BIR Ruling No. 473-11

December 5, 2011 BIR RULING NO. 473-11 Tax Code, Sections 22, 24; RR 10-08 Miss Jamila Uy Akinto Marketing Corporation 14 J.M. Raymundo Bldg., Balete Drive Quezon City Madam :v This refers to your letter dated 28 July 2010 requesting for clarification as to whether minimum-wage employees paid under a multiplier and divisor of 30 days are likewise entitled to income tax exemption. It is represented that your company, Akinto Marketing Corporation, with business address at 14 J.M. Raymundo Bldg., Balete Drive, Quezon City, uses a 30-day multiplier in determining the monthly rate of its employees, as well as a 30-day divisor in determining the daily rate. It is further represented that your company uses a compressed workday week of nine (9) hours a day to offset Saturday work, and that Sundays, holidays, and rest days are considered paid. Finally, it is represented that your company wrote a letter to the National Wages and Productivity Commission (NWPC) as to the validity of the multiplier it uses, to which said Commission replied that (a) the Labor Code prescribes no particular multiplier; and (b) any inquiry as to tax exemption of minimum wage earners should be directed to the Bureau of Internal Revenue. In reply, please be informed as follows: Sections 22 and 24 of the Tax Code, as amended, provides for the exemption of Minimum Wage Earners (MWE) from income tax as well as provides for the definition of a statutory minimum wage and a minimum wage earner, to wit: "Section 22. Definitions. When used in this Title: "(A) . . . . "xxx xxx xxx "(FF) . . . . (GG) the term 'statutory minimum wage' earner shall refer to rate fixed by the Regional Tripartite Wage and Productivity Board, as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). ADCTac "(HH) the term 'minimum wage earner' shall refer to a worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned." "Section 24. Income Tax Rates. (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines. . . . " Provided, That minimum wage earners as defined in Section 22 (HH) of this Code shall be exempt from the payment of income tax on their taxable income . . ." Moreover, Revenue Regulations No. 10-08 provides for the regular method for computation of minimum wage rates as follows, as applied to your particular case: "Sec. 2.78.5. Computation of Wages. The basis of the computation of the minimum wage rates prescribed by law shall be the normal working time of eight (8) hours a day. xxx xxx xxx In the determination of the minimum wage on a monthly basis, the withholding agent shall be guided by the prevailing minimum wage as reflected in the latest Matrix of Wage Order and its own Policy on whether employees are . . . (c) considered paid on rest days, special days, and regular holidays . . . . On the third classification, the monthly SMW is computed by multiplying the applicable daily wage rate by the factor of 365 days, divided by twelve. . . ." (emphasis supplied) SaIEcA It is represented that your company is with business address in Quezon City. Assuming that your employees work in Metro Manila and are covered under minimum wage rates under the National Capital Region, the latest and prevailing rate per Wage Order No. NCR-15 effective 1 July 2010 is at P404.00 per day. 1 Applying all information mentioned above, a table representing the computation of minimum wage according to the regular multiplier under Revenue Regulations No. 10-08 vis--vis that of the multiplier according to your company practice follows: RR 10-08 Exempt Akinto Minimum Wage NCR P404 P404 Factor 365 days/12 months 30 days Monthly Wage P12,288.33 P12,120.00 From the foregoing therefore, it appears that although a monthly wage of P12,288.33 would be considered as exempt by the BIR, the computation according to your company practice results in a lower monthly wage of P12,120.00 . From a pure tax standpoint, considering that the monthly wage of your employees is below the wage considered exempt according to the computation under Revenue Regulations No. 10-08, said wages paid to your employees are considered exempt from income taxes, and consequently from Withholding Tax on Compensation. Provided however, pursuant to Section 1 of Revenue Regulations No. 10-08, an employee who receives/earns additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of P30,000, taxable allowances and other taxable income other than the SMW, holiday pay, and night shift differential shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not exempt from income tax, and consequently, from withholding tax. STIHaE Any question as to the legality of a wage being granted that is lower than the minimum wage as a result of a different multiplier being used is a question that may be properly answered by the Department of Labor and Employment and its attached agencies. 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 Footnotes 1. http://www.nwpc.dole.gov.ph/pages/ncr/cmwr_table.html.