Affirming the tax exemption of microinsurance MBAs
FROM THE MARGINS
The President has appointed a new tax chief. Atty. Romeo Lumagui, Jr., tax lawyer and former Deputy Commissioner for Operations, recently took his oath, assuming leadership of the Bureau of Internal Revenue (BIR) amidst many challenges. With global inflation and an economy bearing pandemic scars, the pressure is on to improve tax collection and raise government revenues. I am sure that Commissioner Lumagui will be up to the task, given his credentials and previous involvement in the BIR modernization program.
Tax revenue, as the government’s lifeblood, is a critical part of the country’s economic and fiscal policy. Our new Commissioner has gargantuan tasks ahead of him, so I wish him well. For the sake of our poor kababayans, I also implore him to look into the plight of microinsurance mutual benefit associations (Mi-MBAs) all over the country.
Social protection and Mi-MBAs
Mi-MBAs are providers of microinsurance to the poor, a self-help initiative of grassroots-based groups who pool their resources to provide death, disability, retirement fund, accident and other benefits to members and their families. They are registered with the Securities and Exchange Commission as non-stock, non-profit corporations. Their organization and operations are governed by the Insurance Code, as they are licensed by the Insurance Commission. Mi-MBAs distribute microinsurance products through partner-agent microfinance institutions, non-government organizations, cooperatives, rural/microfinance-oriented banks, and other community-based organizations. They also partner with non-life insurance companies to provide disaster, health, property, business interruption insurance, among others, to their members.
Mi-MBAs provide affordable and relevant risk protection to millions of poor Filipinos. From only 187,000 insured lives in 2006, the impact of Mi-MBAs has been significant. Of the 44.81 million lives insured by microinsurance from January-March 2022, more than half (25.7 million or 57 percent) were insured by MBAs. They also contributed ₱1.57 billion or 59 percent of the total ₱2.65 billion microinsurance premiums collected for the same period.
The growth of our microinsurance industry is reflected by the expansion of the Microinsurance MBA Association of the Philippines (MIMAP), which started with only three MBA members/partners in 2006. As of June 2022, MIMAP already has 19 MBA members/partners with a combined outreach of 7.86 million individual members. Altogether, they insure 29.38 million lives nationwide. During the pandemic, MIMAP took care of its members, paying an average of 280 death claims amounting to P7 million per day in 2021 alone. This is a significant contribution to social protection and financial inclusion in the country.
Mi-MBAs are also important in disaster risk reduction. They provide safety nets to poor communities, strengthening their capacity to recover from disaster, as shown by a 2018 study by the Cambridge Institute for Sustainability Leadership. Mi-MBAs have proven the importance of microinsurance in times of calamities — from typhoon Yolanda, Taal eruption, Covid-19 pandemic, Typhoons Ulysses, Odette and others, Typhoon Paeng being the most recent.
Under Sec. 30(C) of the amended National Internal Revenue Code (NIRC), Mi-MBAs are exempted from paying corporate tax since they are mutual aid associations operating for the exclusive benefit of their members. They are also exempted from paying gross premium receipts tax under Sec. 123, since they are purely cooperative associations whose affairs are conducted by the members; the money collected from among them used solely for their protection and not for profit. For the same reason, under Sec. 199, they are also exempted from paying documentary stamp tax on insurance policies.
Mi-MBAs are licensed, organized and managed in accordance with the Insurance Code. They operate for the exclusive benefit of members and their dependents using voluntary contributions. Mi-MBAs are organized not for profit, but for their mutual protection: to provide support based on an established system of benefit payments to members and their families.
The characteristics, organization, and corporate purposes of Mi-MBAs clearly meet the requirements for tax exemption, as provided by the NIRC and Revenue Memorandum Order No. 20-2013. Unfortunately, Revenue District Offices vary in their interpretations of the law. Some Mi-MBAs were granted tax-exempt status, while others were not. There are Mi-MBAs whose applications for tax exemption or renewal of exemption were denied, or remained unacted upon (neither approved or denied) for years. In the interim, Mi-MBAs have been erroneously issued notices of tax deficiencies, with devastating consequences on their operations. This is tragic since Mi-MBAs operate on very thin margins because their clients are poor. They are also restricted from spending more than 20 percent of contributions for administrative and operating expenses.
Recognizing the tax-exempt status of Mi-MBAs is important, not only because they are community-based organizations but because they provide much-needed financial assistance to the poor and marginalized sectors. These self-help initiatives must be supported. Otherwise, with the government unable to provide adequate social protection and the market not fully meeting their needs, what will be the recourse of millions of poor Filipinos?
This brings to mind what J.C. Watts once said: “Death and taxes may be inevitable, but they shouldn’t be related.”
On behalf of our Mi-MBAs’ poor constituents, I hope the new BIR leadership listens to this earnest appeal for help.
(Dr. Jaime Aristotle B. Alip is a poverty eradication advocate. He is the founder of the Center for Agriculture and Rural Development Mutually-Reinforcing Institutions (CARD MRI), a group of 23 organizations that provide social development services to eight million economically-disadvantaged Filipinos and insure more than 27 million nationwide.)
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