Finance Service National Police Commission

April 17, 2009 BIR RULING [DA-(C-053) 192-09] RR 10-2008 Finance Service National Police Commission Philippine National Police Camp Crame, Quezon City Attention: PCSupt Orlando L. Pestao Director, Finance Service Gentlemen : This refers to your letter dated January 21, 2009 requesting for a ruling to the effect that the Philippine National Police (PNP) shall base its tax exemption on its Centralized Payroll System at the rate fixed for NCR Statutory Minimum Wage. It is represented that the PNP Finance Service, particularly the Withholding Tax Section of the Revenue and Collection Division, is in-charge for the withholding of tax deductions of uniformed personnel of the PNP; and that the implementation of Section 2.78.1 of Revenue Regulations 10-2008 posed a dilemma, to wit: 1. The PNP has a Centralized Payroll System manned by the PNP Information Technology Management Service (ITMS) at NHQ, Camp Crame, Quezon City. However, uniformed personnel are assigned to the different Police Regional, Provincial, City and Municipal Offices/Stations all over the Philippines. These police officers are assigned, transferred, relieved, sent off to schooling and subject to such other personnel action at any given time; 2. A PO1 or PO2, being at the lower level of the PNP hierarchy as a matter of policy, after graduating from Training School are assigned to the Mobile Groups and Municipal Police Stations of the different parts of the country and their assignments are often recalled anytime when the need for augmentation of police force is needed in areas of concern and on occasions of political events (Elections, Rallies, Coup de' etats etc). Ergo, we have a unique form of service and out unit assignment is dependent upon the call of duty, no permanent office or position; 3. To further illustrate, you attached the Summary of Current Regional Daily Minimum Wage Rates, showing the Non-Agricultural Sector from Regions 1-19, wherein a PO1 and PO2 from the National Capital Region and PO1 of PRO4A are the only ones enjoying exemption under the new law. The rest of PO1 and PO2 of all the other Regions PNP wide are not qualified presuming the implementation of the aforesaid Revenue Regulation; 4. Granting the said provision is applied, as a guide in withholding the tax deductions, the unpredictable relief/transfer of a PO1 or PO2 to another Regional Office as often as directed by higher headquarters will result to a confusion and absurdity in the implementation of exemptions now enjoyed and later on lost because of the nature of their job; and 5. There will be a pressing problem in the implementation and monitoring of the deduction and in the preparation of Annual Withholding Tax Alpha List on the part of the employer (PNP) considering 122,139 strong men and women of PNP. DHaECI In reply, please be informed that as provided for under Revenue Regulations No. 10-2008, "Statutory Minimum Wage" (SMW) shall refer to the rate fixed by the Regional Tripartite Wage and Productivity Board (RTWPB), as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). The RTWPB of each region shall determine the wage rates in the different regions based on established criteria and shall be the basis of exemption from income tax for this purpose. Section 1 (B) (14) of the aforesaid Revenue Regulations provides, viz. : "SEC. 1. Section 2.78.1 of RR 2-98, as amended, is hereby further amended to read as follows: xxx xxx xxx (B) Exemptions from Withholding Tax on Compensation. The following income payments are exempted from the requirements of withholding tax on compensation: xxx xxx xxx (14) Compensation income of employees in the public sector with compensation income of not more than the SMW in the non-agricultural sector, as fixed by RTWBP/NWPC, applicable to the place where he/she is assigned. The aforesaid income shall likewise be exempted from income tax. The basic salary of MWEs in the public sector shall be equated to the SMW in the non-agricultural sector applicable to the place where he/she is assigned. The determination of the SMW in the public sector shall likewise adopt the same procedures and consideration as those of the private sector." SDIaHE Thus, granting that there is a Centralized Payroll System being followed by the PNP, still the determination of the statutory minimum wage depends on the rates to be fixed by the Regional Tripartite Wage and Productivity Board of each region based on established criteria, which in effect shall be the basis of exemption for income tax purposes. On the basis of the foregoing, we regret to inform you that we can not grant your request to the effect that the Philippine National Police (PNP) shall base its tax exemption on its Centralized Payroll System at the rate fixed for NCR Statutory Minimum Wage for lack of legal basis. The basis for the computation of statutory minimum wage for compensation income of employees in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector shall be that amount fixed by the RTWBP/NWPC of the place where such employee is assigned. AIHECa Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner