BIR Ruling [DA-228-99]

April 13, 1999 BIR RULING [DA-228-99] The Regional Director Revenue Region No. 16 Cagayan de Oro City S i r : This refers to the Particulars of Concern indicated in your Summary Report of Staff Meeting Discussions for the month of October 1998. re: Whether or not Personnel Economic Relief Allowance (PERA) and Additional Compensation Allowance (ACA) are subject to withholding tax Revenue Memorandum Circular No. 15-92 dated March 11, 1992 the subject of which is : "Tax Treatment of Personnel Economic Relief Allowance (PERA)" is still in force because our request for reconsideration of the Secretary of Justice Opinion dated July 3, 1991 has not yet been resolved by the said Office as of this date. Accordingly, the deduction of the withholding tax on PERA should still be held in abeyance notwithstanding the fact that under the Tax Code of 1997, the same (PERA) is not included among those exempt from withholding tax. As regards ACA, please be informed that in several rulings issued by this Office on the subject-matter, we have consistently ruled that the P500.00 additional compensation allowance is subject to income tax although it is not yet subject to the withholding tax and the only time that it will be subject to the withholding tax deduction is upon its formal integration to the basic pay of the Government personnel as provided for under paragraph 1 (1.2) of Administrative Order No. 53. The reason for this is explained in the dispositive portion of our Memorandum to the Regional Director of the Revenue Region No. 10, Legaspi City (DA-184-98 dated May 8, 1998) as follows: xxx xxx xxx Furthermore, the term "income tax deductions," under 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 to the basic pay of the Government personnel but it does not necessarily mean that it is not 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. LexLib Please be guided accordingly. Very truly yours, (SGD.) MILAGROS V. REGALADO Head Revenue Executive Assistant (Legal Services)