BIR Ruling [DA-170-02]

September 17, 2002 BIR RULING [DA-170-02] E.O. 291 018-2002 Mr. Reginaldo M. Tolentino c/o National Council for the Welfare of Disabled Persons 2nd Floor, Philsucen Building, North Avenue Diliman, Quezon City S i r : This refers to your letter dated April 2, 2002, requesting for the refund of the amount of P4,775.00 representing income tax allegedly withheld from your monetized leave credits in excess of ten (10) days during the calendar year 1999. Among others, you stated that Section 2.78(A)(7) of Revenue Regulations No. 2-98 "is illegal and inconsistent with the intent of E.O. 291 issued by the then President Estrada and CSC Resolution No. 992630 dated December 2, 1999 when it laid down the policy of monetization of leave credits as tax free". DISTcH In reply, we regret that we cannot grant your aforesaid request since the withholding tax in the amount of P4,775.00 was not erroneously nor illegally collected from you. Section 2.78(A)(7) of Revenue Regulations 2-98, prior to its amendment by Revenue Regulations Nos. 7-2000 and 10-2000, specifically provided that the monetized leave credits in excess of ten days is subject to income tax, to wit: "Sec. 2.78. WITHHOLDING TAX ON COMPENSATION. xxx xxx xxx (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 sick leave, which are paid notwithstanding his absence from work, constitutes compensation. However, the monetized value of the unutilized vacation leave credits of ten (10) days or less which were paid to the employee during the year are not subject to income tax and to the withholding tax." There is no dispute that at the time said amount was collected, Section 2.78(A)(7) of Revenue Regulations No. 2-98 was a valid regulation implementing an existing law. It was promulgated by the Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue, by virtue of the power vested in him under Section 244 of the NIRC of 1997. It is a well-settled rule in administrative law that administrative regulations and policies enacted by administrative bodies to interpret the law which they are entrusted to enforce have the force and effect of law . ( Sierra Madre Trust vs. Secretary of Agriculture and Natural Resources, 121 SCRA 384 [1983]; Asturias Sugar Central Inc. vs. Commissioner of Customs, 29 SCRA 617 [1969]; Antique Sawmill Inc. vs. Zayco, et al., 17 SCRA 316 [1966] ). ADTCaI The fact that Section 2.78(A)(7) of Revenue Regulations No. 2-98 was subsequently abrogated by his Excellency President Joseph E. Estrada under Executive Order No. 291 does not render erroneous the withholding of the corresponding income tax on your monetized leave credits in excess of ten days as, at the time it was collected, a valid regulation implementing an existing law mandated its collection. ( BIR Ruling No. 018-2002 dated May 3, 2002 ) Accordingly, we regret to deny your aforesaid request for lack of legal basis. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group