The FBT was therefore proposed to enhance the progressivity of the income tax and to broaden the tax base.
The FBT is collected at the firm's level rather than at the taxpayer's level to facilitate tax administration. For one, valuation of benefits is easier at the firm's level and the problem of allocating benefits among individuals is avoided. The Bureau of Internal Revenue (BIR) has also to contend with fewer corporate tax returns.
Fringe benefits include any goods, services, and other benefits granted in cash or in kind by an employer to an individual employee such as the following:
- housing
- expense account
- vehicle of any kind
- household personnel
- interest rate on loan at less than market rate
- membership fees, dues and other expenses borne by the employee in social and athletic clubs or other similar organizations
- expenses for foreign travel
- holiday and vacation expenses
- educational assistance to the employee or his dependents
- life or health insurance and other non-life insurance premiums
The CTRP exempts the following benefits from the fringe benefits tax:
- fringe benefits which are exempted from income tax, e.g. Christmas bonue which does not exceed P30,000
- contributions of the employer for the employee’s retirement, insurance and hospitalization benefit plans;
- benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not;
- de minimis benefits or facilities or privileges that are of relatively small value and are offered as a means of promoting the health, goodwill, contentment or efficiency of the employees. These include :
- unused leave credits of ten days or less which have been monetized by employees
- medical cash allowance to dependents of employees of P750.00 per semester or P125.00 per month
- rice subsidy of P350.00 per month granted by an employer to his employees
- uniforms given to employees by the employer
- medical benefits given to employees by the employer
- laundry allowance of P150.00 per month
- employees’ achievement awards with an annual value which is less than one-half (½ ) of their basic monthly salary
- Christmas and major anniversary celebration for employees and their guests
- company picnics and sports tournaments in the Philippines which are participated in exclusively by the employees;
- flowers, fruits, books or similar items given to employees under special circumstances such as marriage and birthdays.
The FBT rate
The CTRP imposes a final tax of thirty three percent (33%) effective January 1, 1999, and thirty-two percent (32%) effective January 1, 2000 and thereafter, on the grossed-up monetary value of fringe benefits furnished and granted to the managerial and supervisory employees (Sec. 33) . The FBT rate is equated with the highest marginal rate of the individual income tax since most of the recipients of fringe benefits are taxpayers from the highest income class. For nonresident aliens who are not engaged in trade or business in the Philippines, the FBT is equivalent to their regular income tax rate of twenty-five percent (25 %). The FBT on a foreigner employed by regional or area headquarters of a multinational company or by regional operating headquarters of a multinational company; by an offshore banking unit, by a foreign service contractor including those engaged in petroleum operations in the Philippines, is aligned with their regular income tax rate of fifteen percent (15 %). Filipinos who are employed and occupying the same positions as those occupied or held by the foreigner in the multinational company are also subjected to a fifteen percent (15%) FBT. Either the normal rate or the special rates of twenty-five percent (25% )or fifteen percent (15%) FBT is imposed on employees in special economic zones including the Clark Special Economic Zone and the Subic Special Economic and Free Trade Zone.
The grossed-up monetary value of the fringe benefit is determined by dividing the monetary value of the fringe benefit by the following percentages and in accordance with the following schedule:
