Tax Exemption of the (i) Government Service Insurance System and (ii) Social Security System Under Presidential Memorandum Order No. 42 Dated September 25, 1986

December 5, 1986 REVENUE MEMORANDUM CIRCULAR NO. 45-86 SUBJECT : Tax Exemption of the (i) Government Service Insurance System and (ii) Social Security System Under Presidential Memorandum Order No. 42 Dated September 25, 1986 TO : All Internal Revenue Officers, All Banks and Other Financial Institutions, and Others Concerned The tax exemption of the Government Service Insurance System (GSIS) and the Social Security System (SSS), pursuant to Presidential Memorandum Order No. 42 dated September 25, 1986 includes exemption from the final withholding tax on interest income derived from bank deposits and deposit substitutes. Accordingly, no withholding of the tax shall be made from interest income derived by the GSIS or by the SSS from their bank deposits or investment in deposit substitutes. cd i Quoted hereunder is the letter of the GSIS to the Honorable Presidential Executive Secretary dated November 13, 1986 and the ruling issued by the Office of the President of the Republic of the Philippines dated November 17, 1986. "November 13, 1986 Honorable Joker Arroyo Executive Secretary Office of the President Malacaang, Manila Re: Clarification of Sec. 1 of Memorandum Order No. 42 dated September 25, 1986. S i r : This has reference to Memorandum Order No. 42 issued by Her Excellency, President Corazon C. Aquino on September 26, 1986, which further amended Section 24(c) of the Internal Revenue Code in order to exempt the Government Service Insurance System and the Social Security System from the payment of tax from their taxable incomes. In spite of the clear intention of the said Memorandum Order No. 42 to exempt both institutions from the payment of their taxes from their taxable incomes, the Government Securities Department of the Central Bank of the Philippines has been continuously deducting all creditable and withholding taxes from the Treasury Notes/Bills investment of the SSS upon the view that the exemption of the SSS under Section 1 of Memorandum Order No. 42 refers only to the payment of tax on its taxable incomes (as the term taxable income is defined in Sec. 28 of the Internal Revenue Code) which is imposed under Section 24(a) but does not extend to or include the exemption from the payment of the 20% final withholding tax on its interest income imposed under Section 24(e) of the National Internal Revenue Code, as amended by Executive Order No. 37. aisa dc We have discussed this problem with certain officials of the Bureau of Internal Revenue and as a matter of fact we wrote the Honorable Commissioner of the BIR a letter to this effect but it seems that even at the BIR, conflicting views are being expressed on the matter. To avoid further confusion and to clarify the matter once and for all, may we, therefore, have the honor to request that the tax exemption of the SSS from the payment of any and all taxes imposed under the National Internal Revenue Code, as amended, be made by way of an amendment to Section 1 of Memorandum Order No. 42 to read as follows: cd "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, AS WELL AS THEIR INTEREST INCOME FROM DEPOSITS AND YIELD OR ANY OTHER MONETARY BENEFIT FROM DEPOSIT SUBSTITUTES AND FROM TRUST FUND AND SIMILAR ARRANGEMENTS, and for this purpose, Section 24(c) AND SECTION 24(e) 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 therefor EFFECTIVE AUGUST 1, 1986" (Capital letters indicate the desired amendment). Trusting your usual prompt and kind consideration. Very truly yours, (SGD.) JOSE L. CUISIA, JR. Acting Administrator November 17, 1986 Honorable Jose L. Cuisia, Jr. Administrator Social Security System Quezon City S i r: In reply to your letter of November 13, 1986, seeking "Clarification of Section 1 of Memorandum Order No. 42 dated September 25, 1986", please be informed that the President sustains your interpretation as embodied in your letter, thereby rendering unnecessary amendment to said provision. casia Very truly yours, (Sgd.) JOKER P. ARROYO Executive Secretary C.C. Hon. Feliciano Belmonte, Jr. President & General Manager Government Service Insurance System M a n i l a Hon. Bienvenido A. Tan, Jr. Commissioner Bureau of Internal Revenue Quezon City Hon. Jaime V. Ongpin Minister of Finance Manila" All concerned are enjoined to give this Revenue Memorandum Circular a wide publicity as possible. (SGD.) BIENVENIDO A. TAN, JR. Commissioner