BIR Ruling

May 8, 1996 The Government Service Insurance System Arroceros St.,Manila Gentlemen : This refers to your request for reconsideration of the assessments issued by this Office involving the amounts of P17,365,949,103.63 representing deficiency income, premium and documentary stamp tax, inclusive of increments, covering the years 1988 to 1992, detailed as follows: aisadc Income Premium Documentary Stamp 1988 P1,625,500,873.29 P315,739,629.18 P88,008,875.36 1989 1,861,187,316.67 376,742,028.32 97,309,084.84 1990 3,323,476,675.05 593,514,935.55 113,058,519.80 1991 3,681,559,504.47 670,406,865.78 120,118,772.35 1992 3,683,490,068.73 688,008,926.16 127,827,028.09 Total P14,175,214,438.21 P2,644,412,384.99 P546,322,280.43 =============== ============== ============ It is your contention that GSIS is exempt from all taxes, assessments, fees, and charges and duties of all kinds under Section 33 of Presidential Decree No. 1146 promulgated on May 31, 1977, as amended by Section 6 of Presidential Decree No. 1981 promulgated on July 19, 1985, the pertinent portions of which are quoted briefly as follows: Section 33. Exemption from tax, Legal process and Lien ...Accordingly, notwithstanding any laws to the contrary, the System, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds. Those exemptions shall continue unless expressly and specifically revoked and any assessment against the system as of the approval of this act are hereby considered revoked. Section 6 Moreover, these exemptions shall not be affected by subsequent laws to the contrary, such as the provisions of Presidential Decree No. 1931 and other similar laws that have been or will be enacted, unless this section is expressly and categorically repealed by law and a provision is enacted to substitute the declared policy of exemption from any and all taxes or an essential factor for the solvency of the Fund." In reply, please be informed that your request for reconsideration is hereby denied for lack of legal basis. cdta While the GSIS Charter, as amended by Presidential Decree No. 1146 promulgated on May 31, 1977, provides for the exemption from all taxes, assessments etc. (Sec. 33, PD 1146), this exemption was however revoked by Presidential Decree No. 1177, promulgated on July 30, 1977 and Presidential Decree No. 1931, promulgated on June 11, 1984. E.O. No. 37 promulgated on July 31, 1986 but became effective beginning with the calendar year 1986, also provided that all corporations, agencies or instrumentalities owned or controlled by the Government, including the Government Service Insurance System (GSIS) and the Social Security System (SSS) are subject to income tax. Executive Order No. 93 promulgated on December 17, 1986 but became effective on March 10, 1987 and Executive Order No. 273 issued on July 25, 1987 but became effective only on January 1, 1988 likewise withdrew all the tax exemptions granted to GSIS. It is our stand that the aforecited laws relied by you have no bearing on the assessments in question as what is in issue here is the tax status of GSIS covering the period January 1, 1988 to December 31, 1992. In the case at bar, Section 1 of Executive Order No. 93 dated December 17, 1986 but became effective on March 10, 1987 withdrew all the tax and duty incentives granted to government and private entities, subject to the following exceptions. (a). those covered by the non-impairment clause of the constitution; (b). those conferred by effective international agreements to which the Government of the Philippines is a signatory; (c). those enjoyed by enterprises registered with: (I). the Board of Investments pursuant to Presidential Decree No. 1789, as amended; (II). the Export Processing Zone Authority, pursuant to Presidential Decree No. 66, as amended; (III). the Philippine Veterans Investment Development Corporation Industrial Authority pursuant to Presidential Decree No. 538, as amended; (d). those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instruction No. 1416; (e). those conferred under the four basic Codes namely: (I). the Tariff and Customs Code, as amended; (II). the National Internal Revenue Code, as amended; (III). the Local Tax Code, as amended; (IV). the Real Property Code, as amended; (f). those approved by the President upon the recommendation of the Fiscal Incentive Review Board. (Section I, E.O. 93). It is clear from the foregoing that the GSIS is not covered by any of the aforecited exceptions. Likewise, under Executive Order No. 273 issued on July 25, 1987 but became effective on January 1, 1988, by reason of the Authority of the Commissioner of Internal Revenue to "codify and consolidate all internal revenue laws" embodied in the present National Internal Revenue Code, as amended by various executive orders, and other issuances" (Sec 28, E.O. 273), the present Tax Code now provides as follows: "Sec. 24. Rates of tax on domestic Corporations. xxx xxx xxx (c). Government-owned or controlled Corporations, agencies or instrumentalities The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers not specifically exempt under Section 26 of this Code shall pay the rates provided in this Section. All corporations, agencies or instrumentalities owned or controlled by the government, including the Government Service Insurance System and the Social Security System, shall pay such rate of tax upon their taxable income as are imposed by this Section upon associations or corporations engaged in similar business, industry, or activity. and E.O. No. 273 further provides: Section 29. The provisions of any law, whether general or special, rules and regulations and other issuances or parts thereof which are inconsistent with this Order are hereby repealed, amended or modified accordingly." Presidential Memorandum Order No. 42, which is likewise being cited as an authority in the restoration of tax exemption abolished under Presidential Decree No. 1177 promulgated on July 30, 1977 and E.O. 37 promulgated on July 31, 1986, refers to the restoration of exemption from income tax only. Moreover, it was never published per certification issued an April 23, 1991 by the Chief, Official Gazette Publication, National Printing Office. Neither was there a publication made in any newspaper of general circulation. The prior publication of laws before they become effective cannot be dispensed with. Under Article 2 of the New Civil Code, laws shall take effect fifteen (15) days following the completion of the publication in the Official Gazette or in a newspaper of general circulation, unless it is otherwise provided. The clause "unless it is otherwise provided" refers to the date of effectivity and not to the requirement of publication itself. ( Taada, et. al., vs. Juan C. Tuvera, No. 2-63915, December 29, 1986 ). Such being the case, Presidential Memorandum Order No. 42 amending Section 24 (c) of the Tax Code has no force and effect of law. In fact, it is believed that Presidential Memorandum Order No. 42 was also nullified /repealed by E.O. 273 issued on July 25, 1987 but became effective on January 1, 1988. In view of the foregoing, it is the opinion of this Office that the GSIS remains subject to the income tax under Section 24 (c) of the Tax Code as amended. For premium tax and all other taxes, GSIS has become taxable since the promulgation of Presidential Decree No. 1177 on July 30, 1977 up to the present. Presidential Decree No. 1931 and Executive Order No. 93 have also abolished the exemptions from these taxes because there is no provision in the Tax Code which provided for such exemptions. Thus, for the taxable year January 1, 1988 up to December 31, 1992, we maintain that GSIS is liable for all the aforementioned deficiency taxes. Accordingly, your request for reconsideration is hereby denied for lack of legal basis. You are therefore requested to pay the deficiency income tax assessment of P14,175,214,438.21; the deficiency premium tax assessment of P2,644,412,384.99, and the deficiency documentary stamp tax assessment of P546,322,280.43, covering the years 1988 to 1992, within thirty days (30) from receipt hereof to the Revenue District Officer, Revenue District Office No. 33 (Intramuros-Ermita-Malate, Manila);otherwise, the collection thereof will be enforced by means of the summary remedies provided by law. This constitutes our final decision on the matter. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue