Bureau of Agricultural Research

March 10, 2009 BIR RULING [DA-(ECB-006) 147-09] RR 2-98 & R.A. 8439; BIR Ruling No. 24-95; DA-199-01; DA-003-02; DA-569-04; & DA-343-07 Bureau of Agricultural Research Department of Agriculture RDMIC Bldg., Visayas Ave. cor. Elliptical Rd. Diliman, Quezon City Attention: Mr. Roberto S. Quing Jr., CPA Gentlemen : This refers to your letter dated January 27, 2009 requesting, in effect, for a ruling on whether the benefits given, under Republic Act (R.A.) No. 8439, otherwise known as "An Act Providing a Magna Carta for Scientists, Engineers, Researchers and Other Science and Technology Personnel in Government," to selected employees of the Department of Agriculture-Bureau of Agricultural Research are taxable. As represented, on December 2008, selected employees of the Department of Agriculture-Bureau of Agricultural Research, who were qualified under the abovementioned law, were given laundry, subsistence and longevity allowances as per guidelines set by the Department of Science and Technology (DOST). In your official capacity as Chief Accountant of the Bureau, you subjected the aforesaid benefits to withholding tax. This move was contested by the employee-recipients, hence, this request to settle the issue. In reply, please be informed that the taxability of benefits is clearly provided for under Section 24 (A) and 25 (B) of the Tax Code of 1997, as amended, and Section 2.79 (B) of Revenue Regulations No. 2-98, as amended. Thus, it must be noted that these benefits are common to the rest of the government personnel. However, the tax exemption of certain benefits like those being enjoyed by the members of the PNP, is specifically granted under a special law, i.e., R.A. 6975. Accordingly, PNP personnel are set apart as a class. In the case of Antero M. Sison, Jr. vs. Ruben B. Ancheta, et al., SC G.R. No. L-59431, July 25, 1984, the Supreme Court held that there is a violation of the equal protection clause only if the tax exemption does not apply equally and uniformly to all PNP personnel as a class. Generally, the following rules shall apply in considering the tax consequences of certain benefits given by employers to their employees, whether rank-and-file, supervisory or managerial: a) 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 Tax Code of 1997. 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 Section 33 of the Code; taxable pensions and retirement pay; and other income of a similar nature constitute compensation income. The name and basis by which the remuneration for services is designated is immaterial in determining whether the remuneration constitutes compensation. Thus, fringe benefits, unless specifically excluded from gross income and unless subject to the fringe benefits tax under Section 33 of the Tax Code of 1997, would generally, constitute compensation to the recipient (Section 2.78.1 (A), Rev. Regs. No. 2-98, as amended). Furthermore, any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee, except rank and file employees as defined, shall generally be understood as fringe benefits, and as such, shall be subject to the fringe benefits tax, unless specifically excluded under the same Code, as implemented according to rules and regulations as are necessary to carry out efficiently and fairly the provisions of the Code (Section 33, Tax Code of 1997, as implemented by Rev. Regs. No. 3-98, as amended). b) Facilities or privileges that are categorized as de minimis benefits under pertinent rules and regulations shall not be included as items of gross income for income tax purposes. They shall not also be included in the computation of the P30,000 threshold for a determination of the items of income that are to be excluded from income under Section 32 (B) (7) (e) of the Tax Code of 1997. c) Corollary to this, de minimis benefits are neither subject to income tax on compensation nor to the fringe benefits tax. Furthermore, no withholding tax thereon shall be imposed in view of their exclusion and exemption from tax. d) The following shall be considered as "de minimis" benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees: 1. Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year and the monetized value of leave credits paid to government officials and employees; 2. Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125 per month; HCEaDI 3. Rice subsidy of P1,000.00 or one (1) sack of 50-kg. rice per month amounting to not more than P1,000.00; 4. Uniform and clothing allowance not exceeding P3,000.00 per annum; 5. Actual yearly medical benefits not exceeding P10,000.00 per annum; 6. Laundry allowance not exceeding P300.00 per month; 7. Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000.00 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; HSTCcD 8. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000.00 per employee per annum; 9. Flowers, fruits, books or similar items given to employees under special circumstances e.g., on account of illness, marriage, birth of a baby, etc., and 10. Daily meal allowance for overtime work not exceeding twenty-five percent (25%) of the basic minimum wage. AcSEHT e) The gross benefits granted to rank-and-file, supervisory or managerial employees of entities, to the extent of the threshold of P30,000 mandated by Section 32 (B) (7) (e) of the Tax Code of 1997, shall not be included as items of gross income and shall, therefore, be exempt from income taxation. Accordingly, such benefits given in excess of the threshold amount shall be taxable to the recipient employee. f) The "other benefits" referred to in Section 32 (B) (7) (e) (iv) of the Tax Code of 1997 include all benefits, other than the 13th month pay, such as, the annual Christmas bonus given by private entities, 14th month pay and the like, gifts in cash or in kind and other similar benefits and refer to those benefits received by an employee in a calendar year. g) Revenue Regulations No. 3-98, as amended by Rev. Regs. No. 8-2000 and 10-2000 are illustrative and non-exclusive in the enumeration of what constitutes de minimis fringe benefits. Accordingly, we have ruled that the meal and food benefits granted, although not intended to be used for overtime work, may still be added in the enumeration of de minimis fringe benefits. However, in terms of the de minimis threshold for regular meal and food benefit, the ceiling for benefits of similar nature under Rev. Regs. No. 8-2000 and Rev. Regs. No. 10-2000 should be used as guidelines. Such being the case, meal and food benefits not exceeding 25% of the daily minimum wage may be considered de minimis meal benefit, and therefore, tax exempt. The excess over this amount shall be considered "other benefits" as contemplated under Section 32 (B) (7) (e) (iv) of the Tax Code of 1997. The excess of the meal and food allowance given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of "other benefits," shall not exceed Php30,000. DcAEIS h) In keeping with the spirit of the rules and regulations on de minimis benefits, we have ruled that there can be no aggregation of the values set for each item of benefit stated in Rev. Regs. Nos. 2-98 and 3-98, as amended by Rev. Regs. Nos. 8-2000 and 10-2000. The intent of the Regulations is to treat each item of de minimis benefit independently of each other, and we have to give life to that intent. Thus, the Regulations separately provide maximum values for rice allowance and for meal allowance. Accordingly, there can be no aggregation of de minimis values for rice and meal and food benefits. i) The fringe benefits tax is a final tax on the employee, other than a rank-and-file employee, that shall be withheld and paid by the employer on a calendar quarterly basis as provided under Section 57 (A) of the Tax Code of 1997. Being a final tax, however, the amount of fringe benefits given shall not be reported as income in the concerned employee's annual tax return consolidation. j) Pursuant to Section 2.33 (B) of Revenue Regulations (Rev. Regs.) No. 3-98, the term fringe benefits means any goods, service or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an employee (except rank and file employee). ESTCDA k) Section 33 (a) of Republic Act No. 8424 stipulates that fringe benefits which are "required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer" are not subject to the fringe benefit tax. l) The benefits given to the employees provided that the same fall under the definition of ordinary and necessary business expense as those enumerated under Section 34 (A) (1) (a) (i) of the same Tax Code, are considered as valid deductible expenses of the Company. On the basis of the foregoing and following the pertinent Revenue Regulations on the matter, we proceed to rule on the particular issues raised for our consideration: IDCHTE Laundry Allowance Pursuant to Section 2 (A) (3) of Revenue Regulations No. 008-2000, facilities and privileges (such as entertainment, medical services, or so-called "courtesy discounts" on purchases), otherwise known as " de minimis benefits", furnished or offered by an employer to his employees, are not considered as compensation subject to income tax and consequently to withholding tax, if such facilities are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. Therefore, laundry allowance in the maximum amount of PhP300 per month is considered a de minimis benefit not subject to income and withholding taxes (BIR Ruling No. DA-569-04 dated November 10, 2004 and BIR Ruling No. DA-343-07 dated June 20, 2007). Subsistence Allowance Subsistence allowance 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 (BIR Ruling No. 024-95 dated February 14, 1995 and BIR Ruling No. DA-003-02 dated January 9, 2002). cEAIHa Longevity Allowance The phrase "other benefits" includes 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. (Section 2.78.1 (11) (b) of Revenue Regulations No. 2-98). Longevity pay is in the nature of a loyalty award since the benefit is granted for having rendered the required number of years of service. Thus, it is within the contemplation of the term "other benefits". As such, the value of the other benefits when added to the thirteenth month pay must not exceed the threshold of P30,000.00 in order that it may be exempt from income tax and consequently from the withholding tax. If the value exceeds the P30,000.00 ceiling, then the excess of the other benefits and the thirteenth month pay is considered as part of compensation subject to income tax and consequently to the withholding tax (BIR Ruling No. DA-199-01 dated October 19, 2001). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. HSCAIT Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service