BIR Ruling

April 19, 1972 The General Manager Manila Royal Hotel P. O. Box 2999 Manila S i r : This refers to your letter dated March 4, 1972 requesting information as to whether the 3% and 7% taxes on your sales of food and drinks in your restaurant and bar outlets will be based on the basic cost of drinks or on the gross amount shown on the sales invoices considering that you are collecting a 10% service charge on each invoice issued to customers. In reply, I have the honor to inform you that the 10% service charge billed to your customers does not constitute part of your taxable receipts if the same is actually distributed to your employees, in lieu of cash tips. However, if you retain a portion of the 10% service charge collected, that portion retained is part of your gross receipts and is subject to the 3% or 7% tax as the case may be. (See Revenue Memorandum Circular No. 29-70) In this connection, you are informed that in order to insure the collection of the income tax on the share of your employees in the 10% service charge; the same shall be considered as part of the employees total emoluments from employment for purposes of the withholding tax on their wages. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue