Tax Exemption of Benefits for PNP and AFP Members

BIR Ruling No. 120-96 (dated November 8, 1996) ruled that all benefits granted under Section 71 of Republic Act No. 6975—including enumerated items such as longevity pay and allowances—are exempt from tax under Section 77 of the same Act.
BIR Ruling No. 143-96 (dated December 24, 1996) ruled that remunerations for services of AFP personnel are generally included in taxable compensation income subject to withholding tax, including fringe benefits, whether monetary or non-monetary.
BIR Ruling No. 143-96 further ruled that AFP benefits are taxable except allowances for quarters, clothing and subsistence, which are treated as exempt from income tax under Revenue Memorandum Circular No. 15-87.
The Circular emphasizes a distinction between PNP tax exemption under a special law and AFP general taxability with limited exemptions.

Uniformed PNP personnel receive benefits expressly governed by Sections 71 and 77 of Republic Act No. 6975.
Section 71 entitles uniformed PNP personnel to a longevity pay of 10% (10%) of their Basic monthly salaries for every five (5) years of service.
The longevity pay is reckoned from the date of the personnel's original appointment in the AFP, or appointment in the police, fire, jail or other allied services prior to the integration of the PC and the INP.
The totality of longevity pay shall not exceed 50% (fifty percent (50%)) of the basic pay.
Section 71 also provides that uniformed PNP personnel continue to enjoy the following allowances and benefits as provided by existing laws: subsistence allowance, quarters allowance, clothing allowance, cost of living allowance, hazard pay, and all other allowances.

Section 71 provides that all benefits granted by Republic Act No. 6975, including benefits received from the Government Service Insurance System, shall not be subject to attachment, levy, execution or any tax of whatever nature.
The tax exemption applies to the enumerated PNP benefits granted under Section 71, which include: subsistence allowance, quarters allowance, clothing allowance, cost of living allowance, hazard pay, and all other allowances.
The Circular emphasizes that PNP personnel’s claims for tax exemption of the enumerated benefits—quarters allowance, clothing allowance, cost of living allowance, hazard pay, longevity pay—are provided under Republic Act No. 6975.
The exemption is characterized as expressly granted by Section 71 of Republic Act No. 6975.

AFP personnel receive fringe benefits and other remunerations that are generally included in taxable compensation income subject to withholding tax.
AFP fringe benefits include both monetary and non-monetary benefits such as longevity pay, hazard pay, and all kinds of allowances and benefits received as such.
AFP benefits are taxable except allowances for quarters, clothing and subsistence, which are treated as exempt from income tax under Revenue Memorandum Circular No. 15-87.
The Circular states that AFP personnel claims for tax exemption shall be limited to quarters, clothing and subsistence allowances.
The Circular also provides that, for AFP purposes, the remaining benefits form part of taxable compensation income subject to withholding tax.

The taxability of the referenced benefits—hazard pay, COLA, Additional Compensation Allowance (ACA), longevity pay, and loyalty pay—is provided under paragraph (F), Section 28(b) of the Tax Code, as amended by Republic Act No. 7833.
The Circular distinguishes between common government benefits under the general tax rule and specific statutory exemptions under a special law, emphasizing that PNP tax exemption is specifically granted under Republic Act No. 6975.
The Circular reiterates that where an exemption exists by special law, that exemption controls for the covered benefits and beneficiaries.

AFP treatment includes a specific instruction that the excluded items—allowances for quarters, clothing and subsistence—are not treated the same as other allowances for certain ceiling purposes.
The Circular provides that the AFP benefits should not be included for purposes of determining whether or not the “other benefits” exceeds P12,000.00.
The P12,000.00 ceiling is referenced only for purposes of that determination, while other rules on taxability and withholding still apply as stated.