Although RATA is Not Subject to Withholding Tax, the Ecess of RATA, If Not Returned to the Employer, Constitutes Taxable Income

January 9, 1992 BIR RULING NO. 014-92 21 (a) 2-91 14-92 Mr. Efrain J. Gil City Gov't. Dep't. Head II Office of the City Agriculturist Iloilo City S i r : This refers to your letter dated July 15, 1991 informing this Office that you have paid your income tax for the year 1990 in the amount of P39,447.00 and that part of your gross income under W-2 is your RATA in the amount of P28,700.00. It is represented that you have submitted an amended return wherein you paid your second installment on July 11, 1991 without including your RATA pursuant to COA Memorandum No. 91-709 dated April 15, 1991. The BIR personnel of that District Office however did not agree with your amended return because said COA Memorandum applies only to RATA paid in 1991. In reply, please be informed that pursuant to BIR Ruling No. 21(a) 000-00-062-91, dated April 15, 1991, representation and transportation allowances (RATA) granted under Section 34 of the General Appropriations Act, to government officials from the rank of Department Secretaries down to Division Chief, and those of equivalent rank as may be determined by the Department of Budget & Management are in fact reimbursements for the expenses incurred in the performance of one's duties rather than as an additional compensation and therefore is not compensation subject to withholding tax, pursuant to Section 2(2)(c) of Revenue Regulations No. 12-86. However, although the amount of RATA is not subject to withholding tax, the excess of RATA, if not returned to the employer, constitutes taxable income which should be declared in the recipient's income tax return for the year in which the RATA was received by him. Moreover, since the aforementioned ruling was issued after the Secretary of Budget and Management confirmed in a letter dated March 8, 1991 that RATA is in fact a reimbursement for the expenses incurred in the performance of one's duties rather than as an additional compensation and therefore is not subject to withholding tax, the same cannot be given retroactive application. Accordingly, any amount of tax withheld from RATA received by qualified officials and employees from January 1991 shall not be refunded, but shall be credited against their income tax due when the annualized withholding tax is determined as of the year end 1991. Accordingly, the inclusion of RATA as part of your declared compensation subject to withholding tax for the year 1990 is proper and legal. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue