REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Quezon City
REVENUE REGULATIONS NO. 3-2017
SUBJECT: IMPLEMENTING THE TAX PROVISIONS OF
REPUBLIC ACT (RA) NO. 10693, OTHERWISE KNOWN
AS, THE “MICROFINANCE NGOs ACT.”
TO: All Internal Revenue Officers, Employees, and Others
Concerned by Emelino T Maestro
SECTION 1. Background –
Republic Act (RA) No. 10693, otherwise known as the “Microfinance NGOs Act”, was
signed into law on 03 November 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 2. Scope –
Pursuant to the provisions of Sec. 244 of the National Internal Revenue Code (NIRC)
of 1997, as amended, these Regulations are hereby issued to implement the tax provisions of
RA No. 10693, particularly Section 20 thereof.
SECTION 3. Definition of Terms -
For purposes of these Regulations, the following terms and phrases shall be defined as
follows:
(1) Act – the Microfinance NGOs Act or RA No. 10693;
(2) IRR- the Implementing Rules and Regulations of RA No. 10693;
(3) Accreditation – the process of giving official recognition to a duly
registered Microfinance NGO, after meeting the minimum standards set by
the Microfinance NGO Regulatory Council (or “Council”). A
Microfinance NGO is deemed accredited when it is duly issued an
accreditation certificate by the Council;
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(4) Charges on loans – the agreed upon reasonable and conscionable interest
rate, service charge, penalty, and such other charges incidental to
microfinance lending activity;
(5) Clients – all borrowers and savers of a Microfinance NGO;
(6) Compensating balance – the proportion of the total loan of a microfinance
client, which is retained with the microfinance institution as capital buildup
(CBU) or microsavings which can be used by the microfinance
institution to offset the clients’ outstanding balance in case of default;
(7) Group Loan – a loan contracted by a member of a group of microfinance
clients whose loan is guaranteed by the group of members collectively or
by any members/s of the group. The creditor can collect from any of the
members of the group that guaranteed the said loan, without prejudice to
the right of reimbursement of the member or members of the group that
had advanced the payment in favor of the actual debtor;
(8) Gross receipts from microfinance operations – the interest income,
penalties, surcharges, commissions and discounts, service and general fees,
and other charges related to microfinance operations actually or
constructively received without any deduction of any kind or nature;
(9) Low-income – the income of individuals or families that fall below the
low-income threshold, which is defined by the National Economic and
Development Authority (NEDA) as twice the official national poverty
threshold. This definition shall be subject to periodic review by the NEDA;
(10) Microcredit – the extension of microfinance loans by a Microfinance NGO
to its poor and low-income clients;
(11) Microenterprise development strategy – the social reform program to
promote and pursue inclusive growth that includes the poor, and whose
implementation shall involve both the public and private sectors among
which Microfinance NGOs are key players. Specifically, it refers to
programs to empower the poor, manage risks and vulnerabilities and
thereby improve their asset base and expand access to microfinance
services, such as microcredit, microinsurance, microsavings, health care
and microhousing through a broad package of financial, business and
human development services and other nonfinancial services, including
education to enable them to lead productive lives;
(12) Microfinance – the viable and sustainable provision of a broad range of
financial services to poor and low-income individuals engaged in
livelihood and microenterprise activities. It uses nontraditional and
innovative methodologies and approaches, namely: the extension of small
loans, simplified loan application procedures, group character loans,
collateral-free arrangements, cash flow-based lending, alternative loan
repayments, minimum requirements for CBU/minimum balance retention,
RA NO. 10693 (MICROFINANCE NGOs ACT)
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and small denominated savers’ instruments aimed to improve their asset
base and expand their access to capital and savings;
(13) Microfinance loans – small loans granted to the basic sectors, as defined in
RA No. 8425, otherwise known as the “Social Reform and Poverty
Alleviation Act”, and other loans; as defined by the government as to their
amount, scope, and coverage that are granted to the poor and low-income
individuals for their microenterprises and small businesses so as to enable
them to raise their income levels and improve their living standards.
Microfinance loans are granted on the basis of the borrower’s cash flow
and are typically unsecured;
(14) Microfinance NGO – a nonstock, nonprofit organization duly registered
with the Securities and Exchange Commission (SEC), with the primary
purpose of implementing a microenterprise development strategy and
providing microfinance programs, products, and services, such as
microcredit and microsavings, for the poor and low-income clients;
(15) Microfinance Operations – refers to the following programs and services
of Microfinance NGOs:
(a) Minimum Core Programs and Services. – Microfinance NGOs
shall continuously provide at least any of the following programs,
products, or services:
(i) Microcredit and financial literacy programs; and
(ii) Microcredit and CBU or microsavings.
(b) Other Programs and Services. – The following are the other
programs and services that Microfinance NGOs may undertake,
subject to existing laws and regulations:
(i) Agricultural microfinance;
(ii) Housing microfinance;
(iii) Microinsurance, in partnership with authorized
microinsurance companies, agents and/or entities;
(iv) Electronic payment system such as mobile or any innovative
digital platforms or channels;
(v) Money transfer and other related remittance services, in
partnership with authorized agents and/or entities;
(vi) Provide development opportunities such as leadership
training and entrepreneurial skills enhancement; and
(vii) Other relevant and/or innovative programs, products and
services that address social welfare purposes and which are
not contrary to existing laws and regulations. This may
include, but not limited to, programs involving health,
education, Disaster Risk Reduction and Management
(DRRM), and Persons with Disabilities (PWD) assistance.
RA NO. 10693 (MICROFINANCE NGOs ACT)
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(16) Microinsurance – as defined under Section 187 of the Insurance Code, as
amended, it is a financial product or service that meets the risk protection
needs of the poor where:
(a) the amount of contributions, premiums, fees or charges, computed
on a daily basis, does not exceed seven and half percent (7.5%) of
the current daily minimum wage rate for non-agricultural workers
in Metro Manila; and
(b) the maximum sum of guaranteed benefits is not more than one
thousand (1,000) times of the current daily minimum wage rate for
non-agricultural workers in Metro Manila.
(17) Microsavings – the program of a Microfinance NGO to collect relatively
small amounts of money from their clients for purposes of maintaining a
compensating balance. It refers also to equity build-up or capital build-up;
(18) Nongovernment organization (NGO) – a nonstock, nonprofit organization
duly registered with the Securities and Exchange Commission (SEC),
focusing on the upliftment of the basic or disadvantaged sectors of society
by providing advocacy, training, community organizing, research, access
to resources, and other similar activities, as defined in RANo. 8425;
(19) Poor – individuals and families whose income fall below the poverty
threshold as defined by the NEDA. Generally, the poor are regarded as
those who cannot afford, in a sustained manner, to provide their minimum
basic needs of food, health care, education, housing and other essential
amenities of life as defined by RA No. 8425;
(20) Social performance – the effective translation of a Microfinance NGO’s
mission into practice; and
(21) Social welfare promotion/purposes – the thrusts, objectives, plans,
programs, services and activities designed to aid and/or ameliorate the
living conditions of the poor, disadvantaged, marginalized, vulnerable and
underprivileged individuals and their families in order to attain improved
quality of life and well-being.
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)
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(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)
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(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.
RA NO. 10693 (MICROFINANCE NGOs ACT)
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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.
SECTION 8. Repealing Clause. –
The provisions of all existing rules, regulations and other issuance or portions thereof
inconsistent with the provisions of these Regulations are hereby modified, repealed or revoked
accordingly.
SECTION 9. Effectivity. –
These Regulations shall take effect fifteen (15) days after publication in the Official
Gazette or newspaper of general circulation, whichever comes first.
(Original Signed)
CARLOS G. DOMINGUEZ
Secretary
Department of Finance
Recommending Approval:
(Original Signed)
CAESAR R. DULAY
Commissioner of Internal Revenue
K-1
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