Deductibility of Rice Subsidy from Taxable Income. (Change "Offered of Furnished" to "Offered or Furnished")

February 9, 1990 BIR RULING NO. 016-90 28 & 29 529-88 016-90 Gentlemen : This refers to your letter dated January 22, 1990 requesting ruling in behalf of your client, Mercury Group of Companies, Inc. and all its subsidiaries, to the effect that the amount of rice subsidy being given to their employees is exempt from withholding tax and is deductible as expense from taxable income for purposes of computing their corporate income tax. cdtech It is represented that the rice subsidy being given approximates 2.61% of the companies' payroll expense and that it is being furnished, together with other similar benefits, as a means of promoting the health, goodwill and contentment of their employees. In reply, I have the honor to inform you that Section 2(a) of Revenue Regulations No. 12-86 implementing Section 28 of the Tax Code, as amended by Executive Order No. 37, provides that faculties 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 tax if such faculties or privileges are of relatively small value and are offered of furnished by the employer merely as a means of promoting the health, goodwill, contentment or efficiency of his employees . Such being the case, since the rice subsidy given to your client's employees is with the end in view of promoting employees' health, goodwill, contentment and efficiency, said benefit is not considered compensation income/wages; hence, not subject to withholding tax prescribed under Section 21(a) of the Tax Code, as amended by Executive Order No. 37 and as implemented by Revenue Regulations No. 6-82, as amended by Revenue Regulations No. 12-86. Moreover, said rice subsidy is deductible from your client's taxable income as an ordinary and necessary business expense pursuant to Section 29(a)(1)(A) at the Tax Code. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner