BSP advises institutions to stop withholding tax on some payments to central bank

FINANCIAL institutions have been advised to stop withholding taxes on their payments to the Bangko Sentral ng Pilipinas (BSP) following the implementation of a BSP tax exemption under the New Central Bank Act.

In a circular, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said the advisory follows Revenue Regulations No. 2-2020 issued by the Bureau of Internal Revenue, which lays out the BSP’s exemption from paying national internal revenue taxes on income from its governmental functions.

“In this respect, all BSFIs (BSP-supervised financial institutions) and OPSs (operators of payments) can now discontinue the withholding of taxes on their payments to the BSP in relation to the above-mentioned transactions or activities,” Ms. Fonacier said.

Finance Secretary Carlos G. Dominguez, III said that the revenue regulations will cover BSP income including those activities that are related to the central bank’s primary objectives to supervise over bank operations.

It will also include those related to the BSP’s regulatory and examination powers over quasi-banks, money service businesses, credit-granting businesses and payment system operators.

Activities related to the central bank’s mandate to maintain price stability, monetary and financial stability, and the convertibility of peso will also be included in the tax exemption.

“All other incomes not included in the above enumeration shall be considered proprietary income and shall be subject to all applicable national internal revenue taxes,” Ms. Fonacier said.

The New Central Bank Act provides for a BSP exemption from all national, municipal and city taxes, fees, charges, and assessments, for five years after the law’s approval.

According to the law, the tax exemption will also be applicable to BSP’s properties, resources, receipts, expenditures, profits, and income.

Likewise, contracts, deeds, documents and transactions that are related to the BSP’s conduct of business will also be included in the tax exemptions.

“Bangko Sentral itself would otherwise be liable, and shall not apply to taxes, fees, charges, or assessments payable by persons or other entities doing business with the Bangko Sentral,” according to the law.

The law was passed in February 2019.