Distribution of Judicial Development Fund

January 20, 2005 BIR MEMORANDUM RE : Distribution of Judicial Development Fund This has reference to your Memorandum dated January 19, 2005 instructing this Office to determine whether or not the distribution from the Judiciary Development Fund of the Supreme Court is subject to withholding taxes. Section 1 of Presidential Decree No. 1949, which established a Judiciary Development Fund, provides that: "Section 1. There is hereby established a Judiciary Development Fund, hereinafter referred to as the Fund, for the benefit of the members and personnel of the Judiciary to help ensure and guarantee the independence of the Judiciary as mandated by the Constitution and public policy and required by the impartial administration of justice. The Fund shall be derived from, among others, the increase in the legal fees prescribed in the amendments to Rule 141 of the Rules of Court to be promulgated by the Supreme Court of the Philippines. The Fund shall be used to augment the allowances of the members and personnel of the Judiciary and to finance the acquisition, maintenance and repair of office equipment and facilities; Provided, That at least eighty percent (80%) of the Fund shall be used for cost of living allowances, and not more than twenty percent (20%) of the said Fund shall be used for office equipment and facilities of the Courts located where the legal fees are collected; Provided, further, That said allowances of the members and personnel of the Judiciary shall be distributed in proportion of their basic salaries; and, Provided, finally, That bigger allowances may be granted to those receiving a basic salary of less than P1,000.00 a month." (Emphasis supplied.) SACEca "Gross compensation income" includes all income payments received as a result of an employer-employee relationship, such as salaries, wages, honoraria, bonus, taxable pensions, allowances for transportation, representation, entertainment, fees, fringe benefits, fees and other income of similar nature. Cost of living allowances are not among those listed as non-taxable "de minimis" benefits under Revenue Regulations No. 10-2000. Thus, the cost of living allowance distributed to the members and personnel of the Judiciary is considered compensation income subject to income tax and consequently, to the withholding tax on wages prescribed by Section 79 in relation to Section 24 (A) of the Tax Code of 1997. (BIR Ruling No. DA-287-96 dated August 2, 1996 and BIR Ruling No. 149-92 dated May 19, 1992). (SGD.) HERMENO A. PALAMINE Chief, Law Division Noted by: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group