BIR Ruling [DA-061-97]

February 6, 1997 BIR RULING [DA-061-97] Daeduck Philippines, Inc. Philippine Economic Zone Authority (PEZA) Lot No. 1-6, Block 20, Phase 4 Main Ave., Rosario, Cavite City Attention: Ms. Resurreccion Santiago Accounting Manager Gentlemen : This refers to your letter dated June 14, 1996 requesting in effect for a ruling exempting from income tax the following incentives, viz: Asst. Supervisors Asst. Managers/Managers Meal Subsidy P1,100.00/mo. P1,800.00/mo. Rice Allowance 1,200.00/mo. 1,200.00/mo. Transportation 700.00/mo. 1,000.00/mo. TOTAL P3,000.00/mo. P4,000.00/mo. =========== =========== It is represented that Daeduck Philippines, Inc. (DDPI) is located in Philippine Economic Zone Authority in Rosario, Cavite which is about an hour and a half travel time from Makati or about to two and a half hours travel from Manila; that most of the DDPI's key personnel come or reside in Metro Manila while others opted to avail of dormitories in Cavite and go home on weekends; that DDPI decided to provide the above incentives to promote health, goodwill contentment and efficiency among its officers; that the scheme was resorted to because the availability of highly skilled professional in Cavite is very low; and that the grant of these incentives will necessarily be for the benefit both to the company and the employees concerned. That the meal subsidy of P1,100.00 and P1,800.00 per month is equivalent to approximately P42.00 and P69.00 per day, respectively for 26 days, while the rice allowance is equivalent to one sack of rice estimated at P1,200 and the transportation allowance is equivalent to approximately P26.00 and P38.00 per day, respectively. It is your belief though that these allowances or subsidies are intended merely as means of promoting the health, goodwill, contentment and efficiency of the said employees, hence, should not form part of the compensation income subject to income tax and consequently to withholding tax. In reply, please be informed that 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, "facilities or privileges" furnished or offered by an employer to his employees are not considered as compensation subject to withholding tax if such facilities or privileges are "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. In view thereof, the aforesaid allowances being given by Daeduck Philippines, Inc. to its employees, i.e. the meal subsidy of P1,100.00 and P1,800.00 per month is equivalent to approximately P42.00 and P69.00 per day, respectively for 26 days, while the rice allowance is equivalent to one sack of rice estimated at P1,200 and the transportation allowance is equivalent to approximately P26.00 and P38.00 per day, respectively, which are indeed of "relatively small value", need not be included as compensation, subject to withholding tax since they are given merely to promote the health, goodwill, contentment and efficiency of the employees, is hereby granted. IHTaCE Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: (SGD.) ALICIA L. TOMACRUZ Head Rev. Executive Assistant (Legal Service)