BIR Ruling [DA-491-03]

December 10, 2003 BIR RULING [DA-491-03] #018-2002 Social Security System Branch 4 San Pablo City Attention: Atty. Expectacion S. Bautista-Baldeo Senior Attorney Gentlemen : This refers to your letter dated December 19, 2000 requesting for guidance on the effects of the abrogation of Section 2.78.1(A)(7) of Revenue Regulations No. 2-98 by Executive Order No. 291. It is represented that Section 2.78.1(A)(7) of Revenue Regulations No. 2-98 had been abrogated by Executive Order 291 (MONETIZATION OF LEAVE CREDITS OF GOVERNMENT OFFICIALS AND EMPLOYEES) dated September 27, 2000; that in view of the implementation of said Executive Order, you have to refund to your officials and employees the amount of P369,036.55, P63,971.08 for calendar year 1998 and P305,065.47 for calendar year 1999; and that you have also withheld the income tax due on the monetized leave credits of your officials and employees for calendar year 2000. It can be gleaned from your letter that it is your position that the abrogation of Section 2.78.1(A)(7) of Revenue Regulations No. 2-98 by Section 2 of Executive Order No. 291 renders erroneous the withholding of the income tax on your official's and employees' monetized leave credits thus entitling said employees to the refund thereof under Section 229 of the National Internal Revenue Code of 1997. Thus you are asking for authority to offset the taxes claimed for refund by your officials and employees covering the calendar years 1998 and 1999 in the aggregate amount of P369,036.55 from the current year remittances of withholding taxes. In reply, please be informed that in BIR Ruling No. 018-2002 dated May 3, 2002, this Office ruled that the fact that Section 2.78(A)(7) of Revenue Regulations No. 2-98 was subsequently abrogated by his Excellency President Joseph E. Estrada under Executive Order No. 291 does not render erroneous the withholding of income tax on your employees' monetized leave credits in excess of ten days, to wit: "The fact that Section 2.78(A)(7) of Revenue Regulations 2-98 was subsequently abrogated by his Excellency President Joseph E. Estrada under Executive Order No. 291 does not render erroneous the withholding of income tax on your employees' monetized leave credits in excess of ten days as, at the time it was collected, a valid regulation implementing an existing law mandated its collection." In view of the foregoing ruling, this Office regrets to inform you that we cannot grant you the authority to offset from the current year's remittances of withholding taxes the income taxes withheld from your officials' and employees' monetized leave credits for the calendar years 1998 and 1999. Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group