Which GOCCs Are Exempt From Income Tax? NIRC Section 27(C) Explained

Under NIRC Section 27(C), a government-owned or controlled corporation (GOCC) is taxed exactly like an ordinary private corporation, with only five named exceptions: GSIS, SSS, PhilHealth (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and local water districts, added in 2010. Every other GOCC — including PAGCOR since 2005 — pays regular corporate income tax at 25%, or 20% if it qualifies as a small corporation. Government ownership alone is not a tax exemption.

What NIRC Section 27(C) Actually Says #

Section 27(C) of the National Internal Revenue Code (NIRC) of 1997 sets the default rule that GOCCs, agencies, and government instrumentalities are subject to the same corporate income tax as private businesses in a similar line of activity, unless a specific exception applies. The provision was written precisely to close the assumption that a “government” entity is automatically tax-exempt — Congress listed the exceptions by name rather than leaving the exemption open to interpretation.

As amended by Republic Act (RA) No. 9337 and later RA No. 10026, the operative text reads:

“(C) Government-owned or -Controlled Corporations, Agencies or Instrumentalities. — The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the local water districts (LWD) and the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in a similar business, industry, or activity.”

This wording is reproduced from Section 27(C) of the NIRC as amended, per LawPhil’s published copy of the statute — a taxpayer relying on it for a specific filing position should still confirm the current text directly against LawPhil or the BIR before acting on it. The structure is deliberate: the rule is “taxable,” and the five names that follow “except” are the entire exemption — nothing else. There is no general carve-out for “government instrumentalities” or “public corporations” as a class.

The Exempt List: How It Grew to Five #

Exactly five GOCCs currently qualify for the Section 27(C) income tax exemption, and the list only grows through an amending law, never by agency claim or executive order. The original 1997 NIRC named four — GSIS, SSS, PHIC, and PCSO — and Congress added the fifth, local water districts, thirteen years later through a dedicated statute.

• GSIS (Government Service Insurance System) — insures government employees; exempt from the original 1997 NIRC.
• SSS (Social Security System) — insures private-sector workers; exempt from the original 1997 NIRC.
• PHIC / PhilHealth (Philippine Health Insurance Corporation) — administers the National Health Insurance Program; exempt from the original 1997 NIRC.
• PCSO (Philippine Charity Sweepstakes Office) — runs lotto and charity sweepstakes; exempt from the original 1997 NIRC (though certain PCSO winnings themselves can be separately taxable to the winner — a different question from PCSO’s own corporate income tax status).
• Local water districts (LWDs) — added by RA No. 10026, effective 2010, covering the roughly 500 local water utilities organized under Presidential Decree No. 198.

RA No. 10026 did not stop at the exemption. It also added Section 289-A to the NIRC, which redirects the tax savings rather than letting them sit as ordinary retained earnings: the amount an LWD would have paid as income tax must instead fund capital equipment expenditure to expand water service coverage and improve water quality. That earmarking is what distinguishes this exemption from a plain tax break — it is conditioned on the district plowing the saved amount back into service delivery, a detail worth checking in an LWD’s own financial disclosures.

PAGCOR: Exempt, Then Not — A Frequently Confused Point #

PAGCOR is commonly assumed to be tax-exempt because it once was — but RA No. 9337, effective July 1, 2005, removed PAGCOR from the Section 27(C) list, and its income from gaming operations has been subject to corporate income tax ever since. This is one of the most persistently confused facts in Philippine tax practice, partly because PAGCOR’s franchise tax privilege under Presidential Decree No. 1869 was left untouched, so people conflate “PAGCOR still pays franchise tax on gaming, not income tax” with “PAGCOR pays no income tax at all” — the two are not the same thing.

The Supreme Court confirmed the deliberate nature of the removal in PAGCOR v. BIR, G.R. No. 215427: reviewing the Bicameral Conference Committee records behind RA No. 9337, the Court found that Congress’s legislative intent in omitting PAGCOR from the Section 27(C) list was specifically to make PAGCOR liable for corporate income tax, not an oversight. The ruling also clarified the split that still causes confusion today: PAGCOR’s income from gaming operations (casinos, gaming pools, and related recreation) remains covered by its separate franchise tax arrangement under PD 1869, but income from other related services — the exemption RA 9337 withdrew — is taxed under the regular corporate income tax like any other non-exempt GOCC.

For a business classifying its own entity type before filing, see General Co-Partnership BIR Income Tax Under Section 22(B) for how the NIRC’s definitional sections handle other entity classifications the same way Section 27(C) handles GOCCs — by exception, not by assumption.

Exempt vs. Taxable GOCCs at a Glance #

The table below separates the five statutorily exempt GOCCs from a sample of taxable ones, so an entity — or a professional filing on its behalf — can check its own status against the actual law rather than against a general impression of “government-owned means tax-free.” If a GOCC is not one of the five named entities, it is taxable, full stop, regardless of its public mission.

Worked Comparison: An Exempt LWD vs. a Taxable GOCC #

Two government corporations with identical net taxable income can owe entirely different amounts of income tax, because Section 27(C) turns on whether the entity’s name appears on the exempt list — not on its size, mission, or public character. The example below (fictional but realistic figures) shows the practical gap.

• Baywater District, a local water district under PD 198, reports ₱10,000,000 in net taxable income for the year. Because RA No. 10026 added local water districts to the Section 27(C) exempt list, Baywater’s corporate income tax due is ₱0 — and per Section 289-A, the ₱2,500,000 it would otherwise have paid at the regular 25% rate must instead go toward capital equipment to expand or improve its water service.
• Metro Development GOCC (a hypothetical GOCC not named in Section 27(C)), also reporting ₱10,000,000 in net taxable income, is taxed exactly like a private domestic corporation: at the regular 25% rate under the CREATE Act (or 20% if it separately meets the reduced-rate thresholds), Metro Development owes ₱2,500,000 in corporate income tax — the same computation any ordinary taxpayer would run. See Corporate Income Tax Rates in the Philippines: 25% vs 20% for MSMEs for how that rate and the asset/income thresholds are actually applied.

Same government ownership, same income, a ₱2,500,000 difference — driven entirely by whether the entity’s name is one of the five on the Section 27(C) list.

FAQ #

Which GOCCs are exempt from Philippine income tax? #

Only five: the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PhilHealth), the Philippine Charity Sweepstakes Office (PCSO), and local water districts, added by Republic Act No. 10026 in 2010. Every other government-owned or controlled corporation pays regular corporate income tax.

Is PAGCOR exempt from income tax? #

No. PAGCOR was removed from the Section 27(C) exempt list by Republic Act No. 9337, effective July 1, 2005. Since then, PAGCOR’s income from gaming operations and related services has been subject to the regular corporate income tax like any other GOCC, though a separate franchise tax privilege under Presidential Decree No. 1869 was not repealed.

Are local water districts exempt from income tax? #

Yes. Republic Act No. 10026 amended NIRC Section 27(C) to add local water districts to the list of exempt GOCCs, effective 2010, and added Section 289-A requiring the tax savings to fund capital improvements to water services.

What income tax rate does a non-exempt GOCC pay? #

A GOCC not on the Section 27(C) exempt list pays the same regular corporate income tax as an ordinary domestic corporation: 25% of net taxable income, or 20% if it meets the CREATE Act’s reduced-rate thresholds for net taxable income and total assets.

Does being government-owned automatically exempt a corporation from BIR income tax? #

No. NIRC Section 27(C) states plainly that GOCCs are taxable on the same basis as ordinary corporations, with only the named exceptions. Government ownership alone is not a tax exemption; the entity must appear on the specific statutory list.

Summary #

NIRC Section 27(C) exempts exactly five entities from corporate income tax — GSIS, SSS, PhilHealth, PCSO, and local water districts under RA No. 10026 — and taxes every other GOCC, agency, or instrumentality the same way it taxes an ordinary corporation. PAGCOR’s 2005 removal from that list under RA No. 9337 remains a common point of confusion precisely because its separate franchise tax on gaming survived even as its income tax exemption did not. Before assuming any government-owned entity is tax-exempt, check whether its name is actually one of the five — and if it is not, the entity files and pays like any other domestic corporation, using the same BIR Form 1702Q quarterly filings that apply to private corporations. For the general exemption mechanics that apply to another category of statutory exemption entirely, see Are Cooperatives Exempt From BIR Income Tax and VAT? Requirements Under RA 9520.