Tax Treatment of Subsistence, Clothing and Quarters Allowances Paid to the Personnel of the Armed Forces of the Philippines (AFP)

April 1, 1987 REVENUE MEMORANDUM CIRCULAR NO. 15-87 SUBJECT : Tax Treatment of Subsistence, Clothing and Quarters Allowances Paid to the Personnel of the Armed Forces of the Philippines (AFP) TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, there is published hereunder the letter-ruling dated April 19, 1982 of the Commissioner of Internal Revenue to the Chief of Staff, Armed Forces of the Philippines, Camp General Emilio Aguinaldo, Quezon City holding that AFP quarters, clothing and subsistence allowances are exempt from income tax and should, therefore, be excluded in the determination of their gross income defined under Section 29 of the Tax Code as amended by Executive Order No. 37: "19 April 1982 "The Chief of Staff Armed Forces of the Phil. Camp General Emilio Aguinaldo Quezon City S i r : "This refers to your letter dated 5 April 1982, requesting information whether the subsistence, clothing, quarters and other allowances paid to the personnel of the Armed Forces of the Philippines (AFP) may be excluded in the computation of gross income subject to withholding tax, pursuant to Batas Pambansa Blg. 135, otherwise known as the Modified Gross Taxation system. "It is represented that "The special provision in the yearly appropriation of the AFP fix and authorize the payment of subsistence, clothing quarters and other allowances to AFP personnel, the value of which varies of each grade or rank. These allowances are intended to be given or furnished in kind for obvious reason, but in view of the lack of messing, quartering and other facilities obtaining throughout the headquarters, bases, camps or stations where military personnel are assigned, the money value of these allowances are given them in cash." "In reply, please be informed that since the said allowances for subsistence, clothing and quarters are being incurred for the convenience of the Armed Forces of the Philippines, the same are, therefore, exempted from income tax, hence, also exempted from withholding tax, pursuant Section 2(A) (2) (a) of Revenue Regulations No. 20-81, dated December 16, 1981: ". . . If, however, living quarters or meals are furnished to an employee for the convenience of the employer, the value thereof need not be included as wages subject to withholding . . . ." EMPHASIS SUPPLIED "The above rule applies notwithstanding that the said allowances are paid in cash or commuted since under the circumstances of AFP personnel, the same do not constitute income, hence, may not be subjected to income tax . Thus, in the case of JONES vs. UNITED STATES, 1925, 60 Ct. Cl. 552, cited in Cases on the Law of Taxation by John MacArthur Maguire and Roswell Magill, 4th ed., par. 6, Sec. 3, pp. 872-878), the court ruled that the $500 paid to the plaintiff (a major in the U.S. Army) as commutation of quarters (there being no government quarters available at his new station in Washington, D.C.) was not income . Consequently, said allowance cannot be subjected to income tax: cd ". . . We have said that we do not believe the allowance of quarters or commutation thereof to an officer of the Army is income. . . . We are quite firmly convinced that, not only are they not allowance of a compensatory character, but they are not income as well. . . . Therefore, it seems to us that military quarters for both the enlisted men and officers of the Army are no more than an integral part of the organization itself. Quarters are expected to be furnished by the government to its officers; when it cannot thus furnish, it allows them to be obtained otherwise and pays a monetary compensation therefore called commutation. . . ." "However, please be informed that this opinion is restricted only to AFP quarters, clothing and subsistence allowances. Since the Office did not qualify the nature and kind of the other allowances referred to in the query, this Office is not, therefore, in a position to render an opinion in connection therewith." Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner" It is desired that this Circular be given as wide a publicity as possible. (SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue