SC: Allowances, fringe benefits of gov’t workers can be taxed

/ 11:10 AM July 04, 2018

Allowances and fringe benefits received by government employees are subject to withholding tax, the Supreme Court (SC) said in a ruling released Wednesday.

The petition filed in 2014 by the Confederation for Unity, Recognition and Advancement of Government Employees (COURAGE), and several association of Regional Trial Court judges both in Manila and Iloilo City challenged the validity of Revenue Memorandum Order (RMO) 23-2014.


Petitioners said the RMO stepped on the independence of the judiciary and was implemented even with lack of due process.

They said the tax memorandum had no blessing from then Finance Secretary Cesar Purisima and Congress, which enacted a law (Republic Act 9227) under the Arroyo administration granting special allowances to justices, judges and court personnel.


The special allowances can be considered as fringe benefits under Section 33 (A) of Tax Code as petitioners said these should not be subjected to any withholding tax because the grant is “indisputably necessary” to insulate the judiciary from outside influence.

Section 33 (A) exempts a fringe benefit from withholding tax if it is essential to the trade, business or profession of the employer or it is for the convenience or advantage of the employer.

Clothing allowance, cash gift and loyalty cash award are also not taxable, the petition added, because these are de minimis benefits, which are offered by the employer as a means of promoting health, goodwill contentment or efficiency of workers.

Then BIR Commissioner Kim Henares allegedly not only erred in her interpretation of the law but also “arrogated unto herself” legislative powers when she imposed withholding tax on allowances and benefits of the members of the judiciary that have never been previously taxed.

These tax-exempt allowances and benefits include the Supreme Court Christmas allowance, anniversary and milestone bonuses, grocery and year-end bonus.

In a unanimous vote, the SC agreed with the BIR saying that “all income received by an employee from his/her employer are presumptively taxable and subject to withholding.”

It also said that “the Government as an employer, has the duty to withhold and remit proper taxes due thereon.”


For the judges who joined in the petition, the high court said “fiscal autonomy enjoyed by the Judiciary, Ombudsman and Constitutional Commissions does not grant immunity or exemption from the common burden of paying taxes imposed by law.”

The SC, however, struck down Section VI of the RMO that identifies the governor, city and municipal mayors, barangay captains and heads of office of government agencies and government owned and controlled corporations as persons allowed to withhold and remit withholding taxes.

According to the high court, the BIR overstepped the boundaries of its authorities under the law in requiring the said officers to withhold taxes through Section VI.

On the other hand, the SC said, other provisions of RMO simply mirrored what is stated under the Tax Code.   /kga

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TAGS: Allowances, benefits, BIR, bonus, Courage, Employee, employer, Judiciary, Labor, SC, Tax
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