BIR Ruling [DA-315-00]

August 22, 2000 BIR RULING [DA-315-00] Mr . Jimmie C . Policarpio Presidential Legislative Adviser and Head Presidential Legislative Liaison Office Rm. 364, Mabini Hall Malacaang Palace Manila S i r : This refers to your letter dated June 15, 2000 requesting for our comments and recommendations as to whether or not the following bills should be endorsed as Administration measures, thus 1) House Bill No. 1816, entitled " AN ACT ESTABLISHING A PROFIT SHARING SYSTEM IN ALL BUSINESS ENTERPRISES INCLUDING GOVERNMENT-OWNED AND CONTROLLED CORPORATIONS " and 2) House Bill No. 3057, entitled " AN ACT ESTABLISHING A PROFIT SHARING SYSTEM IN ALL BUSINESS ENTERPRISES, ENTITIES AND CORPORATIONS, INCLUDING GOVERNMENT-OWNED AND CONTROLLED CORPORATIONS AND FOR OTHER PURPOSES ." I. Significant tax feature of HB No . 1816 o Section 3 thereof proposes the grant of special deduction from gross income equivalent to 50% of the total amount shared to the workers and employees, over and above the total allowable ordinary and necessary business deductions. Our Comments and Recommendations : The grant of this incentive to the capitalist/corporation is tantamount to passing the burden to the Government which will effectively assume the fifty percent (50%) labor cost of the corporation's operational expenses. Under Sec. 34 of the 1997 Tax Code, ordinary and necessary expenses like salaries, wages and other forms of compensation for personal services actually rendered, including the grossed-up monetary value of the fringe benefit furnished or granted by the employer to the employee are allowed as deductions from gross income of the business enterprise/s. Moreover, the profit sharing scheme is generally arranged and agreed between the capitalist-employer and the labor employee in a Collective Bargaining Agreement (CBA). In the entirety, the Government, as a party to a tripartite labor system, merely acts as a mediator between the capitalist and the labor force. The success of one's business enterprises lies in good management and its relation to its workers-employees. In the meantime, the Government does not participate in the internal management policies so long as no labor disputes/controversies would arise and no laws are violated. Thus, while we pose no objection to the passage of this bill as it would enhance the relationship of the employer to its employees in accordance with the principle of social practice as mandated in our Constitution, "profit-sharing scheme" must be confined to the capitalist and labor considering that the Government has no further resources to share in the operational costs of the business, enterprises, even in the form of tax incentive. Finally, the collection of taxes is inherent to the Government to assure its continued existence. Taxes are not profit that should be distributed to the employees-workers through the grant of tax incentive (deduction) to the employer. Both employers and employees are required to support the government in the form of taxes they pay. The grant of incentive exemption is a waiver on the right to collect. caSEAH Having this in view, this Office poses objection to the proposed grant of further allowable deduction equivalent to fifty percent (50%) of the total amount shared by the business enterprises, GOCCs, to their workers and employees, over and above the total allowable ordinary and necessary business expenses under the Tax Code. II. Significant feature of HB 3057 o Sec. 5 thereof proposes the creation of a profit sharing fund (the "Fund") for every business enterprise, entity or corporation duly registered and operating under Philippine laws, which shall be derived from ten percent (10%) of the net profit after tax of the business enterprise, entity or corporation. It shall be distributed on the 15th of December of each year to all workers, employees and personnel of the business enterprise, entity or corporation, including GOCCs, except those occupying executive and/or management positions. The Fund shall be enjoyed by the employees-workers in addition to all other benefits, including the regular Christmas bonus and/or 13th month pay. Our Comment/Recommendation . No tax implication is proposed in the creation of the profit-sharing fund (the "Fund"). This Office poses no objection to the passage of this bill. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group