Clarification on the Restoration of Tax Exemption of the Social Security System

November 26, 1986 BIR RULING NO. 261-86 24 (c) 000-00 261-86 S i r : This refers to your letter dated November 11, 1986 requesting clarification on the restoration of the tax exemption of the Social Security System (SSS) particularly on its interest income from Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes, trust fund and similar arrangements in view of the amendatory provision of Memorandum Order No. 42. It appears that FIRB Resolution No. 19-85 dated February 25, 1985 restored effective June 11, 1984, the tax and duty exemption privileges enjoyed by the SSS under its Charter (Republic Act No. 1161 as amended), including exemption from the 15% (now 20%) final withholding tax on its interest income, that under its Revised Charter, SSS and all its assets and properties, all contributions collected and all accruals thereto and income or investment earnings therefrom as well as all supplies, equipment, papers or documents which may be required in connection with its operation shall be exempt from any tax, assessment, fee, charge, or customs or import duty; and that no tax measure hereafter enacted shall apply to the SSS, unless it expressly revokes the declared policy of the state granting tax-exemption to the SSS. Moreover, Section 24(c) of the Tax Code as amended by Executive Order No. 37 (effective August 1, 1986)reading: cdt "Sec. 24. Rates of Tax on Domestic Corporations . xxx xxx xxx "(c) Government-owned or controlled corporations, agencies or instrumentalities . The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers not specifically exempt under Section 27 of this Code shall pay the rates provided in this Section. All corporations, agencies, or instrumentalities owned or controlled by the Government, including the Government Service Insurance System and the Social Security System, shall pay such rate of tax upon their taxable income as are imposed by this section upon associations or corporations engaged in a similar business, industry, or activity ." (Emphasis supplied). was further amended by Memorandum Order No. 42 effective September 26, 1986, pertinent portion of which is quoted hereunder as follows: "SEC. 1. The provisions of existing laws to the contrary notwithstanding. The Government Service Insurance System and The Social Security System are hereby exempted from the payment of tax on their taxable incomes and for this purpose, Section 24(c) of the National Internal Revenue Code, as amended by Executive Order No. 37 is further amended . . . so as to exclude the aforesaid corporations from the provisions thereof ." (Emphasis supplied) In reply, please be informed that FIRB Resolution No. 19-85 restoring, among others the exemption of SSS from income tax including the exemption from the 15% (now 20%) final withholding tax on its interest income has been expressly repealed by the repealing provisions of Section 27 of Executive Order No. 37 and Section 24(c) of the Tax Code as amended by Executive Order No. 37 which took effect on August 1, 1986. However, the aforequoted Memorandum Order amending further Section 24(c) of the Tax Code as amended by Executive Order No. 37 excludes or exempts all the taxable incomes of both the SSS and the Government Service Insurance System (GSIS) from the payment of any and all taxes imposed by Section 24 of the same Code . Such being the case the SSS is exempt from the 20% final withholding tax imposed by Section 24(e)(1) in relation to Section 51(a) both of the Tax Code as amended on its interest income from the Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes trust fund and similar arrangements paid or accrued beginning September 26, 1986. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue