BIR Ruling [DA-011-97]

January 9, 1997 BIR RULING [DA-011-97] Itabashi Seiki Philippines, Inc. 5/F Unit No. 53, Legaspi Village 178 Salcedo St., Legaspi Village 1229 Makati City Attention: Ms . Cilda B . Buyod Accounting Manager Gentlemen : This refers to your letter dated July 30, 1996 requesting for a ruling exempting from the payment of income tax the following incentives you are providing your Supervisors and Managers: Supervisors Asst. Managers Managers Meal Subsidy P500.00/mo. P500.00/mo. P1,000.00/mo. Rice Allowance 500.00/mo. 1,000.00/mo. 1,000.00/mo. Total P1,000.00/mo. P1,500.00/mo. P2,000.00/mo. =========== =========== =========== It is represented that your company is located at the Cavite Export Processing Zone in Rosario, Cavite which is about an hour and a half travel time from Makati or about two to two and a half hours travel time from Manila; that since most of your key personnel come from or reside in Metro Manila, while others opted to avail of dormitories in Cavite and go home on weekends, your company, decided to provide the above incentives to promote health, goodwill, contentment and efficiency among its officers; that the availability of highly skilled professional in Cavite is very low, this is the reason why most of your key personnel are residents of Metro Manila; and that the meal subsidy of P500.00 and P1,000.00 per month is equivalent to approximately P20.00 and P35.00 per day respectively for 26 days, while the rice allowance is equivalent to one sack of rice estimated at P1,000.00 per sack. In reply, please be informed that facilities or privileges (such as entertainment, medical services, or so called courtesy discounts on purchases) furnished or offered by an employer to his employees, generally, are not considered as compensation subject to withholding tax if such facilities or privileges 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 pursuant to Section 2(a) of Revenue Regulations No. 6-82, as amended by Revenue Regulations No. 12-86 implementing Section 28 of the Tax Code, as amended by Executive Order No. 37. Such being the case, and since the present value of one sack of rice is not less than P1,000.00, the rice allowance of P500.00 and P1,000.00 per month as well as the meal subsidy of P500.00 and P1,000.00 per month which was represented are equivalent respectively only to approximately P20.00 and P35.00 per day for 26 days are not considered compensation income/wages. Accordingly, it is not subject to the withholding tax prescribed by Section 72 in relation to Section 21(a) both of the Tax Code as implemented by Revenue Regulations No. 6-82 as amended, since the said incentives and allowances are of relatively small value and offered by the employer to promote the health and efficiency of its employees. (BIR Ruling No. 029-93 dated January 15, 1993) cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)