Philippine Shipping Update - (Issue 2013/01)

In this issue:

  • Withholding of Income Tax on Backwages, Allowances and Benefits Received by Employees Through Garnishments of Debts or Credits Pursuant to a Labor Dispute Award

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Withholding of Income Tax on Backwages, Allowances and Benefits Received by Employees Through Garnishments of Debts or Credits Pursuant to a Labor Dispute Award

On 3 August 2012, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 39-2012 with the subject “Withholding of Income Tax on Backwages, Allowances and Benefits Received by Employees Through Garnishments of Debts or Credits Pursuant to a Labor Dispute Award”.  The circular allows garnishees (such as the NLRC) to withhold the amount of 5% from the total award issued in favour of the employee which would represent the taxable backwages, allowances and benefits of the employee.
 
Pursuant to this circular, the NLRC issued Administrative Order No. 11-17, Series of 2012 dated 16 November 2012 which provides for guidelines and procedures on the withholding of income tax on backwages, allowances and benefits by virtue of labor dispute awards.
 
We have formally written the NLRC to inquire as to the applicability of the mentioned administrative order to claims of seafarers (wages, disability and death benefits) as we believe that the circular of the BIR as well as the NLRC administrative order will not apply to seafarers’ cases because the law exempts them from payment of income tax pursuant to Section 23 (C) of the National Internal Revenue Code and Revenue Regulations No. 1-2011. 
 
The NLRC has now replied confirming that our position is correct that in case of wage claims (compensation of seafarers for services rendered abroad) filed by the seafarer, the same is not subject to withholding tax.  In the same manner, claims for death and disability benefits are likewise not subject to withholding tax pursuant to our tax code

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