BIR Ruling [DA-287-96]

August 2, 1996 BIR RULING [DA-287-96] Manila Gas Corporation Labor Union 1536 Paz Mendoza Guazon Street Paco, Manila Attention: Mr . Ramon R . Manalo, Jr . President, MGC Labor Union Gentlemen : This refers to your request for a ruling on which of the following benefits to be received by the employees of the Manila Gas Corporation (MGC) are taxable: cdta "a. Cost of Living Allowance which was already integrated into our basic pay; b. Children's Allowance of P30.00 per child not to exceed four children; c. Amelioration Allowance of 10% of basic pay; d. Uniform Allowance of P500.00 per employee; e. Meal subsidy of P3.00 per day per employee; f. Medical Allowance equivalent to P2,500.00 per annum per employee; g. Representation and Transportation Allowance for managerial and supervisory position which shall not exceed 40% of Basic Pay." It is represented that then Pres. Ferdinand E. Marcos issued Letter of Instruction (LOI) No. 97 sometime in 1979 granting various benefits to employees of government-owned and controlled corporations belonging to the Infrastructure and Public Utilities group; that Manila Gas Corporation (MGC) is one of the government-owned and controlled corporations covered by the said Letter of Instruction but the management chose not to grant said benefits and deliberately concealed the existence thereof; that it was only in September 1986 that you discovered it from an employee of another government-owned corporation; that an extrajudicial demand was made but was not granted, hence, a complaint was filed with the National Labor Relations Commission which promulgated a favorable decision on April 21, 1993 and which has become final and executory on July 6, 1994. 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 by E.O. No. 37, "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 if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting health, goodwill, contentment, or efficiency of his employees. (Emphasis supplied) Such being the case, the following allowances, to wit: children's allowance of P30.00 per child not to exceed four children, Amelioration allowance of 10% of basic pay; uniform allowance of P500.00 per employee, meal subsidy of P3.00 per day per employee, medical allowance equivalent to P2,500.00 per annum per employee need not be included as compensation subject to withholding tax since the same are of relatively small value and offered by the employer to promote goodwill, contentment, and efficiency of its employees (Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86). (BIR Ruling No. 30-92 dated January 20, 1992) "Gross compensation income" includes all income payments received as a result of an employer-employee relationship, such as salaries, wages, honoraria, bonus, taxable pensions, allowances for transportation, representation, entertainment fees, fringe benefits, fees and other income of similar nature. Thus, the cost of living allowance (COLA) which has been integrated into the basic salary of MGC's employees is considered compensation income subject to income tax and consequently, to the withholding tax on wages prescribed by Section 72 in relation to Section 21(a) of the Tax Code, as amended, and implemented by Revenue Regulations 6-82, as amended by Revenue Regulations No. 12-86. The monthly commutable representation and transportation allowance (RATA) which is therefore granted under Section 34 of the General Appropriations Act is a reimbursement of actual representation and transportation expenses incurred by certain officials or employees as may be determined by the Department of Budget and Management, in the performance of their duties in the service of their employer, subject to liquidation/accounting and substantiation requirements. In a letter to this Office dated March 8, 1991, the Secretary of Budget and Management confirmed that "RATA is in fact a reimbursement for the expenses incurred in the performance of one's duties rather than as an additional compensation and therefore are not compensation subject to withholding." (Section 2(2)(c), Revenue Regulations No. 12-86). However, although the amount of RATA is not subject to withholding tax, the excess of RATA, if not returned to the employer, constitutes taxable income which should be declared in the recipient's income tax return for the year in which it was received by him. (BIR Ruling Nos. 139-95 dated September 6, 1995 and 62-91 dated April 15, 1991) cdt Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)