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Pag-Ibig appeals BIR ruling lifting tax exemptions on savings program

September 20, 2011, 11:34pm [ Manila Bulletin Online ]

MANILA, Philippines — State-run Home Development Mutual Fund (Pag-Ibig) has appealed to the Bureau of Internal Revenue to reconsider a decision revoking the income tax exemption the agency granted to its members, who voluntarily participate in a savings program on top of their mandatory Pag-ibig contributions, saying this ruling would jeopardize the agency’s mandate to provide shelter to its members.

Atty. Darlene Marie B. Berberabe, Pag-Ibig chief executive officer, told reporters its savings program under Pag-Ibig 2 has been in existence for over 10 years already but it was only recently that BIR has decided to revoke such income tax exemption under Revenue Memorandum Circular No. 27-2011.

“It is our reasoned position that RMC No. 27-2011 is contrary to the provisions of the National Internal Revenue Code, Revenue Regulations 2-98, the charter of Pag-Ibig Fund and contravenes the very policy and purpose for which our institution was created,” Berberabe said in a motion for reconsideration dated September 14, 2011 addressed to BIR Commissioner Kim S. Jacinto-Henares.

“We thus pray that BIR RMC No. 27-2011 be itself revoked and that a return to the previous interpretation, as enunciated under BIR Ruling No. 002-99, DA -184-04, DA-569-04 and DA-087-06, which excludes from the gross income of the taxpayer and hence, exempt from income tax, contributions to Pag-Ibig in excess of the mandatory monthly contribution, be made,” Berberabe said.

Berberabe said that if the BIR cannot grant them its appeal, they may elevate its appeal to the Department of Finance. However, the likelihood of the DoF siding with Pag-Ibig is nil as it is the line agency directly supervising BIR, which is DoF's main tax revenue generator.

According to Berberabe, the revocation of the tax exemption would mean a 10 percent reduction in the Pag-Ibig fund, which targeted to generate P1.5 billion this year and P3 billion by next year from the voluntary savings program.

Berberabe admitted that among its best selling points is its tax exemption. Cotnributions made to the Fund are excluded from the computation of the member’s gross taxable income and hence exempt from tax. Thus, the revocation of the tax exemption would dampen the members’ interest in putting their savings in it.

This savings program is also attractive to members because it is government guaranteed and provides considerably higher incomes as compared to regular bank savings accounts

In its motion for reconsideration, Berberabe said that the Fund, by its very nature, is a savings program and being such, one of its core functions, is to develop a culture of savings among its members.

To simply rely on its mandatory P100 monthly contribution per member would mean abrogating this very function and at the same time endanger the Fund's ability to perform its other mandate of providing massive financing for housing.

Thus, Berberabe said, encouraging additional voluntary contributions from its members is therefore not only necessary and desirable for its nature as a savings program, the same holds true in relation to the Fund’s housing mandate.

In addition, Berberabe cited RA No. 9679 or the Pag-Ibig charter, which states that ‘All contributions to Pag-Ibig Fund are exempt from any tax.

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