CHINA BANKING V. CA (TAX)

Issues:

1. Whether the 20% final withholding tax on interest income should form part of CBC's gross receipts in computing the gross receipts tax on banks; and


2. Whether CBC has established by sufficient evidence its right to claim the full refund representing alleged overpayment of the gross receipts tax.

We rule that the amount of interest income withheld in payment of the 20% final withholding tax forms part of CBC's gross receipts in computing the gross receipts tax on banks as provided for in Section 121 of the Tax Code. Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar banking activities.

The CTA held in Far East Bank and Standard Chartered Bank that the exclusion of the final withholding tax from gross receipts operates as a tax exemption which the law must expressly grant. No law provides for such exemption.

CBC's argument will create tax exemptions where none exist. If the amount of the final withholding tax is excluded from taxable gross receipts, then the amount of the creditable withholding tax should also be excluded from taxable gross receipts.

There is a policy objective why no deductions, exemptions, or exclusions are normally allowed in a gross receipts tax. The gross receipts tax, a supposed to income tax, was devised to maintain simplicity in tax collection and to assure a steady source of state revenue even during periods of economic slowdown. such policy frowns upon erosion of the tax base. Deductions, exemption, or exclusions complicate the tax system and lessen the tax collection. By its nature, a gross receipts tax applies to the entire receipts without deduction, exemption, or exclusion unless the law clearly provides otherwise.

In summary, CBC has failed to point to any specific provision of law allowing the deduction, exemption, or exclusion from its taxable gross receipts, of the amount withheld as final tax. Such amount should therefore form part of CBC's gross receipts in computing the gross receipts tax. There being mo legal basis for CBC's claim for a tax refund or credit, the second issue raised in this petition is now moot.