BIR Ruling [DA-283-99]

May 13, 1999 BIR RULING [DA-283-99] Office of the President of the Philippines Presidential Management Staff Malacaang, Manila Attention: Mr. Demetrio L. Ignacio, Jr. Undersecretary Gentlemen : This refers to your letter dated April 8, 1999 requesting for a clarification on the issue of the taxability of additional compensation allowance (ACA), granted to government personnel under Presidential Administrative Order No. 53 (AO 53), series of 1993. In reply, please be informed that in several rulings issued by this Office on the same subject matter, the latest of which is DA-184-98 dated May 8, 1998, citing BIR Ruling No. 103-97, addressed to the Bicol University Union of Federated Faculty Association, we have consistently ruled that the ACA in the amount of Five Hundred Pesos (P500.00) is subject to income tax, although AO 53 provides that it shall not yet be subject to the withholding tax deduction until its formal integration into the basic pay of subject government personnel. We cite the pertinent portion of the abovementioned ruling, as follows: "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 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 Section 72 of the Tax Code, as amended, (now Section 79 of the Tax Code of 1997) upon its formal integration into the basic pay of the subject government employee." cIADTC This Office hereby stands by the abovecited pronouncements it has previously issued regarding the taxability of the ACA. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)