Resolution No. 98-132 of Sangguniang Panglungsod of Ormoc City

August 11, 1999 BIR RULING [DA-460-99] MEMORANDUM FOR : Hon . Solomon S. Cua Undersecretary of Finance Department of Finance FROM : Beethoven L. Rualo Commissioner of Internal Revenue SUBJECT : Resolution No. 98-132 of Sangguniang Panlungsod of Ormoc City DATE : December 23, 1998 Features of Resolution No. 98-132 This proposed resolution seeks to exempt from the payment of income tax and consequently from withholding tax, the monetized leave credits not exceeding thirty (30) days of Government officials and employees, thereby amending the corresponding provisions of Revenue Regulations Nos. 2-98 and 3-98. cdll COMMENTS: Vacation leave is granted to give employees opportunity to replenish worn-out energies and acquire new vitality to perform their duties efficiently. (Sun-Ripe Coconut Products, Inc. vs. The National Labor Union, No. L-7964, prom. October 18, 1955) While the purpose of the resolution is laudable, as it will compensate government officials and employees who, due to the exigencies of service, are unable to go on leave, it would nevertheless create a negative result on the revenue collection of the BIR since it is settled that only monetized unused vacation leave not exceeding ten (10) days during the year shall be exempt from income tax and consequently from withholding tax. Likewise, the proposed resolution seeking to exempt the monetized leave credits not exceeding thirty (30) days from income tax would indeed run afoul to the rules and regulations of the BIR, since the same constitute compensation income subject to withholding tax, if given to rank and file employees, and fringe benefit subject to the fringe benefit tax if given to managerial or supervisory employees. In view thereof, this Office does not recommend the passage of this resolution. (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue