Rice Subsidy Given to Employees is Exempt from Withholding Tax but Deductible from the Company's Taxable Income as a Necessary Business Expense

November 5, 1987 BIR RULING NO. 348-87 34 (a) (1) 000-00 348-87 Gentlemen : This refers to your letter dated October 6, 1987 requesting exemption from withholding tax the amount of rice subsidy you are giving monthly to all your regular employees; and the deductibility of such expense from taxable income for purposes of computing your corporate income tax. It is represented that the rice subsidy being given approximates 4% of your company's payroll expense, that is, considering an average cost of one cavan of rice at P300.00 for about 800 employees; and that you are furnishing the rice subsidy as a means of promoting the health, goodwill and contentment of your employees. In reply, I have the honor to inform you that Section 2(a) of Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86 implementing Section 28 of the Tax Code, as amended by Executive Order No. 37, provides that facilities or privileges (such as entertainment, medical services, or so called courtesy discounts on purchases) furnished or offered by an employer to his employees generally, are not considered as compensation subject to withholding if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment or efficiency of his employees . Such being the case, since the rice subsidy given to your employees is with the end in view of promoting your employees health, goodwill, contentment and efficiency, said benefit is not considered compensation income/wages, hence not subject to withholding tax prescribed under Section 21(a) in relation to Section 82 of the Tax Code as amended by Executive Order No. 37 and as implemented by Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86. cdta Moreover, said rice subsidy is deductible from your taxable income as an ordinary and necessary business expense pursuant to Section 30 (a)(1)(A) of the Tax Code, as amended by Executive Order No. 37. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner