BIR Ruling [DA-123-03]

April 21, 2003 BIR RULING [DA-123-03] Section 24 (A); 93-96 & 129-99 Ms. Regina Rose G. Samodio La Consolacion College Rizal Street Bacolod City M a d a m : This refers to your letter dated May 28, 2001 requesting for a ruling that only your basic salary be subjected to withholding tax and exempting your overload from withholding tax on compensation. It is represented that you are a faculty member of La Consolacion College-Bacolod for eleven years now; that every year you get to enjoy an increased salary rate either due to merit ranking or tuition fee adjustments; that each time, however, you realize that the percentage of the increase only goes to your withholding tax; that this year, you were assigned to teach two (2) subjects for overload; and that your salary for the first half of the term is about Php8,000.00 less Php2,000.00+ for withholding tax which is about 25% of the pay you are supposed to receive. 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. IaDTES 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 compensation 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." Moreover, Section 2.79(B) of Revenue Regulations No. 2-98 categorizes taxable compensation income into regular taxable compensation income and supplementary compensation income. Under said regulation, regular taxable compensation income includes basic salary, fixed allowances for representation, transportation and allowances paid to an employee per payroll period. Supplementary compensation is defined by the same regulation as payments made to an employee in addition to the regular compensation such as commission, overtime pay, taxable retirement pay, taxable bonus and other taxable benefits, with or without regard to a payroll period. In view of the foregoing, your overload is supplementary compensation subject to income tax as compensation income under Section 24(A) of the Tax Code of 1997 and the withheld income tax thereon together with the withholding tax on wages shall be creditable against your total income tax due. This Office takes due notice of your plight and sympathizes with your predicament. However, tax exemptions are highly disfavored in law and are construed in strictissimi juris against the taxpayer. He who claims an exemption must be able to justify his claim by the clearest grant of organic law or statute. For this reason, our hands are tied and we are therefore constrained to deny your request for exemption of your overload from withholding tax on compensation considering that your request is devoid of any legal basis. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group