BIR Ruling [DA-068-01]

April 20, 2001 BIR RULING [DA-068-01] The Regional Director Revenue Region No. 13 Cebu City S i r : This refers to the Particulars of Concern indicated in your Summary Report of Staff Meeting Discussions for the months of April, May, July and November 2000, as follows: 1. April - Course of action to be taken for pawnshop operators who refused to register as VAT taxpayer; 2. May - Question of pawnshop lawyers on when to execute Waiver of Prescription; 3. July - Clarifications on the taxability of ACA; and 4. November - Issuances of guidelines as to the implementation of E.O. No. 291 Re: Granting of Monetization of Leave Credits more than thirty (30) days. In reply, please be informed as follows: 1. This Office had previously ruled (BIR Ruling No. 116-000-00-065-91 dated April 19, 1991) that pawnshop business of lending money at interest by any person whether natural or juridical. The said ruling was circularized in Revenue Memorandum Order No. 15-91 and further clarified in Revenue Memorandum Circular No. 43-91. On January 1, 1996, lending investors became subject to the 10% VAT imposed under Sec. 102(a) of the Tax Code, as amended by R.A. No. 7716, as further amended by R.A. No. 8241 [now Sec. 108 (A), Tax Code of 1997]. Pawnshops accordingly became subject also to VAT effective that date notwithstanding the court decision of the Court of Appeals in CA-GR. SP. No. 2884. It is emphasized herein that the decision of the Court of Appeals is still on appeal to the Supreme Court in G.R. No. 113459, hence, not yet final and executory. Accordingly, and pursuant to Sec. 115 of the Tax Code of 1997, you can suspend the business operation and temporarily close the business establishment of a pawnshop operator which failed to register as a VAT-taxpayer as required under Section 236 of the same Code. 2. The purpose of the waiver of the statute of limitations is to afford the Commissioner of Internal Revenue ample time to consider the legal and factual objections of the taxpayers against a deficiency assessment. Pursuant to Sec. 222(b) of the Tax Code of 1997, internal revenue taxes may be assessed or collected after the ordinary perspective period, if before the expiration , both the Commissioner and the taxpayer have agreed in waiting to its assessment and/or collection after the said period. Therefore, the date of execution of the waiver of prescription should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. Such a waiver will have the effect of holding in abeyance further assessments of 5% lending investor's tax on pawnshop operators. ECAaTS 3. On the question regarding the taxability of Additional Compensation Allowance (ACA), please be informed of the pertinent provisions of Revenue Regulations No. 8-2000 dated August 21, 2000 quoted hereunder: "(B) Exemption from withholding tax on compensation . The following income payments are exempted from the requirement of withholding tax on compensation: "xxx xxx xxx "11 Thirteenth (13th) month pay and other benefits. "(a) . . . "(b) Other benefits such as Christmas bonus, productivity incentives, loyalty award, gift in cash or in kind and other benefits of similar nature actually received by officials and employees of both government and private offices, INCLUDING THE ADDITIONAL COMPENSATION ALLOWANCE ("ACA") GRANTED AND PAID TO ALL OFFICIALS AND EMPLOYEES OF THE NATIONAL GOVERNMENT AGENCIES (NGA's) INCLUDING STATE UNIVERSITIES AND COLLEGES (SUC's), GOVERNMENT-OWNED AND/OR CONTROLLED CORPORATIONS (GOCCs), GOVERNMENT FINANCIAL INSTITUTIONS (GFIs) AND LOCAL GOVERNMENT UNITS (LGUs) "xxx xxx xxx" 4. Finally, Revenue Regulations No. 1-2000 was promulgated on December 14, 2000 amending Revenue Regulations No. 2-98 and 3-98, as last amended by Revenue Regulations No. 8-2000 with respect to the exemption of Monetized Leave Credits of Government Officials and Employees under Executive Order No. 291. Pertinent portions of said Revenue Regulations are hereby quoted as follows: "(7) Vacation and sick leave allowances. Amounts of "vacation allowances or sick leave credits" which are paid to an employee constitute compensation. Thus, the salary of an employee on vacation or on sick leave, which IS paid notwithstanding his absence from work, constitutes compensation. However, the monetized value of unutilized vacation leave credits of ten (10) days or less which ARE paid to PRIVATE employees during the year AND THE MONETIZED VALUE OF LEAVE CREDITS PAID TO GOVERNMENT OFFICIALS AND EMPLOYEES SHALL NOT BE SUBJECT TO INCOME TAX AND CONSEQUENTLY TO WITHHOLDING TAX." "xxx xxx xxx It is hoped that we have sufficiently clarified you regarding the above Particulars of Concern of your region. Very truly yours, (SGD.) MILAGROS V. REGALADO Acting Assistant Commissioner (Legal Service)