BIR Ruling No. 422-11

November 4, 2011 BIR RULING NO. 422-11 RR No. 02-98; BIR Ruling No. 003-2008; Roman Catholic Archbishop of Cebu vs. CIR, G.R. No. L-16683 Liga ng mga Barangay sa Pilipinas Dumaguete City Chapter Brgy. Bantayan, Dumaguete City Attention: Albert C. Aquino President Gentlemen : This refers to the letter dated July 21, 2011 of the Barangay Officials of the thirty (30) barangays of Dumaguete City, requesting the suspension of the imposition of withholding tax on the honoraria which they receive as remuneration for their services. In reply, please be informed that it is a well settled principle of taxation that income, in the broad sense, means all wealth which flows into the taxpayer other than mere return of capital (Section 36, Revenue Regulations (RR) No. 2, "The Income Tax Regulations"). Based on the above principle, it is without argument that "honoraria", no matter how negligible the amount, is wealth that flows into the hands of a barangay official, hence, subject to income tax and, consequently, to withholding tax on compensation. In BIR Ruling No. 003-08 , dated April 14, 2008, this Office had the occasion to rule that " the name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, bonuses, allowances (such as transportation, representation, entertainment and the like), fringe benefits (monetary and non-monetary), fees, including director's fees, taxable pensions and retirement pay and other income of a similar nature constitute compensation income ." (emphasis supplied) In connection therewith, Section 2.78 of RR No. 2-98, as amended, provides that " the withholding of tax on compensation income is a method of collecting the income tax at source upon receipt of the income. It applies to all employed individuals whether citizens or aliens, deriving income from compensation for services rendered in the Philippines. The employer is constituted as the withholding agent ." (emphasis supplied) Further, Section 2.78.3. of the same regulations, defines an employee as " an individual performing services under an employer-employee relationship. The term covers all employees, including officers and employees, whether elected or appointed, of the Government of the Philippines, or any political subdivision thereof or any agency or instrumentality. " (emphasis supplied) Based on the foregoing, it is clear that barangay officials come within the definition of "employees" whose compensation is subject to income tax. Therefore, the honoraria, which they receive as remuneration for their services constitute an income subject to income tax and, consequently, to the withholding tax on compensation pursuant to RR No. 2-98, as amended. With regard to your request for the suspension of the imposition of income tax on your honoraria, we regret to inform you that the same cannot be granted. This is in consonance with the principle that taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need. The exercise of the power to tax emanates from necessity, for without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. ( Roman Catholic Archbishop of Cebu vs. CIR, G.R. No. L-16683 dated January 31, 1962) SACHcD Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue