Ruling on the Exemption of SSS and the GSIS from the 20% Final Withholding Tax

November 19, 1987 BIR RULING NO. 371-87 24 261-86 371-87 Gentlemen : This refers to the letter of the Social Security System (SSS) dated November 9, 1987 (xerox copy attached) requesting for a clarificatory ruling that would be addressed to you relative to its exemption 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 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. In connection thereto, please be informed that in B.I.R. Ruling No. 261-86 dated November 26, 1986, this Office ruled that Fiscal Incentives Review Board (FIRB) Resolution No. 19-85 dated February 25, 1985 (before E.O. No. 93) restoring, among others, the exemption of SSS from income tax including the exemption from the 20% final withholding tax on its interest income, has been expressly repealed by the repealing provisions of Section 27 of E.O. No. 37 which took effect on August 1, 1986. However, Presidential Memorandum Order No. 42 dated September 26, 1986 amending further Section 24(c) of the Tax Code as amended by E.O. 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. In other words, the tax exemption of the GSIS and the SSS, pursuant to Presidential Memorandum Order No. 42 amending Section 24(c) of the Tax Code as amended by E.O. No. 37 includes exemption from the final withholding tax on interest income derived from bank deposits and deposit substitutes. Accordingly, no withholding of the 20% final tax shall be made from interest income derived by the GSIS or by the SSS from their bank deposits or yield and other monetary benefits derived from their investments in deposit substitutes . (Revenue Memorandum Circular No. 45-86 dated December 5, 1986) Pursuant to Section 1 (e) (ii) of Executive Order No. 93, the provisions of any general or special laws to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are withdrawn, except those conferred, among others, under the National Internal Revenue Code, as amended, hence, E.O. No. 93 which took effect on March 10, 1987 (B.I.R. Ruling No. 189-87 dated July 2, 1987) did not withdraw the exemption of SSS and the GSIS from income tax and consequently from the 20% final withholding tax on interest income derived from bank deposits and yield derived from deposit substitutes . This exemption is not affected by Opinion No. 77, Series of 1987 of the Secretary of Justice declaring unconstitutional only Section 2(a), (b), (c) and (d) of E.O. No. 93 which pertains to the expanded and broad powers of the FIRB as constituting undue delegation of legislative power. In view of the foregoing considerations, this Office is of the opinion as it hereby holds that notwithstanding E.O. No. 93, the exemption of SSS and the GSIS from the 20% final withholding tax imposed by Section 24(e)(1) in relation to Section 51(a) of the Tax Code as amended on their interest income from 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 still subsists . This serves as authority of CB and other depository banks to forego withholding of the 20% final tax on the interest income/yield of the deposits and deposit substitutes maintained by GSIS and SSS with them. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner