Republic of the Philippines

COMMISSION ON AUDIT
OFFICE OF THE TEAM LEADER
Team No. R9-07- Audit Group C,
City Hall Complex, Zamboanga City
Tel No. 955-2061/ Fax No. 955-2060
AOM No.: 16-0__ (2015)
Date:
March
31, 2016
AUDIT OBSERVATION MEMORANDUM (AOM)
FOR : Hon. MARIA ISABELLE CLIMACO-SALAZAR
City Mayor
City Government of Zamboanga City
Attention:

Ms. Sylvia P. Binarao

City Accountant
Mr. Felixberto T. Eleno
Assistant City Accountant

We have audited the payment of Income Taxes of the City Government

of Zamboanga and noted that:
The total compensation income and other benefits of its officers and
employees declared by the City Government of Zamboanga in their
2015
Tax
Alphalist
is
understated
by
P59.61 Million due to the non-inclusion of other gross compensation
income and other benefits including Overtime Pay and Night Pay,
Honoraria, Loyalty Award, Cash Gift, Productivity Incentive
Allowance (PIA) and Collective Negotiation Agreement (CNA)
Incentive which is contrary to Revenue Memorandum (RMO) No. 232014 dated June 20, 2014 and Section 32 (A) of the National Internal
Revenue Code of 1997 and resulted to the underpayment of income
taxes for 2015
Revenue Memorandum Order (RMO) No. 23-2014 dated June 20, 2014
on the subject of the Obligations of Government Agencies, Bureaus and
Instrumentalities as Withholding Agents citing Section 32 (A) of the National
Internal Revenue Code of 1997, as amended provides for the general
definition of gross income which includes, compensation for services, in

whatever form paid and no matter how called, form part of gross income.
Compensation income includes, among others, salaries, fees, wages,
emoluments and honoraria, allowances, commissions (e.g. transportation,
representation, entertainment and the like); fees including director's fees, if
the director is, at the same time, an employee of the employer/corporation;
taxable bonuses and fringe benefits except those which are subject to the
fringe benefits tax under Section 33 of the NIRC; taxable pensions and
retirement pay; and other income of a similar nature.

The foregoing also includes allowances, bonuses, and other benefits of

similar nature received by officials and employees of the Government of the
Republic of the Philippines or any of its branches, agencies and
instrumentalities, its political subdivisions, including government-owned
and/or controlled corporations (herein referred to as officials and employees
in the public sector) which are composed of (but are not limited to) the
following:

A. xxx;

B. xxx;

C. xxx; and,

D. Allowances, bonuses, honoraria or benefits received by employees and

officials in the Executive Branch, such as the Productivity
Enhancement Incentive (PEI), Performance-Based Bonus, anniversary
bonus and other allowances, bonuses and benefits given by the
departments, agencies and other offices under the Executive Branch
to their officials and employees, subject to the exemptions
enumerated herein.

Review of the 2015 Tax Alphalist of the City Government of Zamboanga

which provides a summary of all taxes withheld and paid by the City
Government in behalf of its officers and employees and the basis for its
computation, disclosed that the City only declared the annual basic salary of
employees, as well as the 13th month pay and the Productivity Enhancement
Incentive (PEI) received by the officers and employees in 2015. Comparison
of such benefits declared in the 2015 Tax Alphalist and the Personnel
Benefits recorded in the books of the City Government of Zamboanga
revealed that the City paid CNA incentives, cash gift, PIA, overtime and night
pay, honoraria to BAC members, loyalty award and honoraria paid to City
employees under special projects which were not included in the 2015 Tax
Alphalist even when these benefits fall within the definition of gross income
provided for in the NIRC. These benefits are detailed below:
Compensation Income and
Amount
Other Benefits
CNA Incentive
41,175,000.00
Cash Gift
9,825,500.00
Productivity Incentive Allowance
4,108,000.00
Overtime and Night Pay
1,963,253.52
Honoraria paid to BAC Members
1,181,900.00
Loyalty Award
1,090,000.00
Honoraria paid under special
270,600.00
projects
Total
P59,614,253.52
The non-inclusion of these benefits in the 2015 Alphalist resulted to
both the under declaration and underpayment of income taxes by the City
Government of Zamboanga. Moreover, the proper determination of the tax
rates to be applied in the computation of income tax due is also
compromised because of the under declared compensation and other
benefits.
We therefore recommend that
a. The City Government of Zamboanga recompute their income
tax due in light of the aforementioned tax regulations and
amend their income tax declaration to properly include all
compensation income and the other personnel benefits that
were not included in the 2015 Tax Alphalist and,

b. The City Government of Zamboanga, in the succeeding

periods, should properly include all the benefits paid by the
City to its employees for the proper computation and
remittance of the taxes which are due to the government.
May we have your comments on the foregoing audit observations within
five (5) days from receipt hereof.

JOENAS C. SUASO
PATANGAN
State Auditor IV
Audit Team Leader

MA.

GUDELIA

State Auditor V
OIC-Supervising Auditor

Proof of Receipt of AOM:

Name of Person Responsible

Q.

Position

1. Hon. Maria Isabelle Climaco- City Mayor

Salazar
2. Ms. Sylvia P. Binarao
City
Accountant
3. Mr. Felixberto T. Eleno
Assistant City
Accountant
.

Received
by
(Please
print &
sign)

Date