BIR warns on minimum wage exemption abuse
"Any reduction or diminution of wages for purposes of exemption from income tax will constitute misrepresentation. Therefore, it will result in the automatic disallowance of expense, such as the compensation and benefits account, on the part of the employer. The offenders may be criminally prosecuted under existing laws," Large Taxpayers Assistance Division (LTAD) chief Janette R. Cruz told participants in a seminar last week on revenue regulation 10-2008, which provided the rules for the implementation of Republic Act 9504, the law that exempted minimum wage earners from paying income tax and raised existing levels of exemptions besides.
Among others, those rules clarified that additional compensation other than the statutory minimum wage, or the rate fixed by the Regional Tripartite Wage and Productivity Board — such as holiday pay, overtime pay, hazard pay and night shift differential — are not exempt from income and withholding taxes.
Ms. Cruz said the taxpayer’s lists for 2008 will be analyzed by LTAD, large taxpayer’s district or revenue district offices to compare compensation figures reported in 2007 against those this year in order to "ensure there is no diminution in the compensation structure of employees."
"Towards the end of 2008, you will have to do annualization of your employees. The alphalist for 2008 will be analyzed to ensure the employee did not ask his salary to be lowered for purposes of tax exemption. This will be matched per employee. If there is any discrepancy, there will be a reason for you to explain," Ms. Cruz said.
The list will cover:
* employees separated or terminated before Dec. 31 of the taxable year (indicating date of separation or termination of services);
* employees whose compensation incomes are exempt from withholding tax but subject to income tax;
* employees whose total compensation is exempt from withholding tax and not subject to income tax (specifying if minimum wage earner);
* employees as of Dec. 31 of the taxable year with no previous employment within the year;
* employees as of Dec. 31 of the taxable year with previous employment within the year;
* employees who got fringe benefits subject to tax; and
* alien employees subject to withholding tax. — Ruby Anne M. Rubio, BusinessWorld