See - Philippine Government Workers Petition Court Over Benefits Taxes
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Pressure on the Philippines' Bureau of Internal Revenue (BIR) to rethink its withholding taxes on an individual's additional monetary benefits, such as 13th-month pay, productivity incentives and bonuses, has been increased by an action brought in the Supreme Court by government employees.
The court action has been introduced in an effort to strike out the provisions of the BIR's Revenue Memorandum Order (RMO) 23-2014, which was issued on June 20 his year and had an immediate effect.
The RMO confirmed that, as employers, all government offices, including government-owned or controlled corporations, are to be considered as the BIR's withholding agents with regard to income tax required to be paid by their employees, and that "compensation for services, in whatever form paid and no matter how called, form part of gross income," includes salaries, fees, wages, emoluments, allowances, taxable bonuses, fringe benefits, taxable pensions and retirement pay.
Included among the only income received by employees in the public sector that is not subject to income tax are annual benefits not exceeding PHP30,000 (USD680). That cap is the subject of current parliamentary bills that generally aim to increase it to PHP75,000, so as to protect employees' purchasing power against the increasing cost of living.
However, the Supreme Court has now been asked to declare taxation of all non-salary benefits received by (the around 1m) public sector employees in the Philippines to be an "unlawful and unwarranted imposition of taxes," and that their collection is "illegal and illicit." It is pointed out that the benefits had remained untaxed for some time, until two months ago.
On the other hand, BIR Commissioner Kim Henares confirmed that the agency, through the RMO, was only clarifying what income is already taxable under the existing tax code. With government bodies giving bonuses and allowances but not withholding the proper tax, no new taxes were involved.
It is also known that, if the public sector employees' petition was to be accepted by the court, the Government could not afford to lose the large amount of revenue that would ensue, particularly in the country's present fiscal deficit situation and with PHP130bn needed to fund reconstruction following typhoon Yolande, and as it bids to improve the Philippines tax-to-gross domestic product ratio to 16 percent by 2016.
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