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De minimis benefits

De minimis benefits

by Alfredo Q.Merto

May 1 is a day when workers all over the world celebrate labor day.   Labor day celebration in the Philippines is no different from other countries which is marked by parades and gatherings.  This year, as with previous years, labor day will be marked by demonstrations by the organized labor groups which have been clamoring for increase in minimum wage.

Early on, the President has confirmed that no wage hike will be announced on Labor Day, but instead a package of non-monetary benefits will be unveiled for the benefit of workers.

Since today is labor day, it is an opportune time to discuss the various tax perks or other measures aimed at providing relief to workers as a possible alternative to the legislated wage hike or wage increase being proposed via the regional wage boards.

One of such measures which has been widely reported in newspapers in the past, and eagerly waited by workers but has yet to be approved by Congress, is the proposed exemption from income tax of minimum wage earners.

If you would recall, the BIR early on January 5, 2006 issued Revenue Regulations (RR) 01-06 which exempts from withholding tax the minimum wage earners.

It was widely believed by workers that the issuance of RR 01-06 was as a prelude to the exemption from income tax of minimum wage earners which bill, however, is still pending in Congress.   Since the current Congress has only one working week in June to pass the bill exempting minimum wage earners from income tax into a law, workers may have to wait for the next Congress to obtain their desired tax relief.

Is there any other tax measure outside of the proposed income tax exemption which could be made available to workers to alleviate their plight?

One measure which that government could possibly look into is increasing the amount of the de minimis benefits that are exempt from income tax.  
De minimis benefits are benefits in the nature of facilities or privilege furnished or offered by an employer to his employees that are of relatively small value, and are offered or furnished by the merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. 
The BIR exempts de minimis benefits pursuant to Revenue Regulations (RR) No. 3-98, as amended.  Examples of de minimis benefits include contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; or certain benefits given to rank and file, whether granted under a collective bargaining agreement or not; or de minimis benefits; or fringe benefits to the employee which is granted is required by the nature of or necessary to the trade, business or profession of the employer; or such grant of the benefit or allowance is for the convenience of the employer.

The BIR sets a limit on the value of tax-exempt de minimis benefits.  Under RR 8-00, as amended by RR 10-00, the BIR considers the following as de minimis  benefits:

  • 10 days monetized unused vacation leave credits;
  • medical cash allowance to dependents of employees not exceeding P750 per semester or P125 per month;
  • rice subsidy of P1,000.00 or one-sack of rice per month;
  • uniforms and clothing allowance not exceeding P3,000.00 per year;
  • medical benefits not exceeding P10,000.00;
  • laundry allowance of P300 per month;
  • employee achievement awards in the form of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan;
  • flowers, fruits, books or similar items given to employees under special circumstances, e.g. on account of illness, marriage, birth of a baby, etc.; and
  • daily meal allowance for overtime work not exceeding 25% of the basic minimum wage.

Con sidering that it is almost nin e years since they were last adjusted in 1998, the BIR may consider increasing the amount of de minimis benefits specified under its regulations to make them more realistic.  Employees are completely captured by the tax net under the withholding tax system and they do not enjoy any additional deductions in computing their taxable income.  The government should not deny salaried workers of the little privilege they will enjoy from higher tax-exempt de minimis benefits.

(The author is a tax manager at Punongbayan & Araullo, member firm of Grant Thornton International. For comments and inquiries, please e-mail the author  or call 886-5511.)