BIR Ruling

September 3, 1968 The Chairman-General Manager Philippine Charity Sweepstakes Office Manila S i r : In reply to your letter dated October 23, 1967, I have the honor to inform you that on March 15, 1968, the Secretary of Finance reconsidered his decision on the taxability and/or deductibility of representation and transportation allowances of Central Bank officials and employees. For your ready reference, pertinent portions of said decision are quoted hereunder as follows: "In line with the desire of the Bureau of Internal Revenue to maintain "the fundamental precepts of income taxation" and "to establish uniformity in tax enforcement", this Office hereby rules that the transportation and representation allowances received by Central Bank officials and employees should be included in gross income. Taking note of the statement in your letter that "such allowances may not actually be taxed at all for indeed the recipients thereof may spend all of it or even more"; in order that tax enforcement may be more feasible and to enable public officials to devote their fullest time to their functions under the law; and having in mind the present scale of allowances being received by officials of the Central Bank; this Office is of the opinion that claims for deduction of such allowances may, as a rule, be accepted by the Bureau of Internal Revenue without the necessity of producing receipts, subject to the following conditions: a) In case of transportation allowances, where the official concerned owns an automobile used for his transportation as such official within the city of Manila and suburbs and the Government Auditor has passed in audit the payment of amounts equivalent to the allowances. b) In case of representation allowances, where the payment thereof is approved by the Auditor and the amount of the same does not exceed 25% of the taxable gross salary and other compensation received by the official. "It is emphasized that the foregoing rule regarding the justification of deductions is limited in its application only to officials of institutions performing governmental functions whose charter vests the governing body with the power to appropriate the funds necessary in carrying out its duties and responsibilities under the law. Since in the case of officials of the Central Bank reliance was placed on the decision of the President communicated in a letter of the Executive Secretary dated January 27, 1960, and considering that the present issue was raised only in 1967, the application of the foregoing rules regarding the inclusion of such allowances in gross income and the substantiation of the claims for deduction shall commence with the taxable year 1967; and to this extent, the letter of this Office to the Commissioner of Internal Revenue on September 12, 1967 is modified." Based on the aforequoted decision, specifically the last paragraph thereof, this Office believes believes and so holds that, the Philippine Charity Sweepstakes Office being engaged in proprietory functions, the rule regarding the justification of deduction of representation and transportation allowances does not extend to its officials. Accordingly, any claim for deduction of representation and transportation expenses on the part of the officials of said Office should be properly substantiated; otherwise, the same shall not be allowed under existing rules and regulations on the matter. adc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue