BIR Ruling [DA-267-04]

May 17, 2004 BIR RULING [DA-267-04] Section 72 BIR Ruling No. DA-190-00 Pambansang Tinig at Lakas sa Pantalan c/o Philippine Ports Authority Port Management Office-Davao Km. 10, Sasa Wharf, Port Area Davao City 8000 Attention: Natividad P. Amorillo President Gentlemen : This refers to your letter dated October 14, 2002 requesting in behalf of the Philippine Ports Authority (PPA) rank and file employees for a ruling on whether the additional compensation allowance (ACA) is subject to income tax. It is represented that the PPA rank and file employees received demand letters together with assessment notices on deficiency income tax for taxable year 1998 in view of the inclusion of ACA in their gross income. In reply, please be informed that prior to August 21, 2000, the Five Hundred Pesos (PhP500.00) ACA per month granted, beginning May 1, 1993 to government officials and. employees with salary grade of up to grade 25 under Administrative Order No. 53 is in the nature of compensation as explicitly provided in the first "WHEREAS clause" of the said Order. However, Item No. 1 (1.2) of the said Order provides, viz : "The 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." In view of the foregoing, the said PhP500.00 additional compensation given to the employees of the Philippine Ports Authority shall be subject to income tax prescribed under Section 24(A)(1)(c) of the 1997 Tax Code. However, inasmuch as it has not yet been formally integrated into the government personnel's basic pay, the sum/total of the ACA received by government personnel within a year shall form part of their year end adjusted compensation income for purposes of computing their taxable net income ( BIR Ruling No. DA-190-2000 dated March 30, 2000 ). However, Revenue Regulations No. 8-2000, as amended, dated August 21, 2000 provides: "(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 (NGAs) INCLUDING STATE UNIVERSITIES AND COLLEGES (SUCs), GOVERNMENT-OWNED AND/OR CONTROLLED CORPORATIONS (GOCCs), GOVERNMENT FINANCIAL INSTITUTIONS (GFIs) AND LOCAL GOVERNMENT UNITS (LGUs) xxx xxx xxx" Accordingly, beginning August 21, 2000, ACA shall not be subject to income tax and consequently to the withholding tax prescribed under Section 72 of the 1997 Tax Code, as implemented by Revenue Regulations No. 8-2000, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group