BIR Ruling No. 350-12

May 18, 2012 BIR RULING NO. 350-12 RR 2-98; R.A. 10071; BIR Ruling No. 141-12; BIR Ruling No. 003-08 Commission on Audit Office of the Auditor City Government of Lapulapu Lapulapu City Attention: Ma. Daisy O. Bercede SA IV Audit Team Leader Gentlemen : This refers to your letter dated January 20, 2012 duly indorsed by Revenue Region No. 13, Cebu City, requesting clarification as to whether or not the honorarium received by Judges and Prosecutors granted by the local government unit is subject to income tax. In reply, please be informed that, the term "compensation" means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Tax Code of 1997. Salaries, wages, emoluments and honoraria, allowances, commissions and other income of a similar nature constitute compensation income. (Section 2.78.1 (A) of Revenue Regulations 2-98, as amended) Moreover, paragraph 9, Section 16 of Republic Act No. 10071 AN ACT STRENGTHENING AND RATIONALIZING THE NATIONAL PROSECUTION SERVICE also known as "Prosecution Service Act of 2010", provides: "Subject to Section 20 hereof, the salaries and allowances of regional, provincial and city prosecutors and their assistants, and the members of the prosecution staff, including the prosecution attorneys, shall be paid entirely out of national funds and included in the annual appropriations of the DOJ: Provided, however, That this provision is without prejudice to the grant of allowances to the above-mentioned prosecutors by their respective local governments in amounts not exceeding fifty percent (50%) of their basic salaries; Provided, further, That the whole of the allowances or portion thereof, whether granted by the national or local government shall be exempt from the income tax . " (emphasis supplied) Accordingly, the honorarium in the form of allowance in amounts not exceeding fifty percent (50%) of the basic salaries given by the local government unit to prosecutors is exempt from income tax and consequently from the withholding tax imposed under Section 2.78.1 (A) of Revenue Regulations 2-98, as amended. AEDCHc However, the honorarium received from the local government unit by judges is compensation subject to withholding tax. (BIR Ruling No. 003-08 dated April 14, 2008) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue