BIR Ruling [DA-062-00]

February 1, 2000 BIR RULING [DA-062-00] Sec. 79 DA-184-98 Kawanihan ng Estadistikang Pangsakahan Ben-Lor Bldg., 1184 Quezon Avenue Quezon City Attention: Mr . Romeo S. Recide Director Gentlemen : This refers to your letter dated March 12 and July 16, 1999 requesting for a ruling whether the Additional Compensation Allowance (ACA) under Administrative Order (AO) No. 53 dated May 17, 1993 is taxable or not. It is represented that the Revenue District Office of Sorsogon, Sorsogon, issued a ten (10) day preliminary letter and Final Notice against the personnel of that Office in Sorsogon; that the same was issued due to the treatment of the Revenue District Office No. 68, Sorsogon, Sorsogon, as taxable income; and that you are of the opinion that the said ACA should not be classified as taxable income in view of provision No. 1.1.2 of Administrative Order No. 53 of the former Fidel V. Ramos, which estates: "Extend the same privilege to the rest of the personnel of the government, which shall partake of an allowance and not subject to GSIS, HDMF Fund, premiums and income tax deductions pending its formal integration into the basic pay of the subject government personnel." In reply, please be informed that in several rulings issued by this Office on the same subject matter, the latest of which is BIR Ruling No. DA-184-98 dated May 8, 1998 addressed to the Regional Director, Revenue Region No. 10, Legaspi City, we have consistently ruled that the subject P500.00 additional compensation allowance is subject to income tax although it is not yet subject to the withholding tax prescribed under Section 79 of the Tax Code of 1997, and the only time that it will be subjected to the withholding tax deduction is upon its formal integration to the basic pay of the said Government personnel as provided for under paragraph 1(1.2) of the said Administrative Order No. 53, reading: HASDcC "This Administrative Order is issued to extend the same privilege to the rest of the personnel of the government, which shall partake of an allowance and not subject to GSIS, HDMF Fund, premiums and income tax deductions pending its formal integration into the basic pay of the subject Government personnel with salary grade up to Grade 25." (Emphasis supplied) However, the term " income tax deductions " under said AO 53, refers to " withholding tax deductions " and the phrase " not subject to income tax deductions " means that ACA is not yet subject to the withholding tax deductions pending its formal integration into the basic pay of the subject government personnel but it does not necessarily mean that it is not at all subject to income tax or that it is exempt from income tax . It simply means that ACA will only be subjected to the withholding tax deductions on compensation income under Section 79 of the Tax Code of 1997 upon its formal integration into the basic pay of the subject Government employee. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. EQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)