Pambansang Pangasiwaan sa Pagkain

September 16, 2008 BIR RULING [DA-ECB-004) 225-08] 32 (B) (7) (e) (iv); 001-2007 Pambansang Pangasiwaan sa Pagkain Philippine Sugar Center Bldg. North Avenue, Diliman Quezon City Attention: Ms. Arlyn F. Relampagos Department Manager, DAS Gentlemen : This refers to your letter dated February 14, 2007 requesting for a clarification as to whether the Performance Bonus granted to employees of the National Food Authority (NFA) is taxable. It is represented that on December 11, 2006, Administrative Order (A.O.) No. 164 was issued authorizing the grant of P6,000.00 Performance Bonus for FY 2006. The Department of Budget and Management (DBM) issued Budget Circular No. 2006-4 dated December 13, 2006, implementing said A.O. 164, whereby it states that a performance bonus is given to employees of the government as a one-time reward for the contribution of the bureaucracy in accomplishing targets it set in terms of delivery of services to the public despite operating under a re-enacted budget and in view of the continuing improvement of the country's fiscal performance. On the basis of the said circular issued by DBM, the NFA paid the performance bonus to all its employees withholding therefrom corresponding income tax ranging from 20% to 30% of the P6,000.00. This was done after verbal inquiry from BIR RDO 38 which had informed your Office that although the said incentive is not taxable per se, if added to the other non-taxable income, the amount in excess of P30,000.00 is deemed as taxable. NFA employees had questioned the propriety of the taxability of the afore-quoted benefit, inasmuch as employees of other government agencies, departments and offices had received the whole amount of P6,000.00 and no taxes having been withheld. In reply, please be informed that this Office had the occasion to rule in BIR Ruling No. 001-2007 dated January 10, 2007, viz. : ". . . it is basic in statutory construction that where the law is clear and unambiguous, there is no room for interpretation. Hence, the duty of this Office is merely to apply the law. ATICcS Under Section 32(B)(7)(e)(iv) of the Tax Code of 1997, 'other benefits' include all benefits other than the 13th month pay, such as, productivity incentives and the annual Christmas bonus given by private offices, 14th month pay, mid-year productivity incentive bonus, gifts in cash or in kind and other similar benefits and refer to those benefits received by an official or employee for one (1) calendar year, the total amount of which including the 13th month pay does not exceed P30,000.00. Section 32(B)(7)(e)(iv) of the Tax Code of 1997 reads: '(B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (7) Miscellaneous Items. xxx xxx xxx (e) 13th Month Pay and Other Benefits. Gross benefits received by officials and employees of public and private entities: Provided, however, That the total exclusion under this subparagraph shall not exceed Thirty thousand pesos (P30,000) which shall cover: xxx xxx xxx (iv) Other benefits such as productivity incentives and Christmas bonus: Provided, further, That the ceiling of Thirty thousand pesos (P30,000) may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering, among others, the effect on the same of the inflation rate at the end of the taxable year. xxx xxx xxx' Section 2 of Rev. Regs. No. 8-2000, as amended, clarifies that 'other benefits' and 'de minimis' benefits are not the same. For purposes of determining the P30,000.00 ceiling in 'other benefits', the two are treated differently in that the amount of 'de minimis' benefits conforming to the limits prescribed under Revenue Regulations (Rev. Regs.) No. 8-2000 shall not be considered in determining the P30,000.00 ceiling of 'other benefits' provided under Section 32(B)(7)(e) of the Code. The regulations does not provide for ceiling with regard to 'de minimis' benefits. However, it provides for a limit in the amount of each 'de minimis' benefit such that if the employer gives more than the limit prescribed, the excess of the PhP30,000 ceiling/limit shall be taxable to the employee receiving the benefits. Both 'other benefits' and 'de minimis' benefits do not form part of the employees' taxable compensation income and are, therefore, not subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997. caADIC Moreover, Section 2.78.1(B)(11) of Rev. Regs. No. 2-98, as amended provides viz. : '(B) Exemptions from withholding tax on compensation. The following income payments are exempted from the requirement of withholding tax on compensation: xxx xxx xxx (11) Thirteenth (13th) month pay and other benefits. (a) Thirteenth (13th) month pay equivalent to the mandatory one (1) month basic salary of officials and employees of the government (whether national or local), including government-owned or controlled corporations, and or private offices received after the twelfth (12th) month pay; and (b) Other benefits such as Christmas bonus, productivity incentive bonus, loyalty award, gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both government and private offices. The above stated exclusions (a) and (b) shall cover benefits paid or accrued during the year provided that the total amount shall not exceed thirty thousand pesos (P30,000.00) which may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering, among others, the effect on the same of the inflation rate at the end of the taxable year. xxx xxx xxx' In view of the foregoing, the performance bonus given by PLDT to its rank and file employees as well as to supervisory employees can be equated to a productivity incentive bonus which may be considered as falling within the contemplation of 'other benefits' provided for under Section 32(B)(7)(e)(iv) of the Tax Code of 1997, and therefore, need not form part of the employees' taxable compensation income subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997, provided, however, that such 'other benefits', inclusive of the above allowances/benefits, shall not, in the aggregate, exceed P30,000.00 when added to the 13th month pay. SHECcD Any amount in excess of the P30,000.00 ceiling shall be taxable to the employee receiving the benefits. Provided, further, that any amount given by the employer as benefits to its employees, whether classified as 'de minimis' benefits or fringe benefits, shall constitute as deductible expense upon such employer pursuant to Section 2.78.1(A)(3) of Rev. Regs. No. 8-2000, as amended. Further, Section 33(C) of the Tax Code of 1997 as implemented by Section 2.33(C) of Rev. Regs. No. 3-98, as amended by Rev. Regs. No. 8-2000 and 10-2000, provides, to wit: '(C) Fringe Benefits not Subject to Fringe Benefits Tax The following benefits are not taxable under this Section: (1) Fringe benefits which are authorized and exempted from income tax under the Code or under any special law; (2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; (3) Benefits given to the rank and file, whether granted under a collective bargaining agreement or not; (4) De Minimis benefits as defined in these Regulations; (5) If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or (6) If the grant of the fringe benefit is for the convenience of the employer.' (Emphasis ours.) Accordingly, the performance bonus is not subject to the fringe benefits tax also since it addresses PLDT's concern in encouraging good performance as well as promoting contentment and efficiency among its employees, which in effect redounds to the convenience of the employer. xxx xxx xxx" In view of all the foregoing, this Office is of the opinion that since the performance bonus is a reward given to employees of the government for their contribution in the delivery of services to the public and in a way to compensate the employees effort, it is considered as "other benefits" exempt from income tax and consequently to withholding tax, provided that it should not exceed the P30,000.00 threshold limit. DaIACS This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service