BIR taxing voluntary contributions to SSS, GSIS, Pag-IBIG, PhilHealth
BIR Commissioner Kim S. Jacinto-Henares claimed that, “It has been observed that the grant of income tax exemption to SSS, GSIS, PhilHealth, and Pag-IBIG contributions in excess of the mandatory contributions is being abused."
The BIR has admitted a collection shortfall of P35 billion this year. So starting last July, the BIR is collecting taxes on voluntary contributions made by citizens to the Social Security System (SSS), Government Service Insurance System (GSIS), Philippine Health Insurance Corp. (PhilHealth), and Home Development Mutual Fund (“Pagtutulungan sa kinabukasan Ikaw, Bangko, Industriya at Gobyerno" or Pag-IBIG Fund).
GMA News TV program “On Call" interviewed BIR Assistant Commissioner for Legal Service Marissa O. Cabreros on Revenue Memorandum Circular (RMC) 53-2011 which states that voluntary contributions to the SSS, GSIS, Pag-IBIG and PhilHealth are subject to tax.
The BIR said that such contributions are considered investments and thus taxable and the bureau will no longer entertain any request for tax exemption on them.
The BIR considers as “investments" the contributions made over and above those mandated by law, particularly because the benefits that members of these institutions are bound to receive – such as pension or loans extended – will be enhanced.
Voluntary contributions entitle members to avail of extra retirement, sickness, or unemployment benefits beyond regular or usual financial assistance extended to the members who only make mandatory contributions.
“Kung sasabihin po natin na exempt pati din yung voluntary, nawawalan ng tax po yun kasi kumbaga the exemption is no longer dictated by law but dictated by the income earner," explained BIR Assistant Commissioner Marissa Cabreros in a Nov. 18 interview with GMA News which was aired on "24 Oras," "SONA" and "Saksi."
Cabreros also gave an interview Friday morning on the “Talakayan with Igan" segment of GMA Network's "Unang Balita," where she explained to host Arnold Clavio the new Revenue memorandum circular.
New relevant BIR Circulars
Last Nov. 4, the BIR issued RMC 53-2011, seeking to clarify that RMC 27-2011 does not apply to contributions made before July this year.
RMC 27-11 was issued last July 2 and subjects to withholding tax on compensation the voluntary contributions to SSS, GSIS, PhilHealth and Pag-IBIG only covers voluntary contributions made beginning July 1 of this year.
RMC 27-11 also revoked BIR Ruling Nos. 002-99, DA-184-04, DA-569-04 and DA-087-06 – all of which are earlier rulings exempting such contributions from income tax.
RMC 53-2011 further clarified that only the mandatory or compulsory contributions of employees made to SSS, GSIS, PhilHealth and Pag-IBIG are exempt from income tax and consequently, from the withholding tax on compensation.
The voluntary contributions in excess of compulsory contributions are now considered taxable gross income subject to income tax and withholding tax on compensation.
Thus, the exemption from withholding tax on compensation referred to in Section 2.78.1(B)(12) of Revenue Regulations (RR) No. 2-98 shall apply only to mandatory/compulsory SSS, GSIS, Medicare and Pag-IBIG contributions – and not voluntary contributions.
Contrary to laws on tax-exempt contributions?
But the new BIR rule does not apply to contributions of PhilHealth members because contribution cannot exceed its mandated ceiling of P1,200 per year.
Likewise for GSIS and SSS contributions, these amounts are automatically deducted from the salaries of government employees as well as workers in the private sector. In other words, no voluntary contributions.
Businessmen, however, can become voluntary members of the SSS but they cannot raise the amounts of their contributions year in and year out.
The laws creating the GSIS, SSS, PhilHealth and Pag-IBIG Fund specifically provide for the tax-exemptions of contributions.
Republic Act (RA) 8291 (GSIS Act of 1997) provides in Section 39 that “It is declared policy of the State that …contribution rates necessary to sustain the benefits under this Act shall be kept as low as possible in order not to burden the members of the GSIS and their employers," and “[a]ccordingly, notwithstanding any laws to the contrary, the GSIS, its assets, properties, revenues including all accruals thereto, and benefits paid, shall be exempt by virtue of this Act from all taxes, assessments, fees, charges and duties of all kinds."
The same section states: “These exemptions shall continue unless expressly and specifically revoked."
RA 8282 (Social Security Law) in Sec. 16. states that “[a]ll laws to the contrary notwithstanding, the SSS and all its assets and properties, all contributions collected and all accruals thereto and income or investment earnings… shall be exempt from any tax, assessment, fee, charge, or customs or import duty; and all benefit payments made by the SSS shall likewise be exempt from all kinds of taxes, fees or charges."
Likewise, RA 9679 (Pag-IBIG Fund Law of 2009) states in Sec. 19 that “[a]ll laws to the contrary notwithstanding, …all contributions collected and all accruals thereto and income or investment earnings… shall be exempt from any tax, assessment, fee, charge, or customs or import duty; and all benefit payments made by the Pag-IBIG Fund shall likewise be exempt from all kinds of taxes, fees or charges."
Process of revoking tax exemptions
The cited legal provisions themselves provide how government, through Congress, can revoke tax exemptions on contributions.
RA 9679 states that “[n]o tax measure of whatever nature enacted shall apply to the [Pag-IBIG] Fund, unless it expressly revokes the declared policy of the State in Section 2 hereof granting tax exemption to the Fund."
RA 8282 provides: “No tax measure of whatever nature enacted shall apply to the SSS, unless it expressly revokes the declared policy of the State in Section 2 hereof granting tax exemption to the SSS.
RA 8291 states that “these exemptions shall not be affected by subsequent laws to the contrary, unless [Section 39] is expressly, specifically and categorically revoked or repealed by law and a provision is enacted to substitute or replace the exemptions grant."
Other recent tax moves
Henares’ new issuances on the taxation of voluntary contributions to pension and mutual funds is not her first time to reverse established policies.
The incumbent BIR chief issued BIR Ruling No. 370-2011 which “confirmed that the 20 percent final withholding tax is applicable to the so-called PEACe bonds."
This issuance reversed a decade old BIR Ruling No. 20-2001 which did not consider the PEACe bonds as deposit substitutes and therefore not subject to 20 percent final withholding tax.
Another new BIR regulation issued only last Oct. 27 pertained to or RA 9505 (Personal Equity Retirement Account or “PERA" Law), which was intended to encourage investment and saving among the middle class and overseas Filipino workers.
RA 9505 granted tax exemptions to PERA accounts with up to P100,000 or P200,000—depending on the type of account holders. Sec. 9 of the law states that “[a]ll income earned from the investments and reinvestments of the maximum amount allowed …is tax exempt," while Sec. 10 provides that “[a]ll distributions …are tax exempt."
Nearly three years after RA 9505 became a law, Finance Secretary Cesar Purisima issued, upon the recommendation of Henares, RR 17-2011 implementing the tax provisions of RA 9505. [See: PERA Law's conundrums: Who are OFWs? Where are they?]
RR 17-2011 enumerates the taxes the PERA is exempt from although the law itself does not enumerate any. It also provides that “non-income taxes, if applicable, relating to the investment income of the PERA Account of a Contributor, shall remain imposable," and those listed as imposable are value-added tax, documentary stamp tax, stock transaction tax, and percentage taxes. — ELR/KG/MRT/RSJ, GMA News