BIR Ruling [DA-569-04]

November 10, 2004 BIR RULING [DA-569-04] 32 (B) (7) (1); 002-99 Paseguruhan ng mga Naglilingkod sa Pamahalaan (Government Service Insurance System) Financial Center, Pasay City Metro Manila Attention: Mr. Dauphine C. Estrada, Jr. Manager, HR Planning & Control Department Gentlemen : This refers to your letter dated March 9, 2004 seeking clarification on the following: 1. What is the correct interpretation of Sec. 2.78(B. 13) re: GSIS Optional Insurance Premiums? Are they deductible from the gross income and exempted from income tax? As we continue to develop and market various optional insurance coverages, could we consider the employees' premium payments thereto as income exempt from tax? 2. Is the subsistence/laundry allowance exempted from income tax under the Magna Carta for Health Workers taxable? If in the affirmative, why is it that while the GSIS employee's meal allowance is not subject to income tax, GSIS employee who is entitled to subsistence allowance under the said law is taxed on the P400.00 subsistence allowance added to his GSIS Meal allowance of P500.00 (to arrive at P950 Subsistence Allowance) which is computed on the basis of the implementing guidelines of RA 7305?; 3. What type of insurance are covered by the Insurance Premiums for Non-Life and Life subject to withholding tax mentioned in Revenue Regulations No. 30-2003 and the Table of Tax Rates effective January 2004. cCESTA It is represented that the GSIS Central Office interpreted Section 2.78(B) of Revenue Regulations No. 2-98 as the mandatory contributions for Life Insurance being deducted monthly from the salaries of all government employees and remitted, together with the corresponding management share by their respective agencies, thus the GSIS Central office only deducts the above contributions from the gross income of its employees as tax exemptions; that when you centralized the payroll preparation of all GSIS employees effective March 1, 2004, you found out that aside from the GSIS Life Insurance contributions, some of your Field Officers also consider the corresponding Optional Insurance policies premium (which include College Educational Plan, Medical Plan and other pre-need products) payments as tax refundable; that these policies by their generic classification as OPTIONAL (availee's personal choice/decision) are paid solely out of the policyholders' personal finances; that this being the case, the GSIS or other government agencies, do not contribute any amount for the continuance of insurance coverage; that in the letters dated January 20 and 21, 1999 of the Office of the Regional Director, San Pablo City and January 12, 1999 BIR Ruling signed by then Commissioner Beethoven L. Rualo, the two (2) officers of the BIR provided two (2) different interpretations of Section 2.78(B)(13) of RR 2-98 regarding the GSIS optional insurance premiums that are considered as tax exempt; that the BIR Ruling of Commissioner Rualo stated that "since the law and implementing regulations do not categorically state that the exemption covers only the regular GSIS and Pag-ibig contributions, it is safe to conclude that the GSIS Optional and Pag-ibig 2 contributions are likewise excludible from the gross income of the taxpayer and hence, exempt from income tax"; that on the other hand, Regional Director Epifanio Gonzales, in his personal view says that "it should be interpreted to embrace contributions to said GSIS regardless of whether it is for regular, optional, educational, memorial plan or such other related premiums offered by it"; that Dir. Gonzales, in his March 22, 1996 letter to the Candelaria, Quezon's Municipal Health Office, advanced his view that the subsistence/laundry allowance under the Magna Carta for Health Workers" need not be included as part of the compensation subject to withholding tax" pursuant to Section 2(a) of RR 6-82 as amended by RR 12-86 implementing Section 28 of the Tax Code, as amended by EO No. 37; and that the Revenue District Office that has jurisdiction over the GSIS Headquarters in Pasay City has not called your attention on the inclusion of the optional policy premium payment as part of the taxable income. In reply, please be informed that pursuant to Section 2.78(B)(13) of Revenue Regulations No. 2-98 implementing Section 32(B)(7)(f) of the Tax Code of 1997, GSIS, SSS, Medicare and Pag-ibig contributions, and union dues of individuals shall not be included in gross income and shall be exempt from taxation. In BIR Ruling No. 2-99-dated January 12, 1999, it was ruled that since the law and implementing regulations do not categorically state that the exemption covers only the regular GSIS and Pag-Ibig contributions, it is safe to conclude that GSIS optional and Pag-Ibig 2 contributions are likewise excludible from the gross income of the taxpayer and hence, exempt from income tax. This is so, because the provisions of law in question did not make any distinction between regular GSIS insurance and optional GSIS insurance as well as Pag-Ibig and Pag-Ibig 2 contributions. Well settled is the rule that when the law does not distinguish, we should not distinguish. (BIR Ruling No. 002-99 dated January 12, 1999) Thus, the GSIS Optional Insurance Premiums are deductible from the gross income and exempted from income tax pursuant to Section 2.78(B)(13) of Revenue Regulations No. 2-98 implementing Section 32(B)(7)(f) of the Tax Code of 1997. DcTSHa With respect to the subsistence/laundry allowance, please be informed that pursuant to Section 2(A)(3) of Revenue Regulations No. 008-2000, facilities and privileges (such as entertainment, medical services, or so-called "courtesy discounts" on purchases), otherwise known as " de minimis benefits," furnished or offered by an employer to his employees, are not considered as compensation subject to income tax and consequently to withholding tax, if such facilities are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. Therefore, the subsistence/laundry allowance in the amount of P950.00 a month, need not be included as part of compensation subject to withholding tax, pursuant to Revenue Regulations No. 2-98 as amended by Revenue Regulations Nos. 8-2000 and 10-2000. cEaTHD Anent the type of life and non-life insurance premiums subject to withholding tax, please be informed that life insurance is insurance on human life and insurance appertaining thereto or connected therewith (p. 117 Cesario P. Tiopianco, New Dictionary of Insurance Terms and Phrases 1986 Edition) such that any other insurance not referring to human life are classified as non-life insurance. Hence, it was ruled in BIR Ruling No. 002-99 that GSIS Educational Plan Premium and GSIS Memorial Plan Premium to be part of employee's compensation subject to withholding tax and that only premium payments in health and/or hospitalization insurance not exceeding P2,400 per family or P200.00 a month paid during the taxable year by the taxpayer for himself, including his family, is allowed as deduction from gross income pursuant to the provisions of Section 34(M) of the Tax Code of 1997. 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