Request for Ruling on Taxable Allowances Aside from Salaries and Wages

November 12, 1991 BIR RULING NO. 240-91 21 (a) 62-90 132-90 240-91 Gentlemen : This refers to Resolution No. 203, series of 1991 of your council requesting a ruling as to what other allowances are deemed taxable aside from salary and wages in view of the various interpretations of our Revenue District Officers as to what are or what are not subject to tax. In reply, please be informed that taxable compensation, business and other income received during each taxable year from all sources by every individual, whether a citizen of the Philippines or alien residing in the Philippines shall be subject to income tax at the rates prescribed under Section 21 (a) in relation to Section 28 of the Tax Code, as amended. For purposes of withholding tax, the term compensation income means all remunerations for services performed by an employee for his employer unless specifically excepted under Section 27, 28 (b) and 71 of the Tax Code, as amended. Compensation income includes all income payments received as a result of the employer-employee relationship, such as salaries, wages, honoraria, bonus, taxable pension, allowances, fringe benefits, fees and other income of similar nature. (Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86) Being a part of the remuneration or compensation paid to local government employees throughout the country for services rendered, the Cost of Living Allowance, (COLA) Bonuses, and Representation and Transportation Allowance (RATA) are subject to income tax and consequently, to the withholding tax on wages prescribed by Section 72 in relation to Section 21 (a), Chapter X, Title II of the Tax Code, as amended, and implemented by Revenue Regulations No. 6-82 as amended. (BIR Ruling No. 013-91) However, pursuant to the provisions of Section 2 (2) (c) of Revenue Regulations No. 12-86, RATA granted under Section 34 of the General Appropriations Act to certain officials and employees of the government, from the rank of department secretaries down to division chiefs is in fact a reimbursement for the expenses incurred in the performance of one's duties rather than as an additional compensation and therefore is not compensation subject to withholding taxes. However, although the amount of RATA is not subject to withholding taxes the excess of RATA, if not returned to the employer, constitutes taxable income which should be declared in the recipient's income tax return for the year in which the RATA was received by him. BIR Ruling No. 62-91 issued on April 15, 1991 exempting RATA from withholding tax, is effective beginning taxable year 1991. Any amount of tax withheld on RATA received from January, 1991 by the concerned official and employee shall be credited against his income tax due for 1991, when the annualized withholding tax is determined in accordance with Section 22 (b) of Revenue Regulations No. 6-82 as amended. (Revenue Memorandum Circular No. 60-91). Finally, Personnel Economic Relief Allowance (PERA) granted to all employees of the national government, local government units, including government-owned or controlled corporations, is considered remuneration/compensation for services performed by the employees for the employer, hence, taxable income subject to the withholding tax under Section 2 (2) (a) of Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86. (BIR Ruling No. 132-91). Very truly yours, (SGD.) JOSE U. ONG Commissioner