Tax Treatment of Representation and Transportation Allowances (RATA) Granted to Public Officer or Employee under the General Appropriations Act

July 9, 1991 REVENUE MEMORANDUM CIRCULAR NO. 60-91 SUBJECT : Tax Treatment of Representation and Transportation Allowances (RATA) Granted to Public Officer or Employee under the General Appropriations Act TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, there is published hereunder BIR Ruling No. 21(a) 000-00-062-91, dated April 15, 1991, adopting the opinion of Secretary of Budget and Management to the effect that RATA is in fact a reimbursement for the expenses incurred in the performance of one's duties rather than as an additional compensation and therefore are not compensation subject to withholding tax pursuant to Section 2(2)(c) of Revenue Regulations No. 12-86. acd "April 15, 1991 "Mr. Beatriz B. Alaan Executive Director Postal Office Liwasang Bonifacio 1000 Manila S i r : Reference is made to your letter dated March 4, 1991 requesting clarification on whether the Representation and Transportation Allowance (RATA) granted to a public officer or employee should be reported as income for income tax purposes. RATA is granted under Section 34 of the General Appropriations Act: "Sec. 34. Representation and Transportation Allowances . The following officials and those of equivalent rank as may be determined by the Department of Budget and Management are hereby granted monthly commutable representation and transportation allowances payable from the programmed appropriations provided for their respective offices, not exceeding the rates indicated below, which shall apply to each type of allowance: 'a. At P2,500 for Secretaries or equivalent; 'b. At P1,700 for Department Undersecretaries or equivalent; 'c. At P1,500 for Assistant Secretaries, Bureau Directors and Department Regional Directors or equivalent; 'd. At P1,400 for Assistant Bureau Directors, Department Assistant Regional Directors, Bureau Regional Directors, Department Service Chiefs or equivalent; 'e. At P1,200 for Assistant Bureau Regional Directors or equivalent; 'f. At P1,100 for Chiefs of Divisions, identified as such in the Personal Services Itemization.' The issue is whether the RATA constitutes compensation income taxable under Section 21(a) of the Tax Code, as amended by Executive Order No. 37 (E.O. 37) which was approved on July 31, 1986. aisa dc Please be informed that under Section 2(2)(c) of Revenue Regulations No. 12-86, implementing Section 21(a) of the Tax Code, as amended by E.O. 37: "Amounts received by an employee, either as advance or reimbursement for transportation, representation and other bonafide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding. However, if the reimbursement exceeds the actual expenses, the excess if not returned to the employer, constitutes taxable income. . . . " (Emphasis supplied) In implementing the abovequoted provisions of Revenue Regulations No. 12-86, this Office ruled in BIR Ruling No. 217-90 that: . . . . Fixed or variable transportation, representation and other allowances which are received by a public officer or employee is compensation subject to withholding. However, amounts paid specifically either as advances or reimbursement for transportation, representation or entertainment and other bonafide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding, if the following conditions are satisfied: '1) It is for ordinary and necessary travelling and representation or entertainment expenses paid or incurred by the employee in the pursuit of the trade or business of the employer; '2) The employee is required to, and does, make an accounting/liquidation for such expense in accordance with the specific requirements of substantiation for each category of expense. 'If the reimbursements or advances exceed the actual expenses, the excess if not returned to the employer constitutes taxable compensation (Section 2, Revenue Regulations No. 6-82 as amended by Rev. Reg. No. 12-86 implementing Batas Pambansa Blg. 135).' In a letter to this Office dated March 8, 1991, the Secretary of the Budget and Management confirmed that "RATA is in fact a reimbursement for the expenses incurred in the performance of one's duties rather than an additional compensation and therefore are not compensation subject to withholding," pursuant to the aforequoted provisions of Section 2(2)(c) of Revenue Regulations No. 12-86. However, although the amount of RATA is not subject to withholding, the excess of RATA, if not returned to the employer, constitutes taxable income which should be declared in the recipient's income tax return for the year in which the RATA was received by him. Very truly yours, (Sgd.) JOSE U. ONG Commissioner of Internal Revenue" In the light of the provision of Section 246 of the National Internal Revenue Code on non-retroactivity of rulings, the above ruling shall be applicable beginning taxable year 1991. Any amount of tax withheld on RATA received from January, 1991 by the concerned official and employee shall be credited against his income tax due for 1991, when the annualized withholding tax is determined in accordance with Section 22(b) of Revenue Regulations No. 6-82, as amended. casia This Circular should be given as wide a publicity as possible. (SGD.) JOSE U. ONG Commissioner of Internal Revenue