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BIR: Pension, health contributions subject to tax

Funds considered to be taxable investments
/ 01:04 AM November 16, 2011

Contributions to pension, housing and health funds amounting to more than required by law are subject to income and withholding tax effective last July 1, according to the Bureau of Internal Revenue.

The BIR has issued Revenue Memorandum Circular No. 53-2011, which affirms and clarifies an earlier ruling.

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The BIR directive states that voluntary contributions to the Social Security System, Government Service Insurance System, Home Mutual Development Fund (Pag-IBIG Fund) and the Philippine Health Insurance Corp. (PhilHealth) are subject to tax.

The BIR said that such contributions are considered investments and are thus taxable, adding that it would no longer entertain any requests for tax exemption on these contributions.

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“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,” Internal Revenue Commissioner Kim S. Henares said in an earlier circular.

By law, for example, a Pag-IBIG member is required to contribute P100 a month while a PhilHealth member must put in one percent of one’s salary for those earning up to P1,500 a month or 2 percent for those who earn more.

On top of that, Pag-IBIG’s new program allows members to contribute voluntarily an additional P1,000 a month, PhilHealth also has a similar program.

These additional “contributions can be gleaned as a form of investment,” Henares said. “The money being invested by the employees in these programs is not being taxed.”

Also, employers who are mandated to withhold taxes of their employees find it difficult to comply since voluntary contributions may not always pass through them, she added.

To further clear the air, the BIR decided to revoke four rulings it issued earlier.

These directives—Ruling No. 002-99, DA-184-04, DA569-04, and DA-08706—exclude the subject contributions from a taxpayer’s gross income. In effect, the four earlier rulings virtually exempted such contributions from income tax.

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