BIR Ruling No. 363-12

May 31, 2012 BIR RULING NO. 363-12 RA 8291; Sec. 32 (B) (6) (f) of the Tax Code of 1997, as amended; 000-00 Victor A. Yap Governor Province of Tarlac Sir : This refers to your undated letter requesting for a ruling on your Early Retirement Incentive Plan pursuant to the rationalization program of your organization. DCTSEA It is represented that the Provincial Government of Tarlac with a Tax Identification Number 207-609-591-000, will undertake a reorganization program to its existing plantilla to pave way for the creation of a re-engineered organizational set-up that will elevate the standards of public service; streamline government functions and will effectively and efficiently respond to government operations and services. It is further represented that Provincial Government of Tarlac promulgated Rules and Regulations Implementing the Early Retirement Incentive Plan for Tarlac Provincial Government Employees Ordinance (Provincial Ordinance No. 002-2009 as amended by Provincial Ordinance No. 003-2010) and the Separation and/or Gratuity & Loyalty Benefits to Casual & Job Order employees of the Provincial Government of Tarlac (Provincial Ordinance No. 003-2009), Rules 6, 7 and 8 of which provides, to wit: Rule 6. Early Retirement/Voluntary Separation Benefits. (a) All permanent appointive government officials and employees who voluntarily elect in writing to be retired/separated from the Provincial Government of Tarlac and whose applications for retirement/separation has been approved by the Provincial Governor under the provisions of the Early Retirement Incentive Plan Ordinance (Provincial Ordinance No. 002-2009 as amended by Provincial Ordinance No. 003-2010) shall be paid retirement/separation benefits based on the following formula provided herein below on the basis of their respective 2010 basic salary, provided that in no case shall it exceed 125% of the employee's 2010 basic salary multiplied to his/her length of service, to wit: a. For Permanent Employees 60 years of age and above the formula shall be: 2010 Basic Salary x number of months before attaining age of 65 x 0.50 b. For Permanent Employees below 60 years of age they shall be entitled to separation benefit based on the following formula, to wit: Below 50 years of age 2010 Basic Salary x LOS x .050 50-54 years of age 2010 Basic Salary x LOS x .075 50-59 years of age 2010 Basic Salary x LOS x 1.00 LOS shall mean Length of Service on a yearly basis. Rule 7. Additional Benefits. In addition to the benefits herein authorized, covered appointive official and employees who retired from the service the Early Retirement Incentive Plan Ordinance (Provincial Ordinance No. 002-2009 as amended by Provincial Ordinance No. 003-2010) shall be entitled to the payment of Service award to Two Thousand Pesos (P2,000.00) multiplied by the number of years in the service. This additional Service award shall be without prejudice to the payment of terminal leave and other benefits covered by the prevailing Retirement Plan, if applicable. Rule 8. Casual Employees/JO's. (a) All employees whose casual employment had been continuously renewed for a minimum period of at least three (3) years and for those personnel under "Job Order" status who were former casual employees and have rendered at least three (3) years consecutive service as casual employees, who wish to avail of the Separation and/or Gratuity Plan under Provincial Ordinance No. 003-2009, shall be entitled to the following benefits: 1. Separation and/or Gratuity Pay equivalent to One month Salary/Rate for every year of Service, and 2. Loyalty Service Award P1, 000.00 for every year of service. (b) In addition to the herein authorized benefits, Casual and "Job Order" employees who are separated from the service thru Ordinance, shall be entitled to the payment of terminal leave and other benefits covered by the prevailing GSIS Retirement Plan, if applicable. In reply thereto, please be informed that pursuant to Section 32 (B) (6) (f) of the Tax Code of 1997, benefits received from the GSIS under Republic Act No. 8291, 1 including retirement gratuity received by government officials and employees shall not be included in gross income and shall be exempt from income tax. Since the voluntary availment of the benefits of the reorganization program and the Early Retirement Incentive Plan is a consequence of the reorganization of your organization to pave way for the creation of a re-engineered organizational set-up that will elevate the standards of public service; streamline government functions and will effectively and efficiently respond to government operations and services, thus, for officials and employees of the Provincial Government of Tarlac who are already qualified to avail of the early retirement under Republic Act No. 8291, the payment of the Early Retirement Incentive Plan benefits shall be considered as part of their retirement gratuity and therefore exempt from the payment of income tax pursuant to Section 32 (B) (6) (f) of the Tax Code of 1997. However, for officials and employees, who are not yet qualified to avail of the early retirement and who want to avail of the Early Retirement Incentive Plan by resigning from their position, the benefits that they will receive under the Plan shall be considered as part of their compensation income which are subject to income tax and consequently to the withholding tax on wages under Section 79, Chapter XIII, Title II of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. aAcHCT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. To qualify for this retirement mode: a) The retiree must have rendered at least 15 years of service and must be at least 60 years of age upon retirement. b) He/she must not be a permanent total disability pensioner.