Flat Rate Covering Overtime Services, Transport, Lodging and Meal Allowances Subject to Withholding Tax

July 8, 1999 BIR RULING NO. 096-99 79, 24 (A)-000-00-096-99 Mr. Mario C. Del Mundo 539 A. Mabini St., Barangay 3 Indang, Cavite 4122 S i r : This refers to your letter dated January 28, 1999 stating that you are an employee of the Department of Agriculture (DA) under the Bureau of Animal Industry (BAI); that you are assigned at the North Harbor, Port of Manila doing quarantine work as part of the veterinary quarantine service for the control of the Foot and Mouth Disease (FMD) to the inter-island vessels docking at the North Harbor bound to the ports of Visayas, Mindanao, Palawan, Batanes and Southern Luzon; that this is in compliance with DA Administrative Order No. 7 entitled "Revised Rules and Regulations on the control of FMD" and endorsed by the Philippine Ports Authority (PPA) under Memorandum Circular Nos. 09-95 and 17-95; that in implementing the said Administrative Order, it was agreed between the BAI, PPA, CISO, MARINA that a flat rate charge of P600.00 shall be charged to the inter-island vessels served; that the said rate was based on DA Administrative Order No. 22 as overtime services, transport, lodging and meal allowances of the Quarantine personnel assigned to discharge the required services; that this shall be paid by the parties served with option to arrange for the payment of the allowance on a flat rate or contractual basis; that the Negros Navigation Co., Inc. which is one of the companies being served has informed you through a letter that the payment to be made by the company shall be subject to an official receipt since this is a company policy and a requirement from the BIR; and that because of the condition imposed by Negros Navigation Co., Inc., you have not been able to collect the payment for the services rendered. Based on the foregoing, you now request for a ruling whether or not said payment is subject to the issuance of an official receipt before it can be released to the party concerned or said payment be subjected only to withholding tax in the same manner as income tax withheld for government employees. In reply, please be informed that an official receipt is required to all persons engaged in sale or transfer of merchandise or for services. In your case, as a government employee, you received fixed salary and the services you rendered to the inter-island vessels docking at the North Harbor is part of the veterinary quarantine service for the control of the FMD in compliance with DA Administrative Order No. 7. The flat rate of P600.00 received by the Quarantine personnel to cover overtime services, transport, lodging and meal allowances is given out by inter-island vessels based on DA Administrative Order No. 22. Receipt of the said amount does not oblige you and other Quarantine personnel to issue official receipt since as aforementioned, you are not engaged in the sale of goods or services. The flat rate of P600.00 to cover overtime services, transport, lodging and meal allowances partakes the nature of a compensation, embraced within the term compensation income. 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 taxable compensation income subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997. Furthermore, Section 2.57.2 of Revenue Regulations No. 2-98 implementing R. A. No. 8424 otherwise known as "An Act Amending The National Internal Revenue Code, as amended" provides, viz: "SEC. 2.57.2. Income Payment Subject to Creditable Withholding Tax and Rate Prescribed Thereon . Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from following items of income payments to persons residing in the Philippines: xxx xxx xxx "(K) Additional income payments to government personnel from importers, shipping and airline companies, or their agents . On gross additional payments by importers, shipping and airline companies, or their agents to government personnel for overtime services as authorized by law Fifteen percent (15%). For this purpose, the importers, shipping and airline companies or their agents, shall be the withholding agents of the Government; xxx xxx xxx" Such being the case, the flat rate of P600.00 to cover overtime services, transport, lodging and meal allowances is subject to withholding tax pursuant to the aforecited provision. cdlex This ruling is being issued on the basis of your representation. However, if upon investigation the facts are different from those represented, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue