Whether Meal Subsidy and Other Benefits Granted to Employees Are Considered Compensation Income

February 21, 1985 BIR RULING NO. 023-85 021 000-00 023-85 Gentlemen : This refers to your letter dated April 5, 1983 requesting a ruling as to whether the following benefits which, as represented, are being granted by you to your employees are to be considered as compensation income subject to withholding tax, viz: 1. Meal Subsidy Your company subsidizes the cost of lunch of all its employees in such a way that they pay only P0.25 for a lunch meal and the balance of the cost of the meal is answered by your company for the reason that in the factory where there are about one third (1/3) of its total employees, they are given only a break period of 30 minutes and, therefore, it will be very inconvenient for both the employees and employer to allow the employees to go out of the compound for their lunch: that as a pharmaceutical factory it is always a manufacturing procedure not to leave the manufacturing area for a long period of time, otherwise the processes may be interrupted that in some areas of the company, a one-hour break is given which likewise may not be sufficient to have a long stay outside of the company; and that to allow the employees to go outside the compound will delay the start up time after lunch resulting in great downtime and affects productivity and efficiency of the employees. 2. Milk Subsidy Your company gives to children of employees aged 5 years and below, a minimum of 6 cans and maximum of 12 cans of milk per child. 3. Reimbursement of children's medical expenses of at least P20 per employee You alleged that the milk subsidy and medical reimbursement are very minimal and that they promote goodwill and health of the employees. 4. Marriage benefit and bereavement aid Your company gives a marriage benefit of P200 and bereavement aid to employees in the amount of P500.00 in case of death of a parent or child, and P1,000.00 in case of the death of a spouse. 5. Children's educational benefit Your company has initiated a program of granting benefits to deserving children of your employees especially those who have attained honors in their respective grades in elementary and high school. This benefit may arise from P400 to P600 a year per child. In reply, please be informed that Section 2(a) of Revenue Regulations No. 6-82 implementing Section 28 of the Tax Code as amended by Batas Pambansa Blg. 135 provides that if a person receives as remuneration for services rendered a salary and in addition thereto meals, the value to such person of the meals so furnished or subsidized by the employer shall be added to the remuneration otherwise paid for the purpose of determining the amount of compensation subject to withholding. If, however, such meals are being subsidized and furnished to an employee for the convenience of the employer, the value thereof need not be included as a compensation subject to withholding. The 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 offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees . Accordingly, since the aforesaid meal subsidy is being furnished to your employees in order to do away with the delays in the start-up time after lunch more for your convenience and consequently promote the health and efficiency of the employees, it shall not form part of their compensation subject to withholding tax. However, the milk subsidy, reimbursement of children's medical expenses, marriage benefit, bereavement aid, and children's educational benefit shall form part of the compensation income of the employees subject to withholding tax. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner