Estrada, Alaiza B.

BSBA FM 2C

Summary of Report about Interest Income

Contents:
INTEREST INCOME SUBJECT TO FIFTEEN PERCENT

INTEREST INCOME SUBJECT TO TEN PERCENT

INTEREST INCOME SUBJECT TO FWT TWENTY PERCENT V INCOME TO SUBJECT TO GROSS RECEIPT TAX
FIVE PERCENT ON BANKS

First let’s define what interest income is, it define as the amount paid to an entity for lending its money
or letting another entity use its funds.

A very simple example of interest income that happens every day is when an individual deposits money
into a savings account and decides to leave it untouched for several months or years. The money won’t
just sit idly in his account, because the bank will use it to lend money to borrowers. The bank will earn
interest by lending money out, but will also pay interest to holders of deposit accounts.

Now let’s continue to discuss about the interest income subject to fifteen percent, the first specified
category is interest income that is subject to a 15% tax. Under the expanded foreign currency deposit
system, interest received by an individual taxpayer from a depository bank is subject to a final tax rate of
15%. A 15% final tax rate is applied to domestic corporations, resident foreign corporations, and
resident foreign citizens; non-resident citizens and non-resident aliens are exempt from this tax.

Let’s get some example, For example, let's say John, a resident individual, has a deposit in a depository
bank under the expanded foreign currency deposit system. If he earns 50,000 Philippine Pesos as
interest income from that deposit, he will be subject to a final tax of 7,500 Philippine Pesos (15% of
50,000 pesos) on that income.

Interest income is the second category and is subject to a 10% tax. This applies to income earned on
foreign currency loans made by depositary banks to citizens, but not to offshore banking subsidiaries or
locally licensed commercial banks. The final tax rate on this interest income is 10%.

For instance, consider a resident corporation named ABC Inc. They obtain a foreign currency loan from a
depositary bank and earn P 10,000 in interest income from that loan. According to the 10% final tax rate,
ABC Inc. will need to pay P 1,000 (10% of P10,000) as the final tax on that interest income.

And lastly the income from banks that is subject to a five percent gross receipt tax and interest income
that is subject to a final withholding tax at a rate of twenty percent, it is where the tax is deducted at the
source, and a gross receipt tax of five percent specifically applied to banks. The final withholding tax is
deducted by the payer or withholding agent, while the gross receipt tax is levied on the total income
earned by banks from interest-related activities. These taxes ensure that a portion of the interest
income is collected as tax revenue by the government.