Many Filipinos have questions about whether deposits and transactions with banks like BPI are subject to value-added tax (VAT). This comprehensive guide will explain which banking services are VAT-exempt and why.
Banks play an important role in the economy by providing financial services to individuals and businesses. However, banks also charge fees and impose taxes on certain transactions.
Understanding VAT exemptions for banks can help consumers maximize savings. So let’s delve into more details.
VAT Exempt Banking Transactions
Banks like BPI perform many transactions for customers daily. However, not all bank fees and services incur VAT according to Philippines tax laws.
The following bank transactions are VAT exempt:
- Interest income from bank deposits – This includes interest earned on savings accounts, time deposits, and other deposit products. The interest income is not subject to the 12% VAT.
- Foreign currency exchange – Banks routinely exchange pesos for foreign currencies and vice versa. The foreign exchange transactions are VAT exempt.
- Interbank sale of foreign currency – When banks trade foreign currencies with each other, these wholesale transactions are not subject to VAT.
- Loan transactions – The fees and interest charges on bank loans are exempt from VAT. This applies to BPI Loans for individuals and businesses.
- Sale of gold to the BSP – Banks can sell gold to the Bangko Sentral ng Pilipinas (BSP) without paying VAT.
- Assignment of insured mortgage loans – Banks can assign or sell mortgage contracts to other lenders without incurring VAT.
- Provision of credit card services – The annual fees, interest charges, and other credit card services offered by banks are not subject to VAT.
VAT on Other Banking Services
While many bank transactions are VAT exempt, there are some services that still incur VAT:
- Service fees & charges – Banks impose service fees for ATM withdrawals, fund transfers, check processing, etc beyond a certain number per month. These fees are subject to 12% VAT.
- Rental income – If a bank rents out property or equipment, the rental income is liable for VAT.
- Sale of foreclosed assets – When banks sell properties or assets they foreclosed from defaulting borrowers, VAT applies to the selling price.
- Other income – Any other income of banks not classified as VAT exempt is subject to the 12% VAT.
VAT Exempt Entities & Transactions
Aside from banks, the Philippines VAT code also exempts certain entities and transactions from paying value-added tax:
- Exports – Export sales are zero-rated for VAT purposes. This allows Filipino exporters to be more competitive internationally.
- Basic commodities – Goods like rice, corn, fresh fish, meat, dairy, vegetables, and other necessities are VAT exempt to make them more affordable.
- Education & health services – To promote access for all Filipinos, education and health services provided by accredited institutions are VAT exempt.
- Residential leases below P15,000/month – Rental of residential spaces with monthly rates below P15,000 are not subject to VAT to lower costs for lower-income tenants.
- Cooperatives – To encourage growth of cooperatives that provide livelihood opportunities, their transactions with members are VAT exempt.
- Renewable energy – Sale of machinery, equipment, and services for renewable energy like solar, wind, and hydro power is zero-rated for VAT.
Is BPI VAT Exempt?
To summarize, BPI is a bank primarily engaged in lending and deposit-taking services.
Interest earned, loan fees, foreign exchange transactions, and other income from these core banking activities are VAT exempt.
However, BPI does collect VAT on bank service fees, rental income, sale of foreclosed properties, and other income not arising from its primary banking functions.
While enjoying VAT exemptions on most transactions, BPI still has to pay VAT on certain services and income.
Consumers should also be aware that bank service fees beyond a number of free monthly transactions will incur VAT.
VAT exemptions play an important role in social justice and economic progress in the Philippines.
Banks like BPI facilitate financial activities that are crucial for commerce and nation building. Tax exemptions on core banking functions make financial services more accessible and affordable.
While BPI does not pay VAT on all its income, it contributes to government revenues through other taxes. Consumers also need to consider VAT on bank services when managing their finances.
An understanding of VAT exemptions allows Filipinos to maximize savings and get the most out of banking relationships.
Frequently Asked Questions
What is VAT in the Philippines?
VAT or value-added tax is an indirect tax imposed on sale of goods and services in the Philippines. The standard VAT rate is currently 12% of the gross selling price.
You can calculate it easily with our VAT Calculator Philippines.
Is the interest earned on BPI deposits subject to VAT?
No. Interest income from savings accounts, time deposits, and other BPI deposit products is exempt from the 12% VAT.
Do BPI ATM fees incur VAT?
BPI provides a certain number of fee-waived ATM transactions per month. Beyond this threshold, ATM fees are subject to 12% VAT.
Is VAT charged on BPI car loans?
No. The fees and interest payments on BPI car loans and other loan products are VAT exempt based on Philippine tax laws.
Are annual fees on BPI credit cards subject to VAT?
No. Credit card services like annual fees, interest charges, and others provided by BPI are VAT exempt transactions.