Mid-year Economic Assistance Equivalent to 1/2 Month Basic Salary Received by Rank and File Employees of the Senate is Subject to Income Tax

August 20, 1991 BIR RULING NO. 158-91 19 (d) 000-00 158-91 S i r : This refers to your letter dated May 24, 1991 requesting for a ruling on the taxability of the Mid-Year Economic Assistance equivalent to one-half month basic salary of the rank and file employees of the Senate of the Philippines. It appears that the grant of the Mid-Year Economic Assistance under Senate Policy Order No. 91-06 is aimed primarily to meet the lawful obligations of the employees such as the payment of enrollment fees, income taxes, and to cope with the double-digit inflation, thus, promoting their goodwill, contentment and efficiency. In reply, please be informed that under Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86, the term "compensation", for purposes of withholding tax, means all remuneration for services performed by an employee for his employer unless specifically excepted under Sections 28 and 71 of the Tax Code, as amended. The name by which the remuneration for services is designated is immaterial. Accordingly, the mid-year economic assistance allowance granted to the rank and file employees of the Senate is considered as additional remuneration for service performed by them for their employer. Moreover, said mid-year economic assistance allowance does not come within the scope of facilities or privileges that are relatively of small value and are furnished by the employer merely as a means of promoting the health, good-will, contentment, or efficiency of his employee. Such being the case, the mid-year economic assistance equivalent to 1/2 month basic salary received by the rank and file employees of the Senate is subject to income tax under Section 21 (a) in relation to Section 28 (a) (1) of the Tax Code, as amended, and consequently to the withholding tax on wages required under Section 72 of the same Code as implemented by Revenue Regulations No. 6-82 as amended. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge