The Supreme Court ruled certain provisions of Revenue Regulation No. 10-2008 invalid. Specifically, the Court ruled that Sections 1 and 3 improperly disqualified minimum wage earners (MWEs) from tax exemptions if they received other benefits exceeding ₱30,000, even though the law did not contain this requirement. The Court also invalidated the prorated application of personal and additional exemptions for 2008, as the law intended these exemptions to apply for the full year. The Court directed tax authorities to provide refunds to taxpayers affected by the invalid provisions.
The Supreme Court ruled certain provisions of Revenue Regulation No. 10-2008 invalid. Specifically, the Court ruled that Sections 1 and 3 improperly disqualified minimum wage earners (MWEs) from tax exemptions if they received other benefits exceeding ₱30,000, even though the law did not contain this requirement. The Court also invalidated the prorated application of personal and additional exemptions for 2008, as the law intended these exemptions to apply for the full year. The Court directed tax authorities to provide refunds to taxpayers affected by the invalid provisions.
The Supreme Court ruled certain provisions of Revenue Regulation No. 10-2008 invalid. Specifically, the Court ruled that Sections 1 and 3 improperly disqualified minimum wage earners (MWEs) from tax exemptions if they received other benefits exceeding ₱30,000, even though the law did not contain this requirement. The Court also invalidated the prorated application of personal and additional exemptions for 2008, as the law intended these exemptions to apply for the full year. The Court directed tax authorities to provide refunds to taxpayers affected by the invalid provisions.
The Supreme Court ruled certain provisions of Revenue Regulation No. 10-2008 invalid. Specifically, the Court ruled that Sections 1 and 3 improperly disqualified minimum wage earners (MWEs) from tax exemptions if they received other benefits exceeding ₱30,000, even though the law did not contain this requirement. The Court also invalidated the prorated application of personal and additional exemptions for 2008, as the law intended these exemptions to apply for the full year. The Court directed tax authorities to provide refunds to taxpayers affected by the invalid provisions.
Download as DOCX, PDF, TXT or read online from Scribd
Download as docx, pdf, or txt
You are on page 1of 6
Soriano vs Secretary of Finance | G.R. No. 184450 | 01/24/17 | C.J.
Raised the Optional Standard Deduction
Sereno (OSD) for individual taxpayers from 10% of gross income to 40% of the gross receipts or FACTS: gross sales. Consolidated petitions seeking to nullify certain provisions of Introduced the OSD to corporate taxpayers Revenue Regulation No. (RR) 10-2008. at no more than 40% of their gross income. R.A. 9504 Granted Minimum Wage Earers (MWEs) o May 19, 2008 Senate filed its Senate Committee exemption from payment of income tax on Report No. 53 on Senate Bill No. (S.B.) 2293. their minimum wage, holiday pay, overtime o May 21, 2008 former President Gloria M. Arroyo pay, night shift differential pay and hazard certified the passage of the bill as urgent through a pay. letter addressed to then Senate President Manuel o Section 9 shall take effect 15 days following its Villar. publication in the Official Gazette or in at least two o Same day bill was passed on second reading in newspapers of general circulation. the Senate o R.A. 9504 was published in the Manila Bulletin and o May 27, 2008 bill was passed on third reading. Malaya on 21 June 2008. o May 28, 2008 the Senate sent S.B. 2293 to the o July 6, 2008 law took effect. House of Representatives for the latter's RR 10-2008 concurrence. o September 24, 2008, the BIR issued RR 10-2008, o June 04, 2008, S.B. 2293 was adopted by the House dated 08 July 2008, implementing the provisions of of Representatives as an amendment to House Bill R.A. 9504. No. (H.B.) 3971. The issuance and effectivity of RR 10-2008 implementing o 17 17, June 2008 R.A. 9504 entitled "An Act R.A. 9504 spawned the present Petitions. Amending Sections 22, 24, 34, 35, 51, and 79 of G.R. No. 184450 Republic Act No. 8424, as Amended, Otherwise o Petitioners Jaime N. Soriano et al. primarily assail Known as the National Internal Revenue Code of Section 3 of RR 10-2008 providing for the prorated 1997," was approved and signed into law by application of the personal and additional President Arroyo. exemptions for taxable year 2008 to begin only o Salient features of the new law: effective 6 July 2008 for being contrary to Section 4 Increased the basic personal exemption of Republic Act No. 9504. from ₱20,000 for a single individual, G.R. No. 184508 ₱25,000 for the head of the family, and o Then Senator Manuel Roxas, as principal author of ₱32,000 for a married individual to P50,000 R.A. 9504, also argues for a full taxable year for each individual. treatment of the income tax benefits of the new law. Increased the additional exemption for each o He says that the pro rata application of the assailed dependent not exceeding four from ₱8,000 RR deprives MWEs of the financial relief extended to to ₱25,000. them by the law; o Senator Roxas argues that the exemption of MWEs (b) DECLARE NULL and VOID the following provisions of Revenue is absolute, regardless of the amount of the other Regulations No. 10-2008: benefits they receive. (i) Sections 1 and 3, insofar as they disqualify MWEs who G.R. No. 184538 earn purely compensation income from the privilege of the MWE o Petitioner Trade Union Congress of the Philippine exemption in case they receive bonuses and other compensation- contends that the provisions of R.A. 9504 provide for related benefits exceeding the statutory ceiling of ₱30,000; the application of the tax exemption for the full (ii) Section 3 insofar as it provides for the prorated calendar year 2008. application of the personal and additional exemptions under R.A. o It also espouses the interpretation that R.A. 9504 9504 for taxable year 2008, and for the period of applicability of the provides for the unqualified tax exemption of the MWE exemption to begin only on 6 July 2008. income of MWEs regardless of the other benefits (c) DIRECT respondents Secretary of Finance and Commissioner of they receive. Internal Revenue to grant a refund, or allow the application of the G.R. No. 185234 refund by way of withholding tax adjustments, or allow a claim for tax o Petitioners Senator Francis Joseph Escudero, the credits by (i) all individual taxpayers whose incomes for taxable year 2008 were the subject of the prorated increase in personal and Tax Management Association of the Philippines, additional tax exemption; and (ii) all MWEs whose minimum wage Inc., and Ernesto Ebro allege that R.A. 9504 incomes were subjected to tax for their receipt of the 13th month pay unconditionally grants MWEs exemption from and other bonuses and benefits exceeding the threshold amount income tax on their taxable income, as well as under Section 32(B)(7)(e) of the 1997 Tax Code. increased personal and additional exemptions for other individual taxpayers, for the whole year 2008. RATIO: o They note that the assailed RR 10-2008 restricts the SC Sections 1 and 3 of RR 10-2008 add a requirement start of the exemptions to 6 July 2008 and provides not found in the law by effectively declaring that an MWE that those MWEs who received "other benefits" in who receives other benefits in excess of the statutory excess of ₱30,000 are not exempt from income limit of ₱30,000 is no longer entitled to the exemption taxation. Petitioners believe this RR is a "patent provided by R.A. 9504. nullity" 15 and therefore void. The BIR added a requirement not found in the law. Comment of the OSG Nowhere in the provisions of R.A. 9504 would one find the o Application of R.A. 9504 was intended to be qualifications prescribed by the assailed provisions of RR prospective, and not retroactive. 10-2008. The provisions of the law are clear and precise; they leave ISSUE: Whether Sections 1 and 3 of RR 10-2008 are consistent with no room for interpretation - they do not provide or require the law in providing that an MWE who receives other benefits in any other qualification as to who are MWEs. excess of the statutory limit of ₱30,000 is no longer entitled to the To be exempt, one must be an MWE, a term that is clearly exemption provided by R.A. 9504.? defined.
RULING: WHEREFORE, the Court resolves to: (a) GRANT the
Petitions for Certiorari, Prohibition, and Mandamus; and DEFINITION OF MWE o It is distinct and different from other payments o Section 22(HH) says he/she must be one who is including allowances, honoraria, commissions, paid the statutory minimum wage if he/she works in allowances or benefits that an employer may pay or the private sector, or not more than the statutory provide an employee. minimum wage in the non-agricultural sector where Other compensation incomes an MWE receives that are also he/she is assigned, if he/she is a government exempted by R.A. 9504 are all mandated by law and are employee. based on this minimum wage. Thus, one is either an MWE or he/she is not. o Additional compensation in the form of overtime pay is mandated for work beyond the normal hours LITMUS TEST based on the employee's regular wage. MWE is the status acquired upon passing the litmus test - o Those working between ten o'clock in the evening whether one receives wages not exceeding the prescribed and six o'clock in the morning are required to be minimum wage. paid a night shift differential based on their regular wage. LABOR CODE DEFINITION o Holiday/premium pay is mandated whether one The minimum wage referred to in the definition has itself a works on regular holidays or on one's scheduled rest clear and definite meaning. days and special holidays. o MW rate fixed by the Regional Tripartite Wage and Productivity Board, which is a creation of the IN THIS CASE: COVERAGE OF EXCEPTION Labor Code. R.A. 9504 is explicit as to the coverage of the exemption: the While the Labor Code's definition of "wage" appears to wages that are not in excess of the minimum wage as encompass any payments of any designation that an determined by the wage boards, including the corresponding employer pays his or her employees, the concept of holiday, overtime, night differential and hazard pays. minimum wage is distinct RA 9504 exempts from income taxation the most basic "Minimum wage" is wage mandated; one that employers compensation an employee receives - the amount afforded may not freely choose on their own to designate in any to the lowest paid employees by the mandate of law. which way. In a way, the legislature grants to these lowest paid o Article 99 minimum wage rates are to be employees additional income by no longer demanding from prescribed by the Regional Tripartite Wages and them a contribution for the operations of government. Productivity Boards. In Articles 102 to 105, specific R.A. 9504 social legislation. instructions are given in relation to the payment of The government, by way of the tax exemption, affords wages. They must be paid in legal tender at least increased purchasing power to this sector of the working once every two weeks, or twice a month, at intervals class. not exceeding 16 days, directly to the worker, except The increased purchasing power is estimated at about in case of force majeure or death of the worker. ₱9,500 a year.
IN THIS CASE: DEFINITION OF MWE IS LC DEF PROBLEM WITH RR 10-2008
Minimum wage exempted by R.A. 9504 is that which is RR 10-2008, however, takes this away. referred to in the Labor Code. o Declared that once an MWE receives other forms of o These are included in the pertinent items of gross taxable income like commissions, honoraria, and income in Section 31. fringe benefits in excess of the non-taxable statutory o "Gross income" in Section 32 includes, among many amount of ₱30,000, MWE immediately becomes other items, "compensation for services in whatever ineligible for tax exemption; and otherwise non- form paid, including, but not limited to salaries, taxable minimum wage, along with the other taxable wages, commissions, and similar items." incomes of the MWE, becomes taxable again. o R.A. 9504 particularly exempts the minimum wage Respondents R.A.9504 is a social legislation meant for and its incidents; it does not provide exemption for social justice, but insist that it is too generous, and that the many other forms of compensation. consideration must be given to the fiscal position and Second are the other items of income that, prior to R.A. financial capability of the government. 9504, were excluded from gross income and were therefore SC While Respondents acknowledge that the intent of the not subject to tax. income tax exemption of MWEs is to free low-income o Other payments that employees may receive from earners from the burden of taxation, they, in the guise of employers pursuant to their employer-employee clarification, proceed to redefine which incomes may or may relationship, such as bonuses and other benefits. not be granted exemption. o Either mandated by law (such as the 13th month pay) o SC Respondents cannot do this without or granted upon the employer's prerogative or are encroaching on purely legislative prerogatives. pursuant to collective bargaining agreements (as productivity incentives). RESPONDENTS CANNOT REDEFINE WHICH INCOMES MAY OR o These items were not changed by R.A. 9504. MAY NOT BE GRANTED EXEMPTION It becomes evident that the exemption on benefits granted SC ₱30,000 statutory ceiling on benefits has its beginning by law in 1994 are now extended to wages of the least paid in 1994 under R. A. 7833, which amended then Section 28(b workers under R.A. 9504. )(8) of the 1977 NIRC. Benefits not beyond ₱30,000 were exempted; wages not o Substantially carried over as Section 32(B) beyond the SMW are now exempted as well. (Exclusion from Gross Income) of Chapter VI Conversely, benefits in excess of ₱30,000 are subject to tax (Computation of Gross Income) of Title II (Tax on and now, wages in excess of the SMW are still subject to Income) in the 1997 NIRC (R.A. 8424). tax. o R.A. 9504 does not amend that provision of R.A. What the legislature is exempting is the MWE's minimum 8424, wage and other forms statutory compensation like holiday A careful reading of these provisions will show at least two pay, overtime pay, night shift differential pay, and hazard distinct groups of items of compensation. pay. o Those that are further exempted from tax by R.A. These are not bonuses or other benefits; these are wages. 9504; SC Respondents seek to frustrate this exemption o Items of compensation that R.A. 9504 does not granted by the legislature. amend and are thus unchanged and in no need to o RES anyone receiving 13th month pay and other be disturbed. benefits in excess of ₱30,000 cannot be an MWE. First are the different items of compensation subject to tax They seek to impose their own definition of "MWE" prior to R.A. 9504. by arguing thus: SC do not agree with such argument. o SC supposed undesirable "income distortion" has o Nothing to this effect can be read from R.A. 9504. been addressed in the Senate deliberations. o The amendment is silent on whether compensation- o SC Indeed, there is a distortion, one that RR 10- related benefits exceeding the ₱30,000 threshold 2008 actually engenders. would make an MWE lose exemption. R o While respondents insist that MWEs who are o RA. 9504 has given definite criteria for what earning purely compensation income will lose their constitutes an MWE, and R.R. 10-2008 cannot MWE exemption the moment they receive benefits in change this. excess of ₱30,000, RR 10-2008 does not withdraw SC An administrative agency may not enlarge, alter or the MWE exemption from those who are earning restrict a provision of law. other income outside of their employer-employee o It cannot add to the requirements provided by law. relationship. o To do so constitutes lawmaking, which is generally o SC provisions of RR 10-2008 reveal a bias reserved for Congress. against those who are purely compensation earners. o Again, respondents are delving into policy-making LANGUAGE OF THE LAW IS PLAIN AND CLEAR they presume bad faith on the part of the employers, SC not persuaded that RR 10-2008 merely clarifies the and then shift the burden of this presumption and lay law. it on the backs of the lowest paid workers. o The CIR' s clarification is not warranted when the o This presumption of bad faith does not even reflect language of the law is plain and clear. pragmatic reality. The deliberations of the Senate reflect its understanding of o It must be remembered that a worker's holiday, the outworking of this MWE exemption in relation to the overtime and night differential pays are all based on treatment of benefits, both those for the ₱30,000 threshold the worker's regular wage. and the de minimis benefits o Thus, there will always be pressure from the workers SC treatment of bonuses and other benefits that an to increase, not decrease, their basic pay. employee receives from the employer in excess of the What is not acceptable is the blatant inequity between the ₱30,000 ceiling cannot but be the same as the prevailing treatment that RR 10-2008 gives to those who earn purely treatment prior to R.A. 9504 - anything in excess of ₱30,000 compensation income and that given to those who have is taxable; no more, no less. other sources of income. o Treatment of this excess cannot operate to Respondents want to tax the MWEs who serve their disenfranchise the MWE from enjoying the employer well and thus receive higher bonuses or exemption explicitly granted by R.A. 9504. performance incentives; but exempts the MWEs who serve, The government's argument that the RR avoids a tax in addition to their employer, their other business or distortion has no merit. professional interests. o SC respondents are venturing into policy-making, SC cannot sustain respondent’s position. a function that properly belongs to Congress. Proper Interpretation of R.A. 9504 It imposes taxes only o Respondents cannot interfere with the wisdom of on the taxable income received in excess of the minimum R.A. 9504 must respect and implement it as wage, but the MWEs will not lose their exemption as such. enacted. Workers who receive the statutory minimum wage their basic pay remain MWEs. The receipt of any other income during the year does not disqualify them as MWEs. They remain MWEs, entitled to exemption as such, but the taxable income they receive other than as MWEs may be subjected to appropriate taxes. CLEAR LEGISLATIVE INTENT SC R.A. 9504 must be liberally construed. o SC mindful of the strict construction rule when it comes to the interpretation of tax exemption laws. o The canon, however, is tempered by several exceptions, one of which is when the taxpayer falls within the purview of the exemption by clear legislative intent. o In this situation, the rule of liberal interpretation applies in favor of the grantee and against the government. o In this case, there is a clear legislative intent to exempt the minimum wage received by an MWE who earns additional income on top of the minimum wage. As previously discussed, this intent can be seen from both the law and the deliberations.