Clarification on the Implementation of General Circular No. V-261

January 24, 1958 BIR RULING NO. 058-58 Pepsi-Cola Bottling Company of the Philippine Islands, Inc. P.O. Box 2717, Manila Attention : Mr . M . M . Tongol Treasurer-Comptroller Gentlemen : In reply to your letter dated January 16, 1958, requesting clarification of the provisions of General Circular No. V-261, implementing the provisions of Section 17(now Section 16) of Republic Act No. 1161, as amended by Republic Act No. 1792, I have the honor to inform you as follows: The contribution made by a company equal to 3% of the monthly compensation of a covered employee under the provisions of Republic Act No. 1161, otherwise know as the "Social Security Act of 1954", as amended by Republic Act No. 1792, should be included as part of its gross income but the same may be claimed as a business expense deducted under Section 30(a)(1) of the Tax Code. The aforesaid contribution still forms part of the gross receipt or earnings derived by the said company from its business subject to the corporate additional residence tax prescribed in Section 2(b) of Commonwealth Act No. 465, as amended, otherwise known as the Residence Tax Law. It may be stated that the exemption of all contributions collected from any tax under Section 17 (now Section 16) of Republic Act No. 1161, as amended, refers to the exemption of the Social Security System on all moneys paid to or collected by the System and cannot be extended to include employers or employees making the contributions. The contributions made by an employee equivalent to 2% of his monthly salary which is deducted and withheld from his salary is considered to be a part of his gross income and is deemed to be paid to him at the time of deduction, and, therefore, subject to income tax. The aforesaid contribution is not deductible from his gross income as the same constitutes a personal expense. Sec. 31(a)(1), Tax Code) Likewise, the contribution made by a covered employee forms part of his salaries derived by him as an employee and, as such is subject to the additional residence tax prescribed in Section (1)(c) of the Residence Tax Law. In this connection, please be further informed that retirement, sick or disability benefits paid to a covered employee under the provisions of the Social Security Act of 1954, as amended, are exempt from the income and additional residence taxes and death benefits paid to his beneficiaries are exempt from both the estate and inheritance taxes, pursuant to Section 17 (now Section 16) of the aforesaid Act. Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue