BIR Ruling

September 19, 1969 2nd Indorsement Respectfully returned to the Honorable, the Secretary of Finance, Manila, the attached letter dated August 12, 1969 of Mr. Gilberto Teodoro, Administrator of the Social Security System submitting the position of the System regarding the provisions of Republic Act No. 5431 (not 5451) particularly Section 1 thereof imposing corporate income tax on the System, with the following comment: Said Section 1 of Republic Act No. 5431 specifically provides: "Sec. 1. Section 24 of Commonwealth Act No. 466, as amended, otherwise known as the National Internal Revenue Code, if further amended to read as follows: "Sec. 24. '(a) . . . '(b) The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers nor specifically exempt under Section 24(c)(1) and 27 of this Code shall pay the rates provided in this Code shall pay the rates provided in this Section. All corporations, agencies or instrumentalities owned or controlled by the Governments, including the Government Service Insurance System and the Social Security System but excluding educational institutions, shall pay such rate of tax upon their taxable net income as are imposed by this section upon associations or corporations engaged in a similar business or industry ." (Emphasis supplied) It is very clear from the aforecited provision of law that it is the desire of Congress to tax all corporation, agencies, or instrumentalities owned or controlled by the Government except educational institutions. The fact that Congress singled out the Government Service Insurance System and the Social Security System as among those subject to income tax, clearly shows the legislative intent to include them among the taxable entities of the Government. To support its claim for tax exemption, the System contends that is a world-wide policy and practice to exempt social security schemes from taxation and that the System is a non-stock and non-profit corporation. These contentions are without merit, considering that, as heretofore stated, Congress has declared that the System be included as one of the taxable government entities. Besides, it is well-settled that a claim for the exemption must be based on a clear provision of law. In this connection, Republic Act No. 1161 creating the Social Security System does not contain a provision which states that the System is tax-exempt. Section 16 of said Republic Act No. 1161 as amended by Section 9 of Republic Act No. 1792 which is quoted as follows: SEC. 16. Exemption from tax, legal process and lien . All papers or documents which may be required in connection with the operations or execution of this Act, all the contributions collected and payments of benefits made thereunder and all accruals thereto shall be exempt from any tax, assessment, fee or charge and such payments shall not be liable to attachment, garnishments, levy, or seizure by or under any legal or equitable process whatsoever, either before or after receipt by the persons entitled thereto, except to any debt of the covered employee to the System. does not include exemption of the System itself from taxation, especially income taxation. At any rate, assuming that the System's charter (Republic Act No. 1161, as amended) provides for such exemption from taxation, it is believed that said exemption has been withdrawn by Republic Act No. 5431. In view thereof, this Office is of the opinion that the Social Security System is subject to income tax, pursuant to Republic Act No. 5431. Such being the case, a proposal of the System to hold a conference between the representatives of that Department, this Bureau and the System to finally determine the applicability of Republic Act No. 5431 to the System, is believed unnecessary. cdll (SGD.) MISAEL P. VERA Commissioner of Internal Revenue