Counterpart Share of the Government in the Cost of Insurance Premiums Not Exempted from Premium Tax

April 2, 1991 BIR RULING NO. 051-91 121 000-00 051-91 Gentlemen : This refers to your letter dated December 27, 1990 requesting for exemption from the 5% premium tax of that portion of the insurance premium representing the counterpart share of the National Government in the cost of insurance premiums. It is represented that the Philippine Crop Insurance Corporation thereinafter PCIC is a government corporation created on June 11, 1978 by Presidential Decree 1467 as the implementing agency of the crop insurance program; that PCIC offers various program services intended to benefit small farmers by: (1) protecting their production investments against losses due to agricultural risks and (2) facilitating credit availments for agricultural production: that one of the program services offered is an insurance plan to protect farmers against crop losses caused by natural calamities such as typhoon, flood, drought, earthquake, volcanic eruption, as well as plant disease and pest infestation; that through nominal premium payments, farmers are assured that they will have money to pay for their succeeding production activities or repay their production loans should their crops be destroyed by any of the insurance risks; that the premium for crop insurance is shared by the farmer, the bank extending credit to such farmer and the government; and finally, that the government share in the crop insurance premium is more particularly shown according to the following schedule: cdtech A. RICE CROP INSURANCE PREMIUM (premium is 2% of amount of cover or sum insured) Borrowing Self-financed Farmer's Share 2.0% 2.0% Lending Institution's Share 1.5% Government's Share 4.5% 6.0% 6.0% 8.0% B. CORN CROP INSURANCE PREMIUM (premium bagged at 13% of amount of cover or sum insured) Borrowing Self-financed Farmer's Share 3.5% 3.5% Lending Institution's Share 2.0% Government's Share 7.5% 9.5% 13.0% 13.0% In reply, I have the honor to inform you that Section 121 of the Tax Code, as amended (previously Section 2831) provides, inter alia , that there shall be collected from every person, company, or corporation (except purely cooperative companies or associations) doing insurance business of any sort in the Philippines a tax of five per centum (5%) of the total premium collected, whether such premiums are paid in money, notes, credits or any substitute for money. The 5% premium tax payable by an insurance company is computed and assessed on the basis of the net premiums received on policies issued, that is, gross premiums received less returned premiums on account of rejection of risk or for other reason and reinsurance premiums ceded, whether such premiums are paid in money, notes, credits, or any substitute for money. In view of the clear language of the law, this Office is of the opinion as it hereby holds that the counterpart share of the Government in the cost of insurance premiums cannot be exempted from the 5% premium tax under Section 121 of the Tax Code, as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner