BIR Ruling [DA-101-00]

February 15, 2000 BIR RULING [DA-101-00] RR 2-98 16-96; 89-95; 172-91 Nagkakaisang Lakas ng Manggagawa (NLM) Katipunan 3/F, Room 301 Sapphire Bldg. Victory Liner Compound 1282 Samson Road, Kalookan City Attention: Mr . Victoriano P . Tuazon NLMVLI-President Gentlemen : This refers to your letter dated February 18, 1999 requesting on behalf of Victory Liner Incorporated-NLMVLI-KATIPUNAN for legal opinion on whether or not the following items being received by your member-workers in connection with their employment are taxable: 1) Commissioner being received by bus drivers and conductors on their gross collection which is either 2%, 2% or 3% depending on the rates of the bus assigned to them; cAaETS 2) Allowances of P72.00 or P36.00 per day as the case may be, being received by drivers or conductors for each round trip or one way trip; 3) Fixed compensation received by drivers or conductors for each trip; and 4) Benefits stipulated in the CBA: a) Longevity bonus which is being integrated to employees' salaries; b) Cash conversion of 18 days unused vacation leave; and c) Cash conversion of 18 days unused sick leave. In reply, please be informed as follows: Section 2.78.1 of Revenue Regulations No. 2-98 re: Withholding Tax on Compensation Income, implementing the Tax Code of 1997 provides, viz: "Section 2.78.1. Withholding Tax on Compensation Income (A) Compensation Income Defined In general, the term compensation means all remuneration for services performed by an employee for his employer under an employer-employee relationship unless specifically excluded by the Code. The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria allowances , commissions (e.g. transportation, representation, entertainment and the like); fees including director's fees, if the director is, at the same time, an employee of the employer/corporation; taxable bonuses and fringe benefits except those which are subject to the fringe benefits tax under Section 33 of the Code; taxable pensions and retirement pay, and other income of a similar nature constitute compensation income. The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes compensation. Thus, it may be paid on the basis of piece-work, or a percentage of profits; and may be paid hourly, daily, weekly, monthly or annually.. Remuneration for services constitutes even if the relationship of employer and employee does not exist any longer at the time when payment is made between the person in whose employ the services had been performed and individual who performed them." Accordingly, all remuneration for services are generally included in the taxable compensation income of the employees such as but not limited to fringe benefits (monetary or non-monetary e.g. longevity pay, hazard pay and all kinds of allowances, except allowances for quarters, clothing and subsistence which are held to be exempt from income tax pursuant to Revenue Memorandum Circular No. 15-87). IETCAS Based on the foregoing, this Office is of the Opinion as it hereby holds that longevity pay, allowances and commissions are considered compensation income, hence, subject to income tax under Section 24(A) of the Tax Code of 1997, and consequently to withholding tax prescribed under Revenue Regulations No. 2-98. (BIR Ruling No. 172-91 dated September 5, 1991; BIR Ruling No. 89-95 dated June 15, 1995) Moreover, the commissions being received by bus drivers and conductors on their gross collection which is either 2%, 2% or 3% depending on the rates of the bus assigned to them; the allowances of P72.00 or P36.00 per day as the case may be, being received by drivers or conductors for each round trip or one way trip; the longevity bonus integrated to the employees' salaries; and the fixed compensation received by drivers or conductors for each trip being compensation income, are subject to income tax and consequently to withholding tax pursuant to the above provision of the law. Finally, only the employees' actual unused vacation leave credits for each particular year not exceeding 10 days shall be exempt from taxation. (BIR Ruling No. 16-96 dated February 20, 1996) Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)