BIR Ruling [DA-712-99]

December 28, 1999 BIR RULING [DA-712-99] Sec. 2.78.1 (A) (7); RR 2-98 Office of the Municipal Accountant Municipality of El Nido Palawan City Attention: Edgar V . Distal Municipal Accountant S i r : This refers to your letter dated May 17, 1999, requesting for a ruling on whether or monetized unused vacation leave credits with a maximum of thirty (30) days (particularly those who are in supervisory level) is subject to withholding tax. It is contended that Joint Circular No. 2-97 of the Department of Budget and Management and the Civil Service Commission provides that all officers and employees of Local Government Units are allowed to monetize their unused leave credits with a maximum of thirty (30) days per year; and that on the other hand, Revenue Regulations No. 2-98 provides that all compensation received by private and government officers and employees by reason of employer-employee relationship are subject to withholding tax. In reply, please be informed that although Section 1, Rule IV of the Joint CSC-DBM Circular No. 2-97 allows the monetization of vacation leave credits up to maximum of 30 days, the limit recognized for exemption of said monetization is only 10 days, pursuant to Section 2.78.1(A)(7) of Revenue Regulations No. 2-98. Accordingly, the monetized value of unutilized vacation leave credits in excess of 10 days is subject to income tax and consequently to withholding tax. (BIR Ruling Nos. 031-92; 099-92 and DA-245-99) Please be guided accordingly. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)