THE House Committee on Ways and Means on Tuesday approved the tax provisions of a measure providing for the regulation of the organization and operation of community groups known as “paluwagan.”
The panel, chaired by Albay Rep. Joey Sarte Salceda, approved an unnumbered substitute bill on the proposed “Bagong Paluwagan ng Bayan” law.
Through the bill, the “paluwagan,” a traditional Filipino system of saving, stands to gain several key tax exemptions aimed at amplifying its economic impact and encouraging its proliferation across the nation.
The bill seeks to apply tax exemptions that include all the income it receives, including interest on its deposits with any financial institution. However, that income derived from any of its properties, real or personal, or any activity conducted for profit, regardless of the disposition thereof, is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code.
Likewise, the exemption from income tax shall exclude taxes wherein the “paluwagan” is only constituted as the withholding or remitting agent.
The bill also allows income tax exemptions on interest on members’ contribution or share to any “paluwagan.”
Any “paluwagan” duly registered with the Administration shall be exempt from the payment of value-added tax (VAT) and documentary stamp taxes in relation to its operations and transactions with members, according to the proposed measure.
THE BILL also seeks that any “paluwagan,” regardless of the amount of accumulated reserves and undivided net savings, shall be exempted from payment of local taxes. Fees and charges assessed by the cities or municipalities on the application of mayor’s or local business permits and other licenses and approvals shall, in no case, exceed P3,000, according to the proposal.
The bill said any nine or more persons with residence, occupation, employment, or activities in a defined community who desire to form a community “paluwagan” shall apply before the administration, which shall approve the creation of said group.
The measure seeks the creation of the Community Paluwagan Administration, which shall be under the management of a board.
The authors of the bill said the “paluwagan” concept is not unique in the Philippines.
“Although named differently in different societies, the concept stays the same,” Manila Teachers Rep. Virgilio S. Lacson and Sagip Rep. Rodante D. Marcoleta, the authors, wrote in the bill.
Lacson and Marcoleta explained that each participant gives a fixed amount as a contribution to a pooled fund.
“The pooled funds will be given to a certain member who is appointed as the manager of the funds on an agreed-upon date. The money collected for the period is then given to a person scheduled to receive it. The order of the payout is usually determined by drawing lots. The cycle continues until all the members have received their share,” the authors explained.
THE bill-framers also cited the “many benefits” of the “paluwagan” system.
“First, it inculcates the habit of saving among its members. The duty to contribute to the pool regularly promotes accountability among the members.”
According to the lawmakers, the proposal enables access to a lump sum of money, even for the poorest of the poor. The advantages of the system, however, are not without downsides, they added.
“Although ‘paluwagan’ has been in existence since time immemorial, the practice remains informal and unregulated,” the solons said. “Anyone can form a group through verbal agreements. It is not regulated by any governmental body.”
The lawmakers also noted that the Department of Trade and Industry once tagged the paluwagan system as a form of pyramid scheme “because the first person to receive the pot is actually the one who will get the most benefit from the system.”