Taxability of Benefits of Resigned Employee from the BSP Provident Fund

December 4, 2001 BIR RULING NO. 054-01 32 (B) (6) (b) Career Executive Service Board No. 3 Marcelino Street, Holy Spirit Drive Diliman, Quezon City Attention: Atty . Normita L . Villanueva Executive Director Gentlemen : This refers to your letter dated November 25, 2000 requesting for a ruling on the taxability of the benefits due you in the Bangko Sentral ng Pilipinas Provident Fund (BSPF) on account of your resignation from the Bangko Sentral ng Pilipinas and immediate transfer to the Career Executives Service Board. It is represented in resolution of the BSP Provident Fund Board of Trustees (BSP-PFBT) dated October 18, 2000, the Board decided as follows; 1. that your bank share (both Provident and Housing funds), proportionate earnings thereto, as well as your share in the General Reserve fund is subject to withholding on income tax unless you were able to secure a contrary opinion from the BIR; 2. that you were advised to take up the matter with the BIR; and 3. that the Board is holding in abeyance the withholding of taxes on your Provident Fund benefits for three (3) months to give you ample time to pursue your case with the BIR. that you were in the employ of the Bank for six (6) years (but with a total of 16 years in government); that you are only 45 years old but you disagree with the decision of the BSP-PFBT that your benefits from the BSPPF are subject to withholding tax; that you have no other retirement or separation benefits except from your membership in the Provident Fund; that when appointed as Executive Director of the Career Executive Service Board, your compensation package has been drastically reduced which to your estimate is more or less 50%; and that the appointment to the directorship of the CESB comes from the Office of the President. In reply, please be informed that pursuant to Section 32(B)(6)(b) of the Tax Code of 1997, any amount received by an official or employee from the employer as a consequence of separation of such official or employee from the service of the employer because of death, or sickness or other physical disability or for any cause beyond the control of the said official or employee shall not be included in his gross income and shall be exempt from taxation. The basic issue to be resolved in whether or not vacating an existing position in one government office through resignation and accepting an appointment to another office is embraced within the meaning of the phrase "for any cause beyond the control of the said official or employee", which would entitle the employee to tax exemption with respect to the benefits derived from a Provident Fund. The Philippine Civil Service Employee Handbook as published by the Civil Service Commission (SCS) outlines the grounds of separation from service by government employees. On the subject of voluntary separation, it is stated, thus: "10.3 Voluntary Separation . Among the recognized modes of voluntary separation of an officer or employee in the Philippine Civil Service are the following: (a) Resignation (b) Optional Retirement (c) Filing of certificate of candidacy (d) Abandonment of office The term "abandonment of office" has been defined to include an instance where "an officer or employee in the government service may voluntarily abandon his office either by accepting an appointment to another office or by failing to report back to duty after the expiration of his authorized or approved leave of absence." On the basis of the foregoing, your resignation and subsequent appointment to another office can be properly considered as voluntary separation and therefore does not fall within the purview of the phrase "for any cause beyond the control of said official of employee" under Section 32(B)(6)(b) of the Tax Code of 1997. Moreover, your contention that your benefits are tax exempt under Section 32(B)(6)(f) of the Tax Code of 1997 will not hold water since the said proviso exempts "benefits received from the GSIS under Republic Act (RA) No. 8291 including retirement gratuity received by the government officials and employees." As discussed above, your appointment to another office falls within the purview of "abandonment of office" and not "retirement" from the service as contemplated under the retirement laws, (CA No. 186, as amended, RA No. 340, 910, as amended) It is a well-settled principle in statutory construction that exemption from tax is strictly construe against the taxpayer and liberally construed in favor of the taxing authority. A taxpayer who claims an exemption must be able to justify by the clearest grant of organic or statute law its exemption from the payment of tax. An exemption from the common burden cannot be permitted to exist upon vague implication. HIAcCD In view hereof, this office is of the opinion that the amount you received from the BSP Provident Fund as a result of your appointment to another office is subject to income tax and consequently to the withholding tax. Very truly yours. (SGD.) RENE G. BAEZ Commissioner of Internal Revenue