BIR Ruling [DA-390-98]

August 25, 1998 BIR RULING [DA-390-98] Commission on Audit Quezon City Attention: Dir . Lourdes B . Dimapilis Planning Financial & Management Office M a d a m : This refers to your letter dated March 5, 1997 requesting in effect for ruling as to whether or not additional compensation allowance (ACA) is exempt from income tax and consequently from withholding tax pending its integration with basic salary of the employees up to Salary Grade 25. In reply, please be informed that this office hereby reiterates its previous ruling, stating that while the additional compensation allowance received monthly by government officials and employees having Salary Grade 1 up to Salary Grade 25 shall not be subject to the withholding tax pending its formal integration into the basic pay of the subject government personnel, the same shall still be includible in the taxable gross compensation income of the employees. (BIR Ruling No. 06-95 dated January 16, 1995) In other words, while the said additional compensation allowance is being computed and paid separately from the basic pay of the employee, and therefore no withholding tax is being deducted therefrom, it does not, however, negate the fact that the additional compensation allowance is considered as income, and therefore, includible as part of gross income under Section 32 of the Tax Code of 1997 (then Section 28 of the Tax Code of 1997, as amended), which provides that "gross income means all income derived from whatever source (but not limited to) . . ." and consequently subject to income tax. aisadc Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group