Taxability of a Rice Subsidy

January 31, 1990 BIR RULING NO. 012-90 28 055-89 012-90 Gentlemen : This refers to your letter dated September 27, 1989 stating that the National Steel Corporation (NSC) granted to all its rank and file employees a monthly rice subsidy, converted into cash and included in the employees' payroll, in the amount of P360.00 from 1985 up to 1988 which was increased to P400.00 in 1989. You mentioned further that NSC withheld from each employee and remitted to the Bureau of Internal Revenue (BIR) the applicable withholding tax on the amount of the rice subsidy since 1985, in accordance with the 1983 BIR guidelines which indicated that rice subsidy is an example of non-monetary compensation subject to withholding tax. Recently, the NSC employees allegedly claimed that rice subsidy is not considered compensation income subject to withholding tax and consequently asked for the refund of the tax withheld on the amount of then rice subsidy from December 1985 up to the present. Based on the foregoing, you request a ruling on the taxability of the said rice subsidy. Moreover, you want to know about the viability of the claim for refund by the NSC employees of the tax withheld on the amount of the monthly rice subsidy since 1985. In reply, please be informed that Section 2(a) of Revenue Regulation No. 6-82, as amended by Revenue Regulation No. 12-86 implementing Section 28 of the Tax Code, as amended by Executive Order No. 37, provided that "facilities or privileges (such as entertainment, medical services, or so called courtesy discounts on purchases) furnished or offered by an employer to his employees generally, are not considered as compensation subject to withholding if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment or efficiency of his employees." Such being the case, pursuant to BIR Ruling No. 348-87 dated November 5, 1987 and BIR Ruling No. 529-88 dated November 7, 1988, a monthly rice subsidy was considered a privilege of relatively small value given by the employer for the purpose of promoting the health, goodwill, contentment or efficiency of his employees, thus, the same is not compensation income subject to the withholding tax. Moreover, pursuant to BIR Ruling No. 055-89 dated April 5, 1989, even if the rice subsidy is converted into cash for administrative convenience, it is not considered as compensation income subject to withholding tax. In view thereof, this Office is of the opinion and hereby holds that the aforementioned rice subsidy given by the NSC to all its rank and file employees is not compensation income subject to withholding tax. Anent the claim for refund, the income tax paid by the employee under the withholding provisions of the Tax Code corresponding to the rice subsidy may be refunded, provided that a claim for refund is filed within two (2) years from the date of payment, pursuant to Section 204 of the Tax Code. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner