Solons buck BIR taxation on voluntary social fund contributions


MANILA – Two party-list lawmakers are going against the plan of the Bureau of International Revenue (BIR) to impose new taxes.

Antonio Tinio of ACT Teachers Party-List and Luz Ilagan of Gabriela Women’s Party said the memorandum circular issued by the BIR imposing taxes on voluntary contributions to the Government Social Insurance Service, the Social Security System, Medicare, and PAG-IBIG violates provisions in existing tax laws.

Last July 11, 2011, the BIR issued Revenue Memorandum Circular 27-2011 (RMC 27-2011) through the office of Commissioner Kim Henares. The two solons point out that it goes against constitutional provisions and runs counter to the National Internal Revenue Code, or Republic Act 8424 (NIRC, or the Tax Reform Act of 1997).

With the revocation of the BIR’s rulings number 002-99, DA-1884-04, DA-569-04 and DA-087-06, the taxpayers particularly employees were forced to accept adjustments in their withholding tax starting last August. Only mandatory/compulsory contributions of the employees to the SSS, GSIS , Philippine Health Insurance Corporation (PHIC) and Home Development Mutual Fund (HDMF) are exempted from income and withholding taxes.

The circular further stated that “voluntary contributions in excess to what the law allows are not excludible from the gross income of the taxpayer and therefore not exempt from income tax and withholding tax.”

Violates the Constitution

Tinio said the memorandum circular should be junked for violating the Constitution. He cited Article VI Sec. 28 of the 1987 Constitution which states that taxation must be uniform and equitable and that Congress is mandated to evolve a progressive type of taxation.

“But with RMC 27-2011, it effectively increases the burden for individual taxpayers over those corporate taxpayers who apparently realize more income,” Tinio explained.

According to Tinio who has scrutinized the circular, corporate taxpayers are not affected by its provision. The circular, however, appears to favor corporations.

“Existing tax laws already give corporate taxpayers more chances to reduce their taxable income through exemptions and deductions not available to individual taxpayers. The BIR seeks to further make corporate taxpayers better off than the common laborer or employee,” he argued.

“We welcome President Benigno Aquino III’s vow to improve tax administration and efficiency in the collection of taxes, but never at the expense of poor Filipinos,” said Tinio. “Why not impose more taxes on those corporate taxpayers who have a much higher ability to pay?”

The educator turned lawmaker criticized the Aquino administration for making social insurance systems more inaccessible and prohibitive. “Individual income earners, made up mostly of ordinary Filipino wage earners, are the ones who bear the brunt of everyday consumption taxes like the Value Added Tax (VAT) and sin taxes. Adding another tax responsibility to ordinary Filipino wage earners will make them think twice about paying these voluntary contributions,” said Tinio.

RMC 27-2011 revoked the BIR’s previous rulings that excluded from the taxable income contributions to social insurance systems (Pag-Ibig 2, SSS, Life Insurance, Pre-Need Plan in excess of the mandatory monthly contribution, GSIS Optional Insurance Premium, GSIS Educational Plan Premium, and GSIS Unlimited Optional Insurance Premium). A BIR official reasoned that the said policy was implemented ‘in view of abuses in granting income tax exemptions’ to the above mentioned social insurance systems.

Tinio challenged the Aquino administration to issue pro-people directives in establishing a stable, if not excellent, fiscal situation.

“Impose greater taxes to corporate taxpayers and high-income individuals and ease burdensome tax responsibilities to those poor, ordinary Filipino wage earners,” he said.

The ACT Teachers solon has filed a resolution calling for a House inquiry into the legal bases of the BIR memorandum circular.

Christmas scrooge

For her part, Gabriela’s Ilagan said the BIR is proving to be the struggling Filipinos’ Ebenezer Scrooge, spoiling the season with a memorandum that will allow the government to cut a bigger slice off the family budget.

“Taxing voluntary contributions is an added burden to the growing ranks of the so-called self-employed and own-account workers, which include vendors, migrant workers and jeepney drivers who could barely manage to save for their retirement or for emergencies. This is yet another blow amid growing the country’s poverty and unemployment,” explained Ilagan.

Ilagan insisted that it is wrong for the BIR to consider voluntary contributions as investments. “These are hard earned savings that come from working extra hours, taking more hazardous jobs and belt tightening by scrimping on the family budget.”

The Gabriela solon further said there is no way that the Philippine government can justify the taxes being imposed on the informal sector as it consistently cuts back on spending for social services.

“The 2011 national budget reflects cuts on appropriations for education, health and housing. As it deprives the poor of services, the Aquino government insists on taxing the poor further. The BIR should revoke this latest memorandum and instead focus its efforts on chasing after the big tax evaders,”she said.

An ineffective entity

A blogger and voluntary SSS contributor Howard Chan is raging against the new BIR ruling. He said he will stop paying contributions to the SSS.

“By law, these contributions are supposed to be exempt from income taxation but as per BIR, this exemption is being abused and so they rolled out a circular which now imposes tax on these contributions. BIR also pointed out that these contributions which are in excess of the mandatory requirement are actually investments and investments are taxable. I don’t know what to make of this but one thing is clear: the government wants your money!,”he said.

Chan went on to insist that the BIR has never shown itself to be an effective government entity.

“Before it can ask for more money from the people, it should prove that money being taxed is money well spent and invested by the government. How can people open their minds to increased taxation when they feel that their money is going nowhere? The BIR stated that they are actually suffering from a collection shortfall from the last fiscal year. This only indicates that they are ineffective in their collection efforts. And to make up for this shortcoming, they are devising this scheme to tax voluntary contributions – what the hell!?”

Chan said instead of heightening measures to run after big time tax evaders, the BIR is running after the little people.

“Come on BIR, these people who are voluntarily contributing are small time people who are merely trying to salvage a secure future for those they may be leaving behind! They are the people who know that they do not have enough riches to hand down to their children and so they need these pre-need plans and assurances so that someday somehow they may have something for their children,”he said.

The blogger said Congress should legislate before taxes can be imposed against voluntary contributions.

The laws that exempt the contributions from taxes are RA 8291 (the GSIS Act), RA 8282 (the SSS Law), and RA 9679 (The Pag-Ibig Law).

“These laws, obviously, are enacted by Congress. Only Congress then can amend, revise, repeal, or modify these laws in any other way and not by a mere BIR circular,” he said. (

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  1. The BIR is like a predator that hunts easy prey and sadly OFWs are the easiest target around since their physical absence prevent them from fighting back. In their desire to take a short cut in raising revenues they don’t realize the negative implications of their memorandum on the industries that benefits from these investments. Hardly hit will be the real estate industry, construction industry, building materials and suppliers, and other related industries specifically in alleviating the unemployment problem.

    It appears that they are willing to back off in the mandatory disclosure of extra income to protect the rights of tax evaders “privacy” which is really not applicable when one indulge in illegal activities. So why can’t they do the same on investments above the minimum, is it because tax evaders have more clout in the Philippines compared to our so-called “bagong bayani”?

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