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c 
THIRTEENTH CONGR 
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OF THE PHlLlPP 
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First Regular Session 
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/ j l l  
8 
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E N A T  
S. No. 
Introduced by Senator S. R. OsmeAa I l l  
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EXPLANATORY NOTE 
The Social Security System (SSS) and the Government Service Insurance 
System (GSIS) are the two largest public pension funds in the country. As of 
1997, assets of the SSS amounted to P143.9 billion while that of the GSlS 
amounted to P120.8 billion. 
In terms of income, for the same year the net 
income of SSS was P15.1 billion and the GSlS P18.5 billion (before increase in 
reserves). Their income, both from contributions and investments are exempt 
from all taxes. 
These two corporations are big players in the capital market and their 
moves affect the market. In 1997, total investments consist of investments in 
government bonds, corporate bonds, stocks, real estate development and loans 
to housing and local government units. 
More recently, the SSS and GSlS have been in the headlines because of 
huge investments in stocks and acquisitions of distressed companies. The SSS 
and the GSlS were involved in the high profile bank merger of Equitable Banking 
Corporation and PCI Bank. In addition, both pension funds have been active in 
the stock market buying shares in big companies like the Metro Pacific 
Corporation, PLDT, San Miguel Corporation and Manila Electric Corporation. 
The tax exemption of the SSS and the GSlS give them an advantage over 
other investment houses and pension funds when they participate in the capital 
market. The tax exemption gives them higher profits in their investments and this 
allows them a wider room in making deals. 
To level the playing field, this bill proposes to remove the tax exemption of 
the SSS and GSIS. They will be subject to taxes such as income, capital gains 
and stock transaction tax, 20% final tax on deposits just like any other 
corporation. 
The revenues to be generated from this measure will go a long way in 
bridging the budget deficit of our government and fund the pro-poor programs of 
the Arroyo administration. The budget deficit for 1999 is now projected to be 
around P85 billion and the government has to tap all possible sources of 
revenue. 
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This bill seeks to impose taxes on corporate income, interest on deposits 
and yield or any other monetary benefit from deposit substitutes and from trust 
funds and similar arrangements, and capital gains from the sale of shares of 
stock traded in the stock exchange. While the provisions of the charters of GSlS 
and SSS provide certain conditions upon which their exemption from payment of 
taxes, assessments, fees, charges and duties may be revoked, this however 
does not prelude the Congress to withhold privileges given to the grantees, 
especially so when the revocation of the exemption, public interest will be served 
and will benefit a great number of inhabitants. The conditions for revocation 
provided in the respective charters of SSS and GSlS are inapplicable to the 
enactment of this measure considering that these agencies still enjoy exemptions 
from other taxes, assessments, fees charges or duties of all kinds. Thus, this 
measure will not effect, alter the policy set forth in Section 2 of Republic Act No. 
8282 or the SSS Act of 1997. Likewise, the bill will not altogether revoke the 
exemption referred to in Section 39 of Republic Act 8291 or the GSlS Act of 
1997, thereby, the solvency of the GSlS fund is still maintained and protected. 
Moreover, to strictly abide with the conditions set forth by the charters will be 
prejudicial to the inherent power of Congress to revoke tax exemptions whenever 
it sees fit to do the same. 
In light of the foregoing, the urgent approval of this bill is earnestly 
requested. 
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, 
SERGIO OSMENA Ill 
Senator 


c 
THIRTEENTH CONGRESS OF THE R 
) 
OF THE PHILIPPINE 
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First Regular Session 
1 
introduced by Senator S. R. Osmeiia 111 
AN ACT 
AMENDING SECTION TWENTY-SEVEN, PARAGRAPH (C) OF REPUBLIC 
ACT NO. 8424, OTHERWISE KNOWN AS “TAX REFORM ACT OF 1997” 
Be it enacted by the Senate and House of Representatives of the Philippines in 
Congress assembled: 
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SECTION I .  - The role of the government is to establish a tax system 
2 that is uniform and equitable. Government shall implement a tax policy that 
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creates a level playing field and allows fair competition in the market. It shall not 
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give preference to specific sectors or corporations in imposing taxes. 
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Furthermore, tax policies should be to raise revenues to support the development 
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of the economy. 
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SEC. 2. Section 27 (c) of the Tax Reform Act of 1997 is hereby amended 
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to read as follows: 
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“SEC. 27. Rates of Income Tax on Domestic Corporations- 
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c. Government-owned or Controlled Corporations, Agencies 
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or Instrumentalities- The provisions of existing special or general 
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laws to the contrary notwithstanding, all corporations, agencies or 
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instrumentalities owned or controlled by the Government, except 
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[the Government Service Insurance System (GSIS), the Social 
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Security 
System 
(SSS),] the 
Philippine 
Health 
Insurance 
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Corporation (PHIC), the Philippine Charity Sweepstakes Office 


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(PCSO) and the Philippine Amusement and Gaming Corporations 
(PAGCOR), shall pay such rate of their taxable income as are 
imposed by this Section upon corporations or associations engaged 
in similar business, industry, or activity[.]: PROVIDED, HOWEVER, 
THAT THE GSlS AND SSS SHALL PAY SUCH RATE OF TAX 
UPON THEIR INCOME AS ARE IMPOSED IN SUBSECTIONS (A) 
AND (D) PARAGRAPHS (1) AND (2) HEREOF: PROVIDED, 
FURTHER, THAT ROYALTIES REFERRED TO IN SUBSECTION 
(D) PARAGRAPH (1) HEREOF SHALL BE EXEMPTED FROM 
THE FINAL TAX RATE OF 20%’’ 
SEC. 3. Repealing Clause - The provisions of Section 18 of Republic 
Act No. 8282 or the SSS Act of 1997 and Section 39 of Republic Act No. 8291 or 
the GSlS Act of 1997 are hereby amended or modified accordingly. 
SEC. 4. Effectivity Clause- This Act shall take effect fifteen (15) days 
following its complete publication in at least two (2) newspapers of general 
circulation. 
Approved, 
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