Money Value of Accumulated Vacation and Sick Leaves Subject to Income Tax

April 10, 1985 BIR RULING NO. 053-85 29c-7-F 036-83 053-85 S i r : This refers to your Opinion No. 99, Series of 1985, holding that the ruling of this Office to the effect that the money value of the accumulated vacation and sick leave credits of retiring government officials and employees is subject to income tax, has been superseded by P.D. No. 220. cdta In connection therewith, I have the honor to request consideration of said opinion. Social security benefits, retirement gratuities, pensions and other similar benefits received by retiring employees and workers, whether received from Philippine or foreign government agencies and other institutions, private or public, were unqualifiedly exempt from income tax pursuant to P.D. No. 220 which took effect on June 20, 1973 . However, on June 3, 1977, Presidential Decree No. 1158-A was passed amending certain sections of the National Internal Revenue Code of 1939 for incorporation in the consolidation and codification of all existing revenue laws, i.e., as of June 3, 1977 under Presidential Decree No. 1158. Thus, effective June 3, 1977 under subparagraph (b) of Section 29 of the National Internal Revenue Code of 1939 was amended by Section 2 of Presidential Decree No. 1158-A by incorporating in the National Internal Revenue Code of 1977, the provisions of Section 1 of Republic Act No. 4917 and of Presidential Decree No. 220 as Section 29(b)(7)(A), (B), (C), (D), (E) and (F) (now Section 29(c)(7)(A), (B), (C), (D), (E) and (F) of the Tax Code of 1977 as amended, covers the whole subject of Presidential Decree No. 220 and retirement benefits, pensions and similar benefits received by retiring officials and employees only from Philippine Government agencies are among those in the enumeration of items of income excluded from gross income or gross compensation income, as the case may be, which shall be exempt from taxation. Under the principle of "Ejusdem generis" where general terms follow the designation of particular things or classes of persons or subjects, the general terms will be construed to include those things or persons of the same class or of the same nature as those specifically enumerated. (Crawford, Statutory Construction, p. 191). Thus, the phrase "other similar benefits" in P.D. No. 220 following an enumeration of social security benefits, gratuities, pensions includes only such benefit which are of the same nature or like character as those particularly mentioned or enumerated which consist of payment of benefits an account of complete separation from the service of the employer thereby excluding from the ambit of the statute, payment of benefits which are actually part of the compensation/salary earned, payable and accumulated throughout the years, e.g., accumulated vacation and sick leave credits, while the employee is still in the employ of the Development Bank of the Philippines (DBP) and, therefore, part of taxable compensation of said employee. Such being the case, the ruling of this Office subjecting the money value of accumulated vacation and sick leaves to income tax is still in force and is not in any way superseded by P.D. No. 220. Leave privilege is an accessory to an individual's right to hold public office. It is a privilege enjoyed by an employee and, in fact, payable to him even while he is still in the service or employ of his employer as part of his compensation for services rendered. That it is cumulative and commutative does not change its true that of being an "actual service privilege" (Civil Service Commission Ruling dated June 1, 1960, CSC Opinions and Rulings, Volumes I-III). Vacation and sick leaves are privileges arising out of employment and specifically provided for under Rule XVI of the Civil Service Act of 1959. A vacation leave is granted to give employees opportunity to replenish worn-out energies and acquire new vitality to perform duties efficiently (Sun-Ripe Coconut Products, Inc. vs. The National Labor Union, No. L-7964, prom. Oct. 18, 1955) while a sick leave is intended to improve the health during employment for better work performance (Recio vs. Auditor General, G.R. No. L-11557, prom. April 17, 1959) In view thereof, this Office still believes in the correctness of its ruling that the money value of accumulated vacation and sick leaves are part of compensation for service rendered subject to income tax and consequently, to the withholding tax on wages provisions of Chapter XI, Title II of the Tax Code as implemented by Revenue Regulations No. 6-82. This ruling will be followed unless the above request for reconsideration is denied by that Office. Very truly yours, (SGD.) TOMAS C. TOLEDO Acting Commissioner