RE: REQUEST OF ATTY. BERNARDO ZIALCITA, 190 SCRA 851 (TAX)

Since terminal leave is applied for by an officer or employee who has already severed his connection with his employer ans who is no longer working, then it follows that TERMINAL LEAVE PAY, which is the cash value of his accumulated leave credits, should not be treated as compensation for services rendered at that time. It cannot be viewed as salary for purposes which would reduce it. There can be no "commutation of salary" when a government retiree applies for terminal leave because he is not receiving it as salary. what applies for is a commutation of leave credits. It is an accumulation of credits intended for old age or separation from the service. Hence, Section 286 of the Revised Administrative Code is not applicable. It cannot be construed as limiting the basis of the computation of terminal pay to monthly salary only.

COMMISSIONER V. CA (TAX)

Issue: Whether terminal leave pay is subject to income tax.

NO.

Ruling: TERMINAL LEAVE PAY received by a government official or employee is not subject to withholding income tax. In the exercise of sound personnel policy, the Government encourages unused leaves to be accumulated. The Government recognizes that retirement pay for public servants is less than generous, if not meager or scrimpy. Terminal payments are given thus not only at the same time but also for the same policy considerations governing retirement benefits. Not being part of the gross salary or income of a government official or employee but retirement benefit, terminal leave pay is not subject to income tax.