During the middle part of June 2011, representatives from HDMF or PAGIBIG came and presented to us their new program called PAGIBIG Modified Program (or Pagibig 2). In this program, members are encouraged to save for a minimum of P1000 (each investment/instalment, not necessarily for each month) for a period of 5 years. Members will then earn a dividend of around 5.5% per year (based on 2010’s dividend rate) which they would get together with all their savings in the program at the end of the 5th year.
The dividend rate of 5.5% per year seems to be small, but the catch was this:
The member’s savings/investments are not only tax-free, but the amount invested was also deductible from the member’s gross taxable income! Sounds great, right?!
I spent a couple of days verifying the information as I thought maybe either we misunderstood what the PAGIBIG personnel said or maybe the personnel made a mistake in her presentation. I called the PAGIBIG hotline to verify and they confirmed the information. I searched the internet for the Philippine law that cover HDMF and found a part in the Republic Act that is kind of vague and open for interpretation/s. I searched for memoranda from BIR that possibly cover my concern and found none.
Finally, after around two to three weeks, I decided to join the program and asked for the form I need to fill out to signify my intent of joining the program. Around a day or two before I made the decision, I have made computations that would give show me how much I could possibly save from taxes, and here is an example:
If I decided to save PhP4000 a month for just one year, my savings at the end of the 1st year would be
12 x PhP 4000 = PhP48000 total savings in one year
I fall under the 30% tax rate bracket therefore my taxes on my savings should have been
PhP48000 x 0.3 = PhP14400
Which means I should have only PhP48000 minus PhP14400 in taxes = PhP33600.
But since it is deductible from my gross taxable income, I don’t have to pay any taxes.
I should only have PhP33600 but because of the program, I have Php48000 instead.
My 1st year earnings without the dividend yet is:
PhP48000 – PhP33600 = PhP14400
Rate of return = (14400/33600) x 100% = 42.85714%
Counting in the 5.5% dividend would yield
PhP48000 x 1.055 = PhP50640, which has a 50.71% rate of interest in 1 year.
Assuming dividend rate was 5.5% each year, the value of my investment at the end of the 5th year would have been:
PhP50640 x (1.055)4 = PhP62734.08, which has an 86.70857% interest in 5 years.
An 86.7% return on investment in 5 years is not bad at all!
Unfortunately, during the day I was supposed to submit my form to the HR department I read a new memorandum from the BIR that all contributions (in SSS, GSIS, Philhealth, and PAGIBIG) beyond the compulsory are taxable.
This is a great case of what-could-have-been!