Request for Review of BIR Revenue Memorandum Circular No. 46-2013

February 11, 2013 DOF OPINION National Food Authority Philippine Sugar Center Bldg. North Ave., Diliman Quezon City Attention: Hon. Orlan A. Calayag Administrator SUBJECT : Request for Review of BIR Revenue Memorandum Circular No. 46-2013 Gentlemen : We reply to your letter dated 09 January 2014, which you filed with this Department on 15 January 2014, requesting for review of Revenue Memorandum Circular No. 46-2013 ("RMC 46-13") issued by the Bureau of Internal Revenue ("BIR") on 26 June 2013. RMC 46-13 was issued to clarify the taxability of the benefits granted to government employees' organizations under Collective Negotiations Agreement ("CNA") duly approved/accredited by the Civil Service Commission. Reiterating and clarifying its Ruling No. [DA-(ECB-023) 642-09] dated 04 November 2009, the BIR made the following pronouncement in RMC 46-13: "Based on the foregoing, the CNA incentive is included in the 'other benefits' under Section 32 (B) (7) (e) of the Tax Code of 1997. It is exempt from income tax and withholding tax provided that, the CNA benefits, when added to the 13th month pay and other benefits, shall not exceed the threshold of P30,000 [CNA + (13th month pay + other benefits) < P30,000.00)]. Any excess in the threshold shall be taxable to the employee, whether rank and file or supervisory." CSDcTH You seek this Department's opinion on whether CNA incentives properly fall under the term "other benefits" provided for in Section 32 (B) (7) (e) of the National Internal Revenue Code of 1997 (the "Tax Code"). You submit the proposition that only productivity incentives and Christmas bonuses are covered by said provision, and that therefore, CNA incentives are not covered thereby. On this basis, you seek reversal of RMC 46-13. Section 32 of the Tax Code pertinently states: "SEC. 32. Gross Income. (A) General Definition. Except when otherwise provided in this Title, gross income means all income derived from whatever source , including (but not limited to) the following items: (1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items; xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (7) Miscellaneous Items. cIHCST xxx xxx xxx (e) 13th Month Pay and Other Benefits. Gross benefits received by officials and employees of public and private entities: Provided, however, That the total exclusion under this subparagraph shall not exceed Thirty thousand pesos (P30,000) which shall cover: (i) Benefits received by officials and employees of the national and local government pursuant to Republic Act No. 6686; (ii) Benefits received by employees pursuant to Presidential Decree No. 851, as amended by Memorandum Order No. 28 dated August 13, 1986; (iii) Benefits received by officials and employees not covered by Presidential Decree No. 851, as amended by Memorandum Order No. 28 dated August 13, 1986; and (iv) Other benefits such as productivity incentives and Christmas bonus: Provided, further , That the ceiling of Thirty thousand pesos (P30,000) may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering, among others, the effect on the same of the inflation rate at the end of the taxable year." [Emphasis and underscoring supplied] HIAEcT Clearly, based on Section 32 (A) of the Tax Code, as a general rule, all income received by a person form part of his gross income subject to income tax. However, as an exception to the foregoing, Section 32 (B) provides for exclusions from gross income. Among the exclusions provided in Section 32 (B) are gross benefits received by officials and employees from public or private entities, up to the amount of P30,000.00 . Among said benefits are " other benefits such as productivity incentives and Christmas bonus". At the outset, it bears stressing that in Philippine jurisdiction, time-honored is the principle that tax exemptions, including exclusions, are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Before a tax exemption may be given effect, its legal basis must be clearly shown in such a way that dispels any doubt, and that does not admit of any contrary interpretation, on the intent to confer such a privilege. In Atlas Consolidated Mining and Development Corp. vs. CIR , 1 the Supreme Court held: "Taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. And, since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority . A claim of refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception ." [Emphasis and underscoring supplied] aHSCcE At this juncture, it is worthy to note that your argument that CNA incentives do not fall under the term "other benefits" under Section 32 (B) (7) (e) of the Tax Code defeats your position. As discussed above, Section 32 (B) provides for exceptions to the general rule on income taxation in Section 32 (A) by providing exclusions from gross income. Thus, if CNA incentives should not be considered as covered by the term "other benefits" under Section 32 (B) (7), then it follows that the same should not be excluded from gross income subject to tax. Nevertheless, we shall rule on the issue at hand: whether the term "other benefits" under Section 32 (B) (7) (e) covers CNA incentives given to employees. The wording of Section 32 (B) (7) of the Tax Code is clear enough to dispel any notion that it meant to restrict the coverage of the exclusion on "gross benefits received by officials and employees of public and private entities" to the items enumerated therein. By using the phrase "such as" in relation to the term "other benefits" under Section 32 (B) (7) (e), the legislative intent is clear to merely include the specific items that were given as examples, namely, productivity incentives and Christmas bonuses, and certainly not to restrict its coverage to the same. At most, if the term "other benefits" should be interpreted to be restricted, it should be interpreted to be restricted to all kinds of "benefits received by officials and employees of public and private entities", but it may not be interpreted to be restricted to only productivity incentives and Christmas bonuses. The former interpretation is consistent with the basic principle of ejusdem generis in statutory construction, which was explained by the Supreme Court in Liwag vs. Happy Glen Loop Homeowners Association, Inc. 2 in this wise: "The basic statutory construction principle of ejusdem generis states that where a general word or phrase follows an enumeration of particular and specific words of the same class, the general word or phrase is to be construed to include or to be restricted to things akin to or resembling, or of the same kind or class as, those specifically mentioned." ATcEDS Indisputably, CNA incentives are benefits received by officials and employees of public entities, such as the National Food Authority. There is therefore no reason to take the same out of the purview of Section 37 (B) (7), which allows "benefits received by officials and employees of public and private entities" to be excluded from gross income, up to the amount of P30,000.00. Clearly, based on the foregoing, all types of benefits received by officials and employees of public and private entities, including CNA incentives, may be excluded from gross income, up to the total amount of P30,000.00. Corollarily, any amount of the total benefits received by an official or employee for one taxable year in excess of P30,000.00 may not be excluded from his gross income. We trust that you shall be guided accordingly. Very truly yours, (SGD.) CESAR V. PURISIMA Secretary Footnotes 1. G.R. No. 159471, 26 January 2011, 640 SCRA 504. 2. G.R. No. 189755, 04 July 2012, 675 SCRA 744.