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Gentlemen :
This refers to your letter dated January 14, 2002, behalf of your client, Ms.
Teresita Y. Vigan, requesting for a confirmation of your opinion that any amount
received by an official or employee or by his heir from the employer as a
consequence of separation of such official or employee from the service of the
employer because of death, sickness or other physical disability or for any cause
beyond the control of the said official or employee are not subject to withholding
tax.
1. Separation pay;
2. Backwages;
5. Moral damages;
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6. Exemplary damages; and
7. Attorney's fees.
that the decision became final and executory and the case was remanded to the
National Labor Relations Commission (NLRC) for execution; that based on the
computation of the NLRC, your client is entitled to a monetary award of
P806,803.59; that however, the employer was willing to pay only P720,363.53, the
amount it arrived at after subjecting each of the items enumerated above to
withholding tax; and that while your client agrees that the amount of backwages is
subject to withholding tax, it is her position that the rest of the monetary award
should not be subject to withholding tax.
Under Section 32(B)(6)(a) and (b) of the Tax Code of 1997, any amount
received by an official or employee from the service of the employer as a
consequence of separation of such official or employee from the service of the
employer because of death, sickness or other physical disability or for any cause
beyond the control of the said official or employee is exempt from taxes regardless
of age or length of service. The phrase "for any cause beyond the control of said
official or employee" connotes involuntariness on the part of the official or
employee. The separation from the service of the official or employee must not be
asked for or initiated by him.
Thus considering that the separation of Ms. Teresita Vigan is due to the
aforecited illegal dismissal case, the same connotes involuntariness, hence, any
and all amounts received by her as separation benefits are exempt from income tax
and consequently from the withholding tax prescribed by Section 79, Chapter XIII,
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Title II of the Tax Code of 1997, as implemented by Revenue Regulations No.
2-98. (BIR Ruling No. DA-290-99 dated May 13, 1999).
The payment of Ms. Vigan's backwages, 13th month pay and other benefits,
in excess of the P30,000.00 threshold, is subject, however, to income tax and
consequently to the withholding tax. (BIR Ruling No. SB 69-98 dated October 6,
1998)
Moreover, the commutation and payment of unused sick leave and vacation
leave credits as well as the service incentive leave pay are not subject to income
tax and consequently, to withholding tax (CIR vs. CA & Efren P. Castaeda, G.R.
96016 prom. Oct. 17, 1991).
In addition, the award of moral and exemplary damages are not subject to
withholding tax, being not considered a taxable income within the purview of
Section 31 of the Tax Code of 1997. Neither the attorney's fees, the same being
merely a reimbursement of your client's expenses or advances in the course of
litigation.
By:
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 3