BIR Ruling [DA-433-98]

September 24, 1998 BIR RULING [DA-433-98] Ms. Edita B. Benavente c/o Malilipot Teachers Association Malilipot, Albay M a d a m : This refers to your letter dated October 30, 1997 which was referred to this Office by Senator Ernesto M. Maceda, requesting on behalf of the teachers in general and of the teachers of Malilipot District in particular, for a clarification on the implementation/passage of the Additional Compensation Allowance otherwise known as ACA. cdta It is represented that the BIR Regional Office No. 5, based in Legaspi City, Albay, insists that it is mandatory for all government offices to grant ACA to its employees; that when you filed your respective income tax returns, the said BIR Regional Office insisted that ACA should have been included therein and that the same is taxable; and that you objected to this since you have not yet received such allowances as shown in your W-2 which does not reflect the same. In reply, please be informed that the Five Hundred Pesos (P500.00) additional compensation allowance per month granted to government officials and employees beginning May 1, 1993 with salary grade 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: "This 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.'' Such being the case, the said P500.00 additional compensation shall be subject to income tax although it is not yet subject to the withholding tax prescribed under then Section 72 of the Tax Code, as amended, (now Section 79 of the Tax Code of 1997) reckoned from the time the ACA is received by the government employee concerned, and the only time that it will be subjected to withholding tax is upon its formal integration to the basic pay of the said government personnel with salary grade up to Grade 25. (BIR Ruling No. 103-97 dated September 29, 1997) However, if it is true that the said teachers are not yet receiving their respective ACA, it necessarily follows that they should not be subjected to any tax on a benefit that they have not yet received. LLcd Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)