a tax probe if proven they do not have the financial capacity to hold real estate assets. The STAR contacted Henares, but she could not be reached for comment.

 

Tugonon, for his part, reiterated that the outgoing BIR chief should refrain from making new orders during the transition period.

 

"This is as a courtesy to the next administration," he said.