Philippine Insurance Challenges New Tax Rules In Court

by Mary Swire, Tax-News.com, Hong Kong

16 October 2008

The Philippine Life Insurance Association (PLIA) has embarked on a court case against the Bureau of Internal Revenue (BIR) to acquire a restraining order on a tax circular ‘damaging’ their industry.

The Revenue Memorandum Circular (RMC) in question, ‘RMC 30-2008’ was first issued on May 20 by the BIR. It expanded the scope of the 5% premium tax, introduced a new documentary stamp tax (DST), and limited exemptions under the minimum corporate income tax.

The RMC also reduced the items insurance firms could deduct from the taxable revenues to just claims, losses, maturities, benefits, reserve fund additions and reinsurance needed. Under the old tax rules, salaries, wages, employee benefits, cost of facilities and supplies and other expenses incurred in running the business were considered as "direct costs" which could be deducted when calculating gross business income.

The circular imposed a documentary stamp tax (DST) on individual certificates at a rate of 50-centavos on every PHP200 worth of premium paid by a client.

After numerous appeals from the PLIA claiming that the RMC was illegal as it runs counter to the national tax code, they received an amendment ‘(RMC) 59-2008’ where BIR added some of the original rules which allowed insurance companies to include certain business expenditures, such as marketing products, to the list of expenses that can be deducted from an insurance firm's gross income. They improved the basis for its corporate income tax and also agreed to consider health and accident insurance as life insurance, reducing the tax on their premiums from 12 to 5%.

Lawyer Manny Dooc, legal division chief of the PLIA said they were pleased with the progress they had made in achieving an amendment but argued that there was a number of outstanding issues to resolve, not least the DST on individual certificates issued to group members, which could effectively amount to double taxation because the same tax is already applied to premium collection.

The group filed a petition before the Court of Tax Appeals late last month questioning the BIR’s Revenue Memorandum Circular (RMC) 59-2008 issued in August and seeking a temporary restraining order in the meantime.

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