BIR Ruling [DA-184-98]

May 8, 1998 BIR RULING [DA-184-98] MEMORANDUM TO: The Regional Director Revenue Region No. 10 Legaspi City This refers to your letter dated January 8, 1996 bearing on the letter dated December 11, 1995 of Mr. Eliseo C. Del Gallego, Chairman of the Committee on Human Rights and Good Government, Sangguniang Bayan Member, Del Gallego, Camarines Sur, for appropriate and final action on his request for reconsideration of your Regional Ruling dated March 20, 1995, where it was held that: cdll "xxx xxx xxx "Viewed from the foregoing, this Office is of the opinion as it hereby holds that ACA, though not subjected yet to withholding tax, is nevertheless, a taxable income and hence, includible; in W-2 Form as part of the gross compensation income subject to tax under Sec. 21(a) of the Tax Code, as amended." 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. 103-97 dated July 29, 1997 addressed to the Bicol University Union of Federated Faculty Association, 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 72 of the Tax Code, as amended, as implemented by Revenue Regulations No. 6-82, as amended and the only time that it will be subjected to the withholding tax deduction is upon its format 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: "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) Consequently, the issue of whether or not Administrative Order No. 53 amends the Tax Code is of no moment because while it is true that only the Legislative Branch of the Government can amend a law, we believe, that no amendment whatsoever, whether directly or indirectly, was brought about by the aforementioned AO 53 to the Tax Code, as amended. In fact the term " additional compensation allowance ," as its name connotes, is indeed a "compensation" embraced within the term "taxable compensation income" which is defined as "all remuneration for services performed by an employee for his employer unless specifically excepted under Secs. 27, 28(b) and 71 of the Tax Code" (now Secs. 31, 32(B) and 78 of the Tax Code of 1997). The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, bonuses, allowances (such as transportation, representation, entertainment and the like), fringe benefits (monetary and non-monetary), fees, including director's fees, taxable pensions and retirement pay, and other income of a similar nature constitute taxable compensation income. Furthermore, the term "income tax deductions," under the 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 necessary 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 Sec. 72 of the Tax Code, as amended, (now Sec. 79 of the Tax Code of 1997) upon its formal integration into the basic pay of the subject Government employee. In view thereof, we hereby confirm the ruling issued by Regional Director Alberto R. Paggabao, Jr. dated April 16, 1997 that ACA, although not yet subject to withholding tax pending its formal integration into the basic pay of government personnel is nevertheless a taxable compensation income and hence, includible in the W-2 Form as part of the gross compensation income subject to the schedular rate of tax prescribed by Section 21(a) of the Tax Code (now Sec. 24(A) Code of 1997). (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)