FOURTEENTH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES 
) 
First Regular Session 
Introduced by Senator Loren Legarda 
EXPLANATORY NOTE 
Proclamation No. 1059 of 1997 acknowledged the role of the life insurance 
industry as a major contributor to the social and economic development of our country, 
particularly in the government’s thrust to generate meaningful long-term savings. 
However, the current tax burden on the industry hampers the maximization of the 
industry’s potential to benefit the country in the long-term. 
The Philippines is the only country in Southeast Asia which charges a five- 
percent (5%) tax on the yearly premium for life insurance policies, which may be 
viewed as a tax on capital or savings. This is over and above the additional taxes 
imposed on the earnings of the policyholder’s long-term savings with the insurance 
company, such as a 20% tax on interest income. 
International standards uphold that any tax policy should preferably be neutral. 
Neutrality means that a tax policy should not cause any one industry or product to have 
undue economic gain over the other. The tilted taxation makes the banking system a 
more attractive option for placement of savings. The five-percent (5%) premium tax is 
imposed on the gross premium received by the insurance companies, a large portion of 
which comprise of savings. In contrast, no gross receipts tax is imposed on savings 
deposits in banks. 
Life insurance taxation must also take into account the additional social and 
economic benefits from the industry based on global experience. A study by the Swiss 
Reinsurance company covering ten OECD (Organization for Economic Cooperation and 
Development) countries found a significant negative relationship between social 
expenditures and life insurance premiums, providing that life insurance may substitute 
for declining state-provided social security programs. In addition, life insurance 
mobilizes savings in long-term instruments, which is a condition for economic 
development. 
This bill seeks to reduce the five-percent (5%) premium tax on gross premium 
received by the insurance companies to two percent (2%). Giving this tax concession 
will not only address the issue of tax neutrality among the products of financial 
institutions, but also provide the much-needed long-term capital mobilization and 
formation to gear up for economic growth. 
In view of the foregoing, the passage of this bill is earnestly sought. 
Senator 


FOURTEENTH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES 
) 
First Regular Session 
S E N A T E  
Introduced by Senator Loren Legarda 
AN ACT REDUCING THE TAX INSURANCE PREMIUM UNDER CERTAIN 
CONDITIONS, AMENDING FOR THIS PURPOSE SECTION 123 OF THE 
NATIONAL INTERNAL REVENUE CODE, AS AMENDED 
Be it enacted by the Senate and House of Representatives of the Philippines in Congress 
assembled: 
SECTION 1. - Section 123 of the National Internal Revenue Code, as amended, is 
hereby further amended to read as follows: 
SEC 123. Tax on Life Insurance Premiums. - There shall be collected from 
every person, company or corporation (except purely cooperative companies or 
associations) doing life insurance business of any sort in the Philippines a tax of 
[five percent (5%)] TWO PERCENT (2%) of the total premium collected, whether 
such premiums refunded within (6) months after payment of account of rejection 
of risk or returned for other reason to a person insured shall not be included in 
the taxable receipts; nor shall any tax be paid upon reinsurance by a company 
that has already paid the tax; nor upon premiums collected or received by any 
branch of a domestic corporation, firm or association doing business outside the 
Philippines on account of any life insurance of the insured who is a non-resident, 
if any tax on such premium is imposed by the foreign country where the branch 
is established nor upon premiums collected or received on account of any 
reinsurance, if the insured, in case of personal insurance, resides outside the 
Philippines, if any tax on such premiums is imposed by the foreign country 
where the original insurance has been issued or perfected; nor upon that portion 
of the premium collected or received by the insurance companies on variable 
contracts (as defined in Section 232 (2) of Presidential Decree No. 612), in excess 
of the amounts necessary to insure the lives of the variable contract workers. 
"Cooperative companies or association are such as are conducted by the members 
thereof with the money collected from among themselves and solely for their own 
protection and not for profit." 
SECTION 2. The new rate of two percent (2%) shall apply only to insurance 
policies that will be issued after the effectivity of this Act. Premiums that shall be paid 
and collected from previously issued policies by insurance companies shall continue to 
be imposed a tax of five percent (5%) on gross premiums collected. 


SECTION 3. Rules and Regulations. - The Secretary of Finance, upon 
recommendation of the Commissioner of Internal revenue, shall promulgate the 
necessary rules and regulations for the effective implementation of the provision of this 
Act. 
SECTION 4. Repealing Clause. - All laws, decrees, executive orders, letters of 
instructions, rules and regulations or parts thereof which are inconsistent with this Act 
are hereby repealed, amended or modified accordingly. 
SECTION 5. Effectivity. - This Act shall take effect fifteen days following the 
completion of its publication in the Official Gazette or in a newspaper of general 
circulation in the Philippines. 
Approved, 
2