Allowing deductions when computing taxable income
Section 29(j) of the 1977 National Internal Revenue Code[2] (now Section 34(K) of the 1997 National Internal Revenue Code) provides:
Section 29. Deductions from gross income. — In computing taxable income subject to tax under Sec. 21 (a); 24 (a), (b) and (c); and 25 (a) (1), there shall be allowed as deductions the items specified in paragraphs (a) to (i) of this section:
(a) Expenses. — (1) Business expenses. — (A) In general. — All ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; travelling expenses while away from home in the pursuit of a trade, profession or business, rentals or other payments required to be made as a condition to the continued use or possession, for the purpose of the trade, profession or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.
(j) Additional requirement for deducibility of certain payments. — Any amount paid or payable which is otherwise deductible from, or taken into account in computing gross income for which depreciation or amortization may be allowed under this section, shall be allowed as a deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the Bureau of Internal Revenue in accordance with this section, Sections 51[3] and 74[4] of this Code. (Emphasis supplied)
Section 3 of Revenue Regulations No. 8-90 (now Section 2.58.5 of Revenue Regulations No. 2-98) provides:
Section 3. Section 9 of Revenue Regulations No. 6-85 is hereby amended to read as follows:
Section 9. (a) Requirement for deductibility. Any income payment, which is otherwise deductible under Sections 29 and 54 of the Tax Code, as amended, shall be allowed as a deduction from the payor s gross income only if it is shown that the tax required to be withheld has been paid to the Bureau of Internal Revenue in accordance with Sections 50, 51, 72, and 74 also of the Tax Code. (Emphasis supplied)
Under the National Internal Revenue Code, every form of compensation for personal services is subject to income tax and, consequently, to withholding tax. The term "compensation" means all remunerations paid for services performed by an employee for his or her employer, whether paid in cash or in kind, unless specifically excluded under Sections 32(B)[5] and 78(A)[6] of the 1997 National Internal Revenue Code.[7] The name designated to the remuneration for services is immaterial. Thus, "salaries, wages, emoluments and honoraria, bonuses, allowances (such as transportation, representation, entertainment, and the like), [taxable] fringe benefits [,] pensions and retirement pay, and other income of a similar nature constitute compensation income"[8] that is taxable.
[1] Pres. Decree No. 1158 (1977), sec. 29(j), as amended/renumbered by Pres. Decree No. 1351 (1978), Batas Blg. 135 (1981), Exec. Order Nos. 37 (1986) and 273 (1987) and Rep. Act No. 7496 (1992).