BIR Ruling [DA-187-04]

April 6, 2004 BIR RULING [DA-187-04] RR 2-98 59-00 Magsaysay Maritime Corporation Magsaysay Building, 520 T.M. Kalaw Street Ermita Manila Attention: Mr. Fernando S. Lopez SVP-Chief Financial Officer Gentlemen : This refers to your letter dated October 16, 2002 requesting for a ruling as to whether or not you can deduct the amount of Pag-IBIG contributions over and above P100.00 from your employees' gross income for purposes of computing taxable income? It is represented that the Pag-IBIG contribution of each of your employee is at least P100.00 or 2% of Pag-IBIG's monthly compensation of P5,000.00; that Pag-IBIG guidelines state that an employee has the option to increase his/her Pag-IBIG contribution based on his/her actual salary level or a fixed amount to avail of the higher benefit/loan; that 13% of your employees under Magsaysay Group of Companies requested to increase their deductions/contributions, to more than the P100.00 minimum employee contribution of Pag-IBIG; and that during previous years, in connection with your year-end adjustments, you only deducted from the gross income of employees (with more than P100.00 Pag-IBIG contributions per month) the contribution of P100.00 and the excess was considered to be taxable. In reply, please be informed that under Section 2.78.1(B)(11) of Revenue Regulations No. 2-98 implementing Republic Act No. 8424 relative to the withholding of income tax on compensation, among others, GSIS, SSS, Medicare and Pag-ibig contributions and union dues of individual employees are exempted from the requirement of withholding tax on compensation, hence, the basic salary to be subjected to withholding tax on compensation should be net of the said deductions (GSIS life and retirement premium, Medicare premium and Pag-ibig premium/contributions) ( BIR Ruling No. 059-00 dated November 8, 2000 ). Inasmuch as the Pag-IBIG guidelines expressly stated that an employee has the option to increase his/her contribution based on his/her actual salary level and the law (RA 8424 as implemented under Section 2.78.1(B)(11) of Revenue Regulations No. 2-98) did not set a ceiling or a limitation on employees' Pag-IBIG contributions, it is a rule on statutory construction that we must look into the spirit of the law or the reason for its enactment. Considering that the Pag-IBIG guidelines were enacted to avail of the higher benefit/loan, the P100.00 minimum employee contribution and the increase thereof, shall not be included in the gross income and shall be exempt from taxation pursuant to Section 32(B)(7)(f) of the Tax Code of 1997. ETHIDa This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group