Pre-need firms buck 12% VAT on premiums

Member firms of the Philippine Federation of Pre-Need Plan Companies Inc. are protesting a recent directive by the Bureau of Internal Revenue (BIR) subjecting premiums or collections to a 12 percent value-added tax, saying such a move would lead to the downfall of the pre-need industry which has been slowly recovering from a string of financial debacles.

In a press briefing yesterday, Coco Plans Inc. president Caesar T. Michelena said the directive could result in the closure of pre-need companies since this would entail an additional cost of around seven percent in total expenses.

“Suddenly, out of nowhere, they come up with this interpretation. There were no discussions held between the Federation and the BIR,” he said.

Michelena said the group is seeking a status quo on the payment of VAT, citing a previous BIR ruling which states that the 12 percent VAT should be based on net receipts after deducting trust fund contributions. 

Prudentialife president Jose Alberto Alba said the pre-need group has asked the BIR to reconsider its ruling which was supposed to be effective November 2007. 

“If implemented, this ruling would lead to price increases of pre-need products which investors might not be able to afford anymore,” Alba said.

Loyola Life Plans chairman and president Jesusa Puyat-Concepcion also noted that the ruling was issued by the BIR in November last year when pre-need firms were not able to make any provisions for it. 

“We’re really hoping that the BIR would reconsider its position. Hopefully, they realize what the ruling would do to our industry which caters largely to common and average people,” she said.

Alba said the group has sought a dialogue with BIR officials to air their side and come up with a common ground. 

Aside from this, Alba said the group has also asked premier auditing firms SGV and Punongbayan Araullo to help them explain to the BIR that the pre-need trust fund contribution is not comparable to that of insurance reserves and that the trust fund is a fund set up from the planholders’ payments separate and distinct from the paid-up capital of the company.

Michelena said that should the BIR insist on its position, the group might take this issue all the way to the courts.

“We might resort to that if our existence is already at stake,” he said. 

Alba said the pre-need industry has grown slightly last year due to intensified marketing efforts of pre-need companies and new product offerings.