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