Mr. Ernesto Y. Obero

August 24, 2007 BIR RULING [DA-470-07] R.R. 2-88 BIR Ruling No. DA-676-99 Mr. Ernesto Y. Obero Barangay Chairman Brgy. Magugpo Poblacion Tagum City, Davao del Norte S i r : This refers to your letter dated December 15, 2005 requesting for a ruling on whether or not honoraria of barangay officials are subject to withholding tax. In reply, please be informed that the National Compensation Circular No. 75, dated March 1, 1995, issued by the Department of Budget and Management states that honoraria are a form of compensation or reward paid over and above the regular pay in recognition of gratuitous services rendered by government personnel performing or discharging duties in agency activities or special projects in addition to or over and above their regular functions. On the other hand, Section 2.78.1 of Revenue Regulations No. 2-98, as amended provides, viz: "Sec. 2.78.1. Withholding of Income 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 Sec. 33 of the Code, taxable pensions and retirement pay, and other income of a similar nature constitute compensation income." In view of the foregoing, honoraria of barangay officials partake the nature of compensation, embraced within the term compensation income subject to withholding tax on wages under Section 79 in relation to Section 24 (A), both of the Tax Code of 1997. Please guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service