Pensions Received from U.S. Social Security System, Taxability Of and Basis of the Tax

May 30, 1973 BIR RULING NO. 022-73 Pensions received from U.S. Social Security System, taxability of and basis of the tax . Unlike the retirement benefits or pensions of retired employees, whether from the government or private employment in the Philippines, which by express provisions of law are exempt from income tax, there is no law which exempts from income tax retirement benefits or pensions received by Filipino retirees, whether residing in the Philippines or abroad, for previous services or employment in the United States. Furthermore, Section 29(b) of the Tax Code does not exempt the said retirement benefits or pensions from income tax. Republic Act No. 4917 is by express provision applicable only to retirement benefits of officials and employees of private firms in the Philippines. It is a cardinal rule that exemption from taxation must be expressed. It is never presumed. An exemption from the common burden can never be permitted to exist upon vague implications. (Col. vs. Manila Jockey Club. Inc. L-8755, March 23, 1956) Accordingly, as non-resident citizens deriving income from sources outside the Philippines they should pay an income tax on the basis of the gross amount thereof, which in this case, consist of the total receipts of U.S. Social Security pensions by the spouses during the taxable year at rates graduated as follows: On the first $6000 1% On the amount exceeding $6000 but not exceeding $20,000 2% On the amount exceeding $20,000 3% Total equals amount of the tax due and payable. (Sec. 21, Tax Code as amended by Presidential Decree No. 69; see also B.I.R. Ruling No. 73-011, dated March 30, 1973). The tax on non-resident citizens being based on gross amount thereof, no deduction and exclusions whatever shall be allowed. Neither can the taxpayers claim personal and additional exemptions in connection with said income, for to allow such exemptions would in effect change the "gross income" basis of the tax. And considering that this kind of income is given a special treatment, the taxpayers are not allowed to claim tax credit for income tax thereon to any foreign government. (see Rev. Memo. Cir. No. 17-73, dated January 12, 1973 implementing Sec. 21, Tax Code, as amended by Presidential Decree No. 69) However, should the aforesaid taxpayers come to reside permanently in the Philippines, they would still be subject to income tax on such U.S. Social Security pensions not as non-resident citizens but as resident Filipino citizens. By then, they may claim the personal and additional exemptions provided for in Section 23, and deduct all the items allowable under Section 30 both of the Tax Code, from their gross income consisting, among others, of their total receipts of U.S. S.S.S. pensions during the taxable year over and above their personal premium contributions pursuant to Section 29(a) and (b) (2) of the same Code, to be computed at the progressive rates imposed by Section 21 of the Tax Code, as amended ranging from 3% upon the amount by which the taxable net income does not exceed P2,000 and rising gradually to 70% upon the amount by which the taxable net income exceeds P500,000.00. (Revenue Memorandum Circular No. 17-73; BIR Ruling No. 73-011) Note: This ruling was superseded by Presidential Decree No. 220, dated June 20, 1973 which exempts from Philippine income tax social security benefits, gratuities, pensions and other similar benefits received by retiring employees or workers, whether received from Philippine or foreign government agencies and other institutions, private or public. Moreover, Presidential Decree No. 323, amended Section 21 of the Tax Code by allowing the following deductions on the income of non-resident citizens from all sources without the Philippines, viz: (a) An allowance for personal exemption in the amount of U.S. $2,000, if the person making the return is a single person or a married person legally separated from his or her spouse; or U.S. $4,000, if the person making the return is a married man or a head of the family, as defined in section 23 of the Tax Code; and (b) The total amount of the national income tax actually paid to the government of the foreign country of his residence.