Rural banks object to BIR ruling on tax incentive for mergers

A recent ruling by the Bureau of Internal Revenue that caps the tax-free incentive on the mergers of rural banks has drawn objections from the Rural Bankers Association of the Philippines. Putting limits on the tax-free privilege defeats the objective of encouraging mergers in the banking sector, said the banks. According to the tax law, a rural bank created from the merger of two or more rural banks shall be exempt from all taxes in the first five years of operation. But now, under revenue memorandum Circular 66-2012 recently issued by the BIR, the tax-exempt privilege only applies to the first merger that a bank goes through. This means succeeding mergers involving the same bank will no longer be covered by the tax-exempt privilege.  “If the tax-free privilege is just a one-time thing, then there will be no incentive for banks to engage in mergers in the future,” RBAP president Edward Leandro Garcia said in an ambush interview Tuesday at the sidelines of a banking forum organized by the association. Garcia added that the one-time incentive is also inconsistent with the push by bank regulators such as the Bangko Sentral ng Pilipinas and the Philippine Deposit Insurance Corp. to encourage bank consolidation to reduce the risk of bank failure.— BM, GMA News