BIR Ruling No. 046-12

February 9, 2012 BIR RULING NO. 046-12 RR No. 02-98; BIR Ruling No. 003-2008; BIR Ruling No. 422-2011 Liga ng mga Barangay sa Pilipinas Quezon City Chapter 2nd Floor Legislative Wing Quezon City Hall Complex Attention: Ranulfo Z. Ludovica President Gentlemen : This refers to your letter dated March 2, 2011 requesting, on behalf of the Barangay Officials of Quezon City, legal opinion on the taxability of the monthly honoraria which the Barangay Officials receive as remuneration for their services. ETHIDa In reply, please be informed that it is a well settled principle of taxation that income, in the broad sense, means all wealth which flows into the taxpayer other than mere return of capital (Section 36, Revenue Regulations (RR) No. 2, "The Income Tax Regulations"). Based on the above principle, it is without argument that "honoraria",no matter how negligible the amount, is wealth that flows into the hands of a barangay official, hence, subject to income tax and, consequently, to withholding tax on compensation. In BIR Ruling No. 003-08 ,dated April 14, 2008, this Office had the occasion to rule that "the name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria ,bonuses, allowances (such as transportation, representation, entertainment and the like),fringe benefits (monetary and non-monetary),fees, including director's fees, taxable pensions and retirement pay and other income of a similar nature constitute compensation income." (emphasis supplied) In connection therewith, Section 2.78 of RR No. 2-98, as amended, provides that "the withholding of tax on compensation income is a method of collecting the income tax at source upon receipt of the income. It applies to all employed individuals whether citizens or aliens, deriving income from compensation for services rendered in the Philippines. The employer is constituted as the withholding agent." (emphasis supplied) Further, Section 2.78.3. of the same regulations, defines an employee as "an individual performing services under an employer-employee relationship. The term covers all employees, including officers and employees, whether elected or appointed, of the Government of the Philippines, or any political subdivision thereof or any agency or instrumentality ." (emphasis supplied) Based on the foregoing, it is clear that barangay officials come within the definition of "employees" whose compensation is subject to income tax. Therefore, the honoraria, which they receive as remuneration for their services constitute an income subject to income tax and, consequently, to the withholding tax on compensation pursuant to RR No. 2-98, as amended. ( BIR Ruling No. 422-2011 dated November 4, 2011) Please be guided accordingly. SCETHa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue