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Doctrine To Remember: de Minimis Benefits

Sections III and IV of RMO No. 23-2014, which enumerate benefits and allowances of government employees subject to income tax and those exempt, are valid according to the Supreme Court. Under the Tax Code, all forms of compensation for services, whether cash or in-kind, are subject to income tax and withholding tax unless specifically exempt. The RMO clarifies the responsibilities of employers, including the government, to withhold correct tax amounts but does not introduce new taxes. It reinforces that salaries, wages, allowances, bonuses and other income are compensation subject to tax.

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Vel June De Leon
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41 views

Doctrine To Remember: de Minimis Benefits

Sections III and IV of RMO No. 23-2014, which enumerate benefits and allowances of government employees subject to income tax and those exempt, are valid according to the Supreme Court. Under the Tax Code, all forms of compensation for services, whether cash or in-kind, are subject to income tax and withholding tax unless specifically exempt. The RMO clarifies the responsibilities of employers, including the government, to withhold correct tax amounts but does not introduce new taxes. It reinforces that salaries, wages, allowances, bonuses and other income are compensation subject to tax.

Uploaded by

Vel June De Leon
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Title: Confederation for Unity, Recognition and Advancement

of Government Employees et al. vs. Commissioner, Bureau of Internal Revenue,


et al. and Judge Armando A. Yanga, in his personal capacity and in his
capacity as President of the RTC Judges Association of Manila, et al. vs. Hon.
Commissioner Kim S. Jacinto-Henares, in her capacity as Commissioner of the
Bureau of Internal Revenue (G.R. Nos. 213446 and 213658, promulgated 3 July
2018)
Ponente: J. Caguioa

Doctrine to Remember
Under the Tax Code, every form of compensation for services, whether paid in cash or in kind,
is generally subject to income tax and consequently to withholding tax. The name designated to
the compensation income is immaterial. Thus, salaries, wages, emoluments, and honoraria,
allowances, commissions, fees (including director’s fees, if the director is, at the same time, an
employee of the employer or the corporation), bonuses, fringe benefits (except those subject to
the fringe benefits tax under Section 33 of the Tax Code), pensions, retirement pay, and other
income of a similar nature, constitute compensation income that are taxable and subject to
withholding.

Facts
 On 20 June 2014, Respondent Commissioner of Internal Revenue (CIR) issued Revenue
Memorandum Order (RMO) No. 23-2014 to clarify the responsibilities of the employer (on
compensation paid to its officials and employees) under the Tax Code and special laws.
 Petitioner-organizations and unions of employees from various government agencies
questioned the constitutionality of the RMO and asked that paragraphs A, B C and D of
Section III (enumeration of various benefits and allowances of government employees which
are considered compensation subject to income tax), Sections IV (enumeration of non-
taxable compensation income of public sector), VI (persons responsible for withholding) and
VII (penalty for non-compliance by the named government officials of their obligation as
withholding agents) be declared null, void and unconstitutional.
 Petitioners alleged that the RMO classified as taxable compensation various allowances,
bonuses, and compensation for services granted to government employees such as those in
the legislative branch and judiciary, which are considered by law as non-taxable fringe and
de minimis benefits.
 Petitioners also allege that the imposition of withholding tax on these allowances, bonuses
and benefits, which have been allotted by the Government to its employees free of tax for a
long time, violates the prohibition on non-diminution of benefits under Article 100 of the
Labor Code.
Issues Articles/Law Involved
Are the questioned provisions of RMO No. 23-  RMO No. 23-2014, Sec. III and IV
2014 valid?  Sec. 32 (A) of the NIRC – gross income
means all income derived from whatever
source, including but not limited to the
following items: CGIDRRAPP
Rulings
Section III (enumeration of various benefits and allowances of government employees which are
considered compensation subject to income tax) and Section IV (enumeration of non-taxable
compensation income of public sector) of RMO No. 23-2014 are valid and do not charge any
new or additional tax.

The provisions simply reinforce the rule that every form of compensation for personal services
received by all employees is deemed subject to income tax and, consequently, to withholding
tax, unless specifically exempted or excluded by the Tax Code, and also the duty of the
Government, as an employer, to withhold and remit the correct amount of withholding taxes
due.

Under the Tax Code, every form of compensation for services, whether paid in cash or in kind,
is generally subject to income tax and consequently to withholding tax. The name designated to
the compensation income is immaterial. Thus, salaries, wages, emoluments, and honoraria,

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allowances, commissions, fees (including director’s fees, if the director is, at the same time, an
employee of the employer or the corporation), bonuses, fringe benefits (except those subject to
the fringe benefits tax under Section 33 of the Tax Code), pensions, retirement pay, and other
income of a similar nature, constitute compensation income that are taxable and subject to
withholding.

The term employee “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” while an employer “embraces not only an individual and an
organization engaged in trade or business, but also includes an organization exempt from
income tax, such as charitable and religious organizations, clubs, social organizations and
societies, as well as the Government of the Philippines, including its agencies, instrumentalities,
and political subdivisions.”
While Section III enumerates certain allowances which may be subject to withholding tax, it
does not exclude the possibility that these allowance may fall under the exemptions in Section
IV. Sections III and IV articulate in general and broad language the Tax Code provisions on the
forms of compensation income deemed subject to withholding tax and those exempted from
income tax.

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