Tax Digest
Volume 10,
Series 60
Microfinance NGOs Act’s Tax Provisions

The BIR release the regulation for implementing the tax provisions of Republic Act (RA) No. 10693, widely known as Microfinance NGOs Act. The objective of the law is to alleviate poverty affecting many Filipinos in the country, which promotes microfinancing for community development and improvement in socio-economic welfare. Accordingly, to qualify for the tax incentives provided by the law, the financial institution must conform with the following:

  1. The corporate and trade name of the Microfinance NGO should be embedded the word “Microfinance”; and
  2. The Articles of Incorporation and By-Laws should state the following:
    1. It is “non-stock and non-profit”;
    2. Its primary purpose must be implementing a microenterprise development strategy and providing microfinance programs, products, and services for the poor;
    3. Net assets, upon dissolution, shall be distributed to another NGO organized for similar purposes, or the State for public purposes or as may be determined by a competent court of justice;
    4. No part of the property or income shall inure to the benefit of any member, officer, organizer, or any individual person;
    5. The trustees shall not receive any compensation or remuneration, except reasonable per diem;
    6. Administrative expenses shall not exceed 30% of the total expenses for the taxable year; and
    7. Other requirements which the Microfinance NGO Regulatory Council may deem necessary.

Moreover, only those who have secured a Certificate of Accreditation from the Council shall enjoy the 2% gross receipts tax on income from microfinance operations.

How about those already been a Microfinance NGOs registered to Securities and Exchange Commission?
According to Section 2 of Rule 11 of the Implementing Rules and Regulation (IRR), if the said institution has no records of derogatory information they are deemed accredited for a period of one year from the effectivity of this law, hence, shall be entitled for the 2% gross r eceipts tax on its income.

Furthermore, the regulation includes the scope and limitation of the preferential tax rate of 2% on gross receipt from microfinance operations, which activities are only from lending and insurance commission which are bundled and forming integral part of the qualified lending activities. And those incomes that are not borne from lending activities and insurance commission shall be subjected to normal tax rates applicable.

However, the institution still has an obligation as a withholding agent for the government to withhold compensation to their employees, and income payments to their supplier of services under RR No. 2-98, as amended.

In availing the said tax incentive, the institution will be subjected to evaluation for those incomes that are unrelated to the required activities in the said law, and there will be periodic examination by revenue enforcement officers to know whether they are compliant with the condition set forth.

The said institutions must also update their registration with their respective Revenue District Offices (RDOs) to reflect their accreditation as Microfinance NGOs. Finally, all clients of the microfinance institution must have a Tax Identification Number (TIN). However, in case their clients did not previously secured a TIN, the microfinance institution may apply their clients at the respective RDO of the institution with proper authorization, an accomplished BIR Form 1904, and valid identifications.

Revenue Regulations No. 3-2017
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