Jaime N. Soriano, et al. vs. Secretary of Finance and The Commissioner of Internal Revenue
G.R. No. 184450, January 24, 2017
On 17 June 2008, R.A. 9504 entitled “An Act Amending Sections 22, 24, 34, 35, 51, and 79 of Republic Act No. 8424, as Amended, Otherwise Known as the National Internal Revenue Code of 1997,” was approved and signed into law by President Arroyo. On 24 September 2008, the Bureau of Internal Revenue (BIR) issued RR 10-2008, dated 08 July 2008, implementing the provisions of R.A. 9504.
Petitioners assail the subject RR as an unauthorized departure from the legislative intent of R.A. 9504. The regulation allegedly restricts the implementation of the minimum wage earners’ (MWE) income tax exemption only to the period starting from 6 July 2008, instead of applying the exemption to the entire year 2008. They further challenge the BIR’s adoption of the prorated application of the new set of personal and additional exemptions for taxable year 2008. They also contest the validity of the RR’s alleged imposition of a condition for the availment by MWEs of the exemption provided by R.A. 9504. Supposedly, in the event they receive other benefits in excess of P30,000, they can no longer avail themselves of that exemption. Petitioners contend that the law provides for the unconditional exemption of MWEs from income tax and, thus, pray that the RR be nullified.
1) Whether or not the increased personal and additional exemptions provided by R.A. 9504 should be applied to the entire taxable year 2008
2)Whether or not Sections 1 and 3 of RR 10-2008 are consistent with the law in providing that an MWE who receives other benefits in excess of the statutory limit of P30,00019 is no longer entitled to the exemption provided by R.A. 9504
1) Yes. R.A. 9504 as a piece of social legislation clearly intended to afford immediate tax relief to individual taxpayers, particularly low-income compensation earners. Indeed, if R.A. 9504 was to take effect beginning taxable year 2009 or half of the year 2008 only, then the intent of Congress to address the increase in the cost of living in 2008 would have been negated. In one case, the test is whether the new set of personal and additional exemptions was available at the time of the filing of the income tax return. In other words, while the status of the individual taxpayers is determined at the close of the taxable year, their personal and additional exemptions – and consequently the computation of their taxable income – are reckoned when the tax becomes due, and not while the income is being earned or received.
In the present case, the increased exemptions were already available much earlier than the required time of filing of the return on 15 April 2009. R.A. 9504 came into law on 6 July 2008, more than nine months before the deadline for the filing of the income tax return for taxable year 2008. Hence, individual taxpayers were entitled to claim the increased amounts for the entire year 2008. This was true despite the fact that incomes were already earned or received prior to the law’s effectivity on 6 July 2008.
2) Yes. To be exempt, one must be an MWE, a term that is clearly defined. Section 22(HH) of Republic Act No. 8424 says he/she must be one who is paid the statutory minimum wage if he/she works in the private sector, or not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned, if he/she is a government employee. R.A. 9504 is explicit as to the coverage of the exemption: the wages that are not in excess of the minimum wage as determined by the wage boards, including the corresponding holiday, overtime, night differential and hazard pays. In other words, the law exempts from income taxation the most basic compensation an employee receives – the amount afforded to the lowest paid employees by the mandate of law. In a way, the legislature grants to these lowest paid employees additional income by no longer demanding from them a contribution for the operations of government.
An administrative agency may not enlarge, alter or restrict a provision of law. The Court is not persuaded that RR 10-2008 merely clarifies the law. The treatment of bonuses and other benefits that an employee receives from the employer in excess of the P30,000 ceiling cannot but be the same as the prevailing treatment prior to R.A. 9504 – anything in excess of P30,000 is taxable; no more, no less.
The treatment of this excess cannot operate to disenfranchise the MWE from enjoying the exemption explicitly granted by R.A. 9504. Moreover, RR 10-2008 does not withdraw the MWE exemption from those who are earning other income outside of their employer employee relationship. Section 2.78.1 (B) of RR 10-2008 provides that: MWEs receiving other income, such as income from the conduct of trade, business, or practice of profession, except income subject to final tax, in addition to compensation income are not exempted from income tax on their entire income earned during the taxable year. This rule, notwithstanding, the SMW, Holiday pay, overtime pay, night shift differential pay and hazard pay shall still be exempt from withholding tax.
In sum, the proper interpretation of R.A. 9504 is that it imposes taxes only on the taxable income received in excess of the minimum wage, but the MWEs will not lose their exemption as such. 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.