BIR Ruling [DA-281-00]

July 10, 2000 BIR RULING [DA-281-00] Philippine Tourism Authority DOT Building, T.M. Kalaw St. Teodoro F. Valencia Circle Ermita, Manila Attention: Mr . Edgar T . Bocar Acting Deputy General Manager for Administration Gentlemen : This refers to your letter dated November 29, 1999 requesting for guidance on whether or not the amount granted in favor of Ms. Marsha Paras and others similarly situated under your Separation Assistance Plan, and from which was deducted an amount as withholding tax on income, may likewise be considered as part of retirement gratuity and, therefore, exempt from the payment of income tax. It is represented that the Philippine Tourism Authority, in its drive to cut down personnel services cost, offered employees holding coterminous items a Separation Assistance Plan; that according to the Plan, those holding coterminous items and who desire to be separated from the service will be granted financial assistance depending on the length of their service; that Marsha Paras, 58 years of age, and holding the position of Assistant Department Manager of your Human Resources Department (classified coterminous with the incumbent), availed herself of the Plan and subsequently optionally retired on May 1, 199; that she was paid her retirement gratuities as a GSIS retiree under Republic Act No. 660; that your office, however, deducted from her separation assistance an amount equivalent to the applicable withholding tax on income; that she is now requesting for a refund of the amount withheld; her request is grounded on the favorable consideration given by the Bureau of Internal Revenue on the case of Gilda Bengzon who likewise retired optionally under RA 660; that in reply to a written request for a ruling from Ms. Bengzon, the Honorable Commissioner led that the amount withheld from the Separation Assistance Plan benefits "shall be considered as part of their retirement gratuity and therefore exempt from the payment of income tax pursuant to Section 32(B)(6)(f) of the Tax Code of 1997"; and that Ms. Bengzon, like Ms. Paras, likewise resigned from the service first before she filed for retirement. LibLex In reply, please be informed that pursuant to Section 32(B)(6)(f) of the Tax Code of 1997 (then Sec. 28(b)(7)(F) of the Tax Code, as amended), benefits received from the GSIS under Republic Act No. 8291, including retirement gratuity received by government officials and employees shall not be included in gross income and shall be exempt from income tax. For officials and employees of the PTA who are already qualified to avail of the optional and/or compulsory retirement under Republic Act No. 8291, the payment of the Separation Assistance Plan benefits shall be considered as part of their retirement gratuity and therefore exempt from the payment of income tax pursuant to Section 32(B)(6)(f) of the Tax Code of 1997. However, for officials/employees of the PTA who are not yet qualified to avail of the optional and/or compulsory retirement who want to avail of the Separation Assistance Plan by resigning from their position, the benefits that they will receive under the Plan shall be considered as part of their compensation income which are subject to income tax and consequently to the withholding tax on wages under Section 79, Chapter XIII, Title II of the Tax Code of 1997. (BIR Ruling No. 142-99 dated September 13, 1999) Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI OIC, Deputy Commissioner Legal & Inspection Group