BIR Ruling [DA-003-02]

January 09, 2002 BIR RULING [DA-003-02] 32 (B) (7) (e) (iv) 24-95 & DA-11-97 Lupon sa mga Laro at Libangan (Games and Amusements Board) Legaspi Towers 200, Paseo de Roxas Makati City Attention: Ms. Lerina B. Braga OIC, Accounting Section Gentlemen : This refers to your letter dated March 9, 1999 requesting for clarification as to whether or not subsistence allowance in the amount of P900.00 per month and laundry allowance in the amount of P125.00 per month given to the personnel of the Medical Section of the Games and Amusements Board, pursuant to Republic Act No. 7305, as implemented by Administrative Order No. 31-E s. of 1994 of the Department of Health, are compensation subject to withholding tax. In reply, please be informed as follows: 1) Rank and File Employees. Under Section 32(B)(7)(3)(iv) of the Tax Code of 1997, "other benefits" include all benefits other than the 13th month pay, such as, the annual Christmas bonus given by private offices, 14th month pay, mid-year productivity incentive bonus, gifts in cash or in kind and other similar benefits and refer to those benefits received by an official or employee for one (1) calendar year, the total amount of which including the 13th month pay does not exceed P30,000.00. Such being the case, the following benefits being given to the rank and file employees of your Medical and Dental Section, viz: (a) Subsistence allowance of P900.00 per month; and (b) Laundry allowance of P125.00 per month may be considered as falling within the contemplation of "other benefits" provided for under Section 32(B)(7)(e)(iv) of the Tax Code of 1997, and therefore, need not form part of the employees' taxable compensation income subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997, provided, however, that such "other benefits," inclusive of the above allowances/benefits, shall not, in the aggregate, exceed P30,000.00 when added to the 13th month pay. (BIR Ruling No. 24-95 dated February 14, 1995) Moreover, Section 2.33(C) of Revenue Regulations No. 3-98, as amended, provides, viz: ADTCaI "(C) Fringe Benefits Not Subject to Fringe Benefits Tax In general, the fringe benefits tax shall not be imposed on the following benefits: "xxx xxx xxx "(3) Benefits given to the rank and file, whether granted under a collective bargaining agreement or not ; "xxx xxx xxx (Emphasis supplied) Accordingly, the subsistence allowance of P900.00 and the laundry allowance of P125.00 per month being given to the rank and file personnel of your Medical and Dental Section pursuant to R.A. No. 7305 are not subject to the fringe benefits tax pursuant to Section 2.33(C) of Rev. Regs. No. 3-98, as amended by Rev. Regs. No. 8-2000 and 10-2000. 2) Supervisory and Managerial Employees. Section 2.33(C), Rev. Regs. 10-2000 amending Rev. Regs. No. 8-2000 and 3-98 provides, viz: "The term "de minimis" benefits which are exempt from the fringe benefits tax shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees such as the following: 1. Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year and the monetized value of leave credits paid to government officials and employees; (as amended by Rev. Regs. No. 8-2000 and Rev. Regs. No. 10-2000) 2. Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125 per month; 3. Rice subsidy of P1,000.00 or one (1) sack of 50-kg. rice per month amounting to not more than P1,000.00; 4. Uniform and clothing allowance not exceeding P3,000.00 per annum; 5. Actual yearly medical benefits not exceeding P10,000.00 per annum; 6. Laundry allowance not exceeding P300.00 per month; 7. Employees achievement awards, e.g. for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000.00 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; 8. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000.00 per employee per annum; 9. Flowers, fruits, books or similar items given to employees under special circumstances e.g. on account of illness, marriage, birth of a baby, etc.; and 10. Daily meal allowance for overtime work not exceeding twenty-five percent (25%) of the basic minimum wage." (Emphasis supplied.) Take note that Section 2.33(C) of Rev. Regs. 10-2000, amending Rev. Regs. No. 8-2000 and 3-98, used the phrase "such as the following" suggesting that the enumeration above is not intended to be exclusive. In view of the foregoing, the following benefits being given to the managerial and supervisory employees of your Medical and Dental Section, viz: (a) Subsistence allowance of P900.00 per month; and (b) Laundry allowance of P125.00 per month may be considered "de minimis" benefit since the same are of relatively small value and offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. The amount of "de minimis" benefits conforming to the ceiling herein prescribed shall not be considered in determining the P30,000.00 ceiling of "other benefits" provided under Section 32(B)(7)(e) of the Code. However, if the employer pays more than the ceiling prescribed by the Regulations, the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30,000.00 ceiling. Provided, further, that any amount given by the employer as benefits to its employees, whether classified as "de minimis" benefits or fringe benefits, shall constitute as deductible expense upon such employer pursuant to Section 2.78.1(A)(3) of Rev. Regs. No. 8-2000, as amended. Section 2 of Rev. Regs. No. 8-2000, as amended, clarifies that "de minimis" benefits and "other benefits" are not the same. For purposes of determining the P30,000.00 ceiling in "other benefits," the two are treated differently in that "de minimis" benefits are not considered in computing the P30,000.00 ceiling in "other benefits." The regulations did not provide for a ceiling in "de minimis" benefits. However, it provided for a limit in the amount of each "de minimis" benefit (e.g., laundry allowance should not exceed P300.00 per month; and uniform and clothing allowance should not exceed P3,000.00 per annum). "De Minimis" benefits are not considered as compensation income/wages and are, therefore, not subject to the withholding tax prescribed by Section 79 in relation to Section 24(A) both of the 1997 Tax Code. (BIR Ruling No. DA-11-97 dated January 9, 1997) Moreover, Section 2.33(C) of Revenue Regulations No. 3-98, as amended, provides, viz: "(C) Fringe Benefits Not Subject to Fringe Benefits Tax In general, the fringe benefits tax shall not be imposed on the following benefits: (1) Fringe benefits which are authorized and exempted from income tax under the Code or under any special law; (2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; (3) Benefits given to the rank and file, whether granted under a collective bargaining agreement or not; (4) De minimis benefits as defined in these Regulations ; (5) If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or (6) If the grant of the fringe benefits is for the convenience of the employer ." (Emphasis supplied) Accordingly, subsistence allowance of P900.00 and laundry allowance of P125.00 per month given to your managerial and supervisory employees are not subject to the fringe benefits tax pursuant to Section 2.33(C)(4) and (6) of Rev. Reg. 3-98, as amended, since the same addresses employer's concern of providing meal/rice and clothing benefits to employees which in effect redounds to the convenience of the employer. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Acting Assistant Commissioner Legal Service