Fringe Benefit Tax (FBT)

- Definition as per tax code: “any good, service or other benefit furnished or granted in
cash or in kind by an employer to an individual employee (except rank and file
employees as defined herein)”
- Imposition of tax
o Effective January 1, 2018 and onwards, a final tax of 35% is imposed on the
grossed up monetary value of fringe benefits granted to employees by employer,
whether individual or corporation.
o The tax itself is meant to be a tax of the employee. However, to make it easier for
the employee, it will be withheld by the employer to be paid in their behalf
o Computation of grossed up monetary value of fringe benefit
 Divide actual monetary value of the fringe benefit by 68% effective
January 1, 2000
 However, as per the implementation of the TRAIN Law in 2018 and as
mentioned in the Revenue Regulations No. 8-2018, the new gross up
margin rate for January 1, 2018 onwards will be at 65%
- Special rules in determining the value of the benefit pertaining specifically to the case
o Depending on the case, the value of the benefit and its corresponding monetary
value can change
o For motor vehicles of any kind
 If employer purchases the motor vehicle in the name of the employee
 Value of the benefit – Acquisition cost
 Monetary value – The entire value of the benefit
 If employer provides the employee with cash for the purchase of a motor
vehicle in the name of the employee
 Value of the benefit – Amount of cash received by the employee
 Monetary value – The entire value of the benefit
 If employer shoulders a portion of the amount of the purchase price of
a motor vehicle in the name of the employee
 Value of the benefit – Amount shouldered by the employer
 Monetary value – The entire value of the benefit
 If employer purchases the car on installment in the name of the
employee
 Value of the benefit – Acquisition cost / 5 years
 Monetary value – The entire value of the benefit
 If employer owns and maintains a fleet of motor vehicles for the use of
the business and the employees
 Value of benefit – Acquisition cost of all motor vehicles not
normally used for business purposes / 5 years
 Monetary value – 50% of the value of the benefit
  If employer leases and maintains a fleet of motor vehicles for the use of
the business and the employees
 Value of benefit – Amount of rental payments for motor vehicles
not normally used for business purposes
 Monetary value – 50% of the value of the benefit

Explanation of problems
A. Ms. Halaran had received a car from Trinidad which was her employer. Since it was
provided directly to her, it fits the definition of a fringe benefit making it taxable. To
compute for the fringe benefit tax, we first have to gross up the monetary value of the car
by dividing it to 65%. We then multiply the fixed tax rate of 35% to arrive at the net tax.
As for the journal entries, we treat the payment as a payable until the quarterly payment
of the benefit which would fall on April.
B. Instead of receiving the car directly, Miss Harlan received cash meant to acquire the car.
As per the definition, regardless if the benefit was granted in cash or kind, it would still
be taxable. As such, the computation for it would be the same as the first number. The
same would go for the journal entries.
C. Similar to the first two problems, since the benefit to be given is still the car, it is still
taxable. The only difference with this is the method of payment. Since it was settled
through a down payment with annual payments, we must recognize the benefit over the
period the benefit is expected to be enjoyed. As per the ruling for vehicle benefits
specifically, this is assumed to be 5 years despite being paid only over 3 years. To do this,
we first have to find the quarterly gross monetary value to determine the fringe tax
benefit. We get that by finding the annual monetary value by dividing the total amount to
5 which represents the years the benefit is expected to be enjoyed. We then divide the
amount by the gross monetary value rate of 65% to get the annual gross monetary value.
We can then divide it by 4 to split it into the quarterly value then multiply by the tax rate
of 35% to arrive at the fringe benefit tax per quarter. As for the journal entries, the first
entry shows the effect of the down payment to the fringe benefit expense. The second
journal entry was obtained by dividing the annual monetary value by 4 to get its quarterly
value. The third and fourth entry represent the recognition of the taxable benefit and
payment for it. The second, third, and fourth entry should be done each quarter as they
serve as the gradual recognition of the whole fringe benefit over the period it will be paid.
D. Unlike the previous question, the down payment incurred in this case was shouldered by
the employee. Since we are computing for the fringe benefit tax of the company, the
down payment should not form a part of it. The corresponding tax of the down payment
paid by the employee will be paid for by the employee in line with their income tax.
Since the fringe benefit was incurred in full, its corresponding full payment will be
settled within the first quarter. This is reflected in the corresponding journal entries of the
case.
 E. Since the fleet of vehicles are owned by the company, the treatment of the value of
benefit is obtained by getting the acquisition cost of all motor vehicles not normally used
for business purposes then divide it by 5 years which is the expected duration of the
benefit. Moreover, an additional step is incurred for determining the monetary value. The
rate of 50% would be used for cases involving a fleet of motor vehicles. This is directly
multiplied to the annual value to arrive at the annual monetary value. Afterwards, the
same procedure of dividing by 65% to get the gross monetary value and multiplied by
35% for the tax rate would be used to arrive at the fringe benefit tax. Since these are
realized through depreciation, the depreciation expenses must be likewise recognized.
The quarterly depreciation expense are obtained by dividing the total acquisition cost to 4
to obtain the annual depreciation and divided by 4 again to arrive at the quarterly
depreciation. The third and fourth journal entry simply pertain to the recognition and
payment of the corresponding fringe tax benefits.
F. Unlike the previous case, the final case mentioned that the employer only leases the fleet
of vehicles. As such, the recognition of the value of the benefit is simply the amount of
rental payments for motor vehicles not normally used for business purposes. On the other
hand, the monetary value would also only be 50% of the value of the benefit. Since the
monthly rental is provided, we must multiply it by 3 to arrive at the quarterly rental value.
This amount is then multiplied by 50% to arrive at the quarterly monetary value.
Afterwards, the same process of dividing by 65% gross monetary value rate and
multiplying by 35% fringe benefit tax rate to arrive at the fringe benefit tax. As for the
journal entries, the first entry simply pertains to the recognition of the monthly rental
expense or fringe benefit expense that would be incurred monthly as per the agreement in
the case. The second and third entry pertain to the recognition and payment of the fringe
benefit expense.

References
https://www.bir.gov.ph/index.php/tax-code.html
https://assets.kpmg/content/dam/kpmg/ph/pdf/InTAX/2018/Revenue%20Regulations%20No.
%208-2018.pdf