Whether the Signing Bonus and the Company Bonus are Exempt from Income Tax

October 24, 1995 BIR RULING NO. 167-95 21 000-00 167-95 Fortune Tobacco Corporation Parang, Marikina Metro Manila Attention: Mr . Cesar N . Santos VP for Industrial Relations Gentlemen : This refers to your letter dated September 11, 1995 requesting a ruling as to whether or not Signing Bonus and the Company Bonus are exempt from income tax. prcd It is represented that on August 23, 1995, Management granted its employees the amount of Two Thousand Five Hundred Pesos (P2,500.00) as Signing Bonus in the recently concluded Collective Bargaining Agreement (CBA) between the Management and the certified Collective Bargaining Unit of the company; and that Management likewise granted the employees the amount of Six Hundred Pesos (P600.00) as a yearly Company Bonus within the lifetime of the CBA. In reply thereto, please be informed that pursuant to Section 3 of Revenue Regulations No. 2-95 implementing Republic Act No. 7833 otherwise known a "An Act to Exclude the Benefits Mandated pursuant to R.A. No. 6686 and P.D. 851, as amended, and other Benefits from the Computation of Gross Compensation Income for Purposes of Determining Taxable Compensation Income", the following benefits shall be excluded from the gross compensation income, viz.: a) 13th month pay equivalent to the mandatory one (1) month basic salary of officials and employees of the Government (whether national or local), including government-owned and controlled corporations and of private offices received after the 12th month pay beginning CY 1994; and b) Other benefits such as Christmas bonus given by private offices to their officials and employees, productivity incentive bonus, loyalty award, gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both Government and Private offices in an amount not exceeding Twelve Thousand Pesos (P12,000.00) for one (1) calendar. The above-stated exclusions [(a) and (b)] shall cover benefits paid or accrued beginning January 1, 1994 but shall be limited only to an amount not exceeding Twelve Thousand Pesos (P12,000.00) in the case of the "other benefits" contemplated under paragraph (b) above, provided, however, that when added to the 13th month pay, the total amount of tax exempt benefits shall not exceed Thirty Thousand Pesos (P30,000.00). In other words, for purposes of determining whether the aforementioned Signing Bonus of P2,500.00 and the yearly Company Bonus of P600.00 shall exempt from income tax, the aggregate amount of P3,100 (P2,500 + 600) shall be added to the "other benefits" that the employees will receive for calendar year 1995 but said "other benefits" shall be limited only to an amount not exceeding Twelve Thousand Pesos (P12,000.00), provided, however that the "other benefits when added to the 13th month pay, the total amount of tax exempt benefits shall not exceed Thirty Thousand Pesos (P30,000.00). prcd Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue