Introduced by Senator JINGGOY EJERCITO ESTRADA 
EXPLANATORY NOTE 
A major factor that gives impetus to the development of the life insurance 
industry is the reduction of the premium tax on life insurance. In the US, for instance, 
where our tax laws are basically patterned, the premium tax, which is a state imposition, 
is pegged at two percent (2%) and that the proceeds are used by the regulatory body to 
strengthen the industry. 
The proposed reduction in premium tax would bring down the cost of insurance 
protection which can be passed on to the policy holders in the form of lower premium or 
higher insurance coverage with the same amount of premium. Lower rates, in turn, 
encourage new or additional insurance coverage. 
It is to noted that the premium paid on a life insurance policy consists of two 
major components: (1) the insurance component or the amount necessary to cover the 
cost of pure insurance protection; (2) the investment component or the amount that is 
added to the policy reserve which the insurer invests. The latter represents the 
accumulated part as savings in the form of cash values to be returned to the policy 
holder upon maturity of the policy or at time it is surrendered for cash. Hence, the higher 
the number of the policy holders or the amount of insurance coverage, the higher the 
amount of savings that can be accumulated by the insurance industry. Higher savings 
mean more investments that translate to the higher economic growth. 
From the equity point of view, the savings portion of the insurance policy is 
inevitably taxed since the premium tax is applied on gross premiums. This places 
savings in the form of insurance policies at a disadvantage compared to other forms of 
savings particularly those generated by the banking industry. It is to be pointed out that 
in case of bank deposits, only the interest income, riot on the amount deposited, is 
taxed. The reduction of the premium tax would somehow mitigate the unequal tax 
treatment of the various forms of savings. 
Since the proposed reduction of the premium tax applies to new policies only, 
that is, life insurance policies issued after the effectivity of the law adopting the reduced 
rates, the estimated revenue loss would only amount to P 138.85 million per annum 
instead of P 442.78 million if the reduction applies even to the existing policies or P 
737.93 million in the case of total abolition of the premium tax. 
The proposed reduction of the premium tax from five percent (5%) to two percent 
(2%) would still ensure a steady source of revenue for the government. 


In view of the foregoing, passage of the bill is earnestly sought. 
JI 
Senator 
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SENAT 
Introduced by Senator JlNGGOY EJERCITO ESTRADA 
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 the House of Representatives of the Philippines in the 
Congress assembled: 
SECTION I. 
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 on 
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 imposed a tax of five percent (5%) on gross premiums collected. 


. 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. 
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 iri a newspaper of general 
circulation in the Philippines. 
pproved,