VAT Ruling No. 028-04

October 20, 2004 VAT RULING NO. 028-04 Sec. 108 25-99 & 62-01 Social Security System East Avenue, Diliman Quezon City Attention: Ms. Corazon S. De La Paz President and CEO Gentlemen : This refers to your letter dated December 11, 2003 requesting confirmation of your opinion that the Social Security System is exempt from the payment of VAT in line with the implementation of Revenue Regulations No. 12-2003. It is represented that the Social Security System (SSS) is currently implementing its various lending programs (business, social and housing) under a conduit arrangement with accredited Participating Financial Institutions (PFIs)/banks, where the SSS grants a loan called an "Omnibus Credit Line" to the PFI/bank with interest at the rate not exceeding 12% per annum ; that all drawdowns/borrowings of the PFI/bank from its Omnibus Credit Line shall, in turn, be made available by the latter for on-lending to borrowers under the various lending programs of SSS, with the PFI/bank entitled to earn an average spread of up to 4% over the interest charged to it by the SSS; and that the SSS is exempt from tax pursuant to Section 16 of its Charter (R.A. No. 1161, as amended by R.A. No. 8282). IDaEHC In reply, please be informed that the exemption privilege of the SSS under Section 16 of R.A. No. 8282, which amended R.A. No. 1161, otherwise known as the Social Security Law, and which was enacted into law on May 1, 1997, reads: "SEC. 16. Exemption from Tax, Legal Process and Lien . All laws to the contrary notwithstanding, the 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 shall be exempt from any tax, assessment, fee, charge, or customs or import duty, and all benefit payments made by the SSS shall likewise be exempt from all kinds of taxes, fees or charges and shall not be liable to attachments, garnishments, levy or seizure by or under any legal or equitable process whatsoever, either before or after receipt by the person or persons entitled thereto, except to pay any debt of the member to the SSS. No tax measure of whatever nature enacted shall apply to the SSS, unless it expressly revokes the declared policy of the State in Section 2 hereof granting tax exemption to the SSS. Any tax assessment imposed against the SSS shall be null and void." In view of the foregoing, this Office is of the opinion as it hereby holds that SSS is exempt from the payment of VAT i.e., interest payments received from borrowers under the various SSS lending programs through its accredited PFIs/banks. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group