Tax Treatment Additional Compensation Received from Importers, Shipping Companies or Their Agents by Certain Bureau of Customs Personnel in Cagayan de Oro City for Overtime Services Rendered and Reimbursement of Meal Allowance

August 12, 1996 BIR RULING NO. 093-96 50 (b) 000-00 093-96 The Revenue District Officer Revenue District Office No. 98 Cagayan de Oro City S i r : This refers to the letter dated April 4, 1994 of Mr. Jose P. Cembrano, Jr., then Regional Director of Revenue Region No. 16, Cagayan de Oro City, in response to you inquiry of March 16, 1994 as to the tax treatment of the so-called additional compensation received from importers, shipping companies or their agents by certain Bureau of Customs (BOC) personnel in Cagayan de Oro City for their overtime services rendered and reimbursement of meal allowance, which for clarification/rectification purposes, is quoted hereunder as follows: cdtech "This has reference to your letter-inquiry, dated March 16, 1994, regarding the problems of certain Bureau of Customs personnel in Cagayan de Oro City with respect to the proper treatment of additional compensation received by them from importers, shipping companies or their agents for overtime services rendered and reimbursement of meal allowance. The issues you raised were: 1) whether or not these additional income payments are subject to tax under Section 21(a) or Section 21(f) of the Tax Code, as amended, 2) whether they are allowed to claim a maximum deduction of 40% on the gross income payments pursuant to Revenue Regulations No. 2-93 (SNITS). "In reply thereto, for purposes of income taxation , income payments received by these Customs personnel from importers, shipping companies or their agents, which is subject to 15% withholding tax under Revenue Regulations No 4-91, is subject to tax under Section 21(f) of the Tax Code, as amended, and are authorized to deduct expenses under Section 29 of the same Code." In connection therewith, please be informed that Director Cembrano's opinion in the applicability of Sections 21(f) and 29 of the Tax code, as amended, in relation to Revenue Regulations No. 4-91 on the overtime pay of certain BOC personnel erroneous because it is devoid of legal basis. As a withholding of tax at source, the creditable expanded withholding tax of 15% imposed under Section 1 (L) of RR No. 4-91 amending RR No. 6-85 and implementing Section 50(b) of the Tax Code, as amended, on gross additional payments by importers, shipping companies, or their agents to certain customs personnel for overtime services and reimbursement of meal allowance is just a method of collecting the income tax currently upon the receipt of the income. It is designed to insure the collection at source of income tax on income which otherwise would not be subjected at all to tax. The payor of the taxable income who are the importers, shipping companies or their agents are constituted as the withholding agents for the government. The said BOC employees are government employees and they remain as such, their receipt from private source of the overtime pay notwithstanding. An employer-employee relationship exists between the government and the BOC employees. In other words, their receipt of such overtime pay not from their employer (Government) but from private persons, does not change their tax status from government employees to persons who are self-employed or engaged in the practice of profession. In view thereof, and contrary to the aforequoted opinion of Director Cembrano, since the overtime pay received by the BOC personnel from the importers, shipping companies or their agents is not income from self-employment or practice of profession, it is not subject to income tax imposed under Section 21(f) of the Tax Code as amended by Republic Act No. 7496, otherwise known as the Simplified Net Income Taxation Scheme (SNITS) Law, but it is subject to income tax as compensation income under Section 21(a) of the Tax Code, as amended and the withheld income tax thereon together with the withholding tax on wages shall be creditable against the total income tax due and collectible from the BOC personnel. Moreover, the said BOC personnel cannot avail of the 40% optional standard deduction allowed by the SNITS law under Section 29(a) of the Tax Code, as amended. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue