Soriano vs Secretary of Finance

G.R. No. 184450 | 01/24/17 | C.J. Sereno

FACTS:
 Consolidated petitions seeking to nullify certain provisions of Revenue Regulation No. (RR) 10-2008.
 R.A. 9504
o May 19, 2008  Senate filed its Senate Committee Report No. 53 on Senate Bill No. (S.B.) 2293.
o May 21, 2008  former President Gloria M. Arroyo certified the passage of the bill as urgent through a letter
addressed to then Senate President Manuel Villar.
o Same day  bill was passed on second reading in the Senate
o May 27, 2008  bill was passed on third reading.
o May 28, 2008  the Senate sent S.B. 2293 to the House of Representatives for the latter's concurrence.
o June 04, 2008, S.B. 2293 was adopted by the House of Representatives as an amendment to House Bill
No. (H.B.) 3971.
o 17 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.
o Salient features of the new law:
 Increased the basic personal exemption from ₱20,000 for a single individual, ₱25,000 for the head
of the family, and ₱32,000 for a married individual to P50,000 for each individual.
 Increased the additional exemption for each dependent not exceeding four from ₱8,000 to
₱25,000.
 Raised the Optional Standard Deduction (OSD) for individual taxpayers from 10% of gross income
to 40% of the gross receipts or gross sales.
 Introduced the OSD to corporate taxpayers at no more than 40% of their gross income.
 Granted MWEs exemption from payment of income tax on their minimum wage, holiday pay,
overtime pay, night shift differential pay and hazard pay.
o Section 9  shall take effect 15 days following its publication in the Official Gazette or in at least two
newspapers of general circulation.
 o R.A. 9504 was published in the Manila Bulletin and Malaya on 21 June 2008.
o July 6, 2008  law took effect.
 RR 10-2008
o September 24, 2008, the BIR issued RR 10-2008, dated 08 July 2008, implementing the provisions of
R.A. 9504.
 The issuance and effectivity of RR 10-2008 implementing R.A. 9504 spawned the present Petitions.
 G.R. No. 184450
o Petitioners Jaime N. Soriano et al. primarily assail Section 3 of RR 10-2008 providing for the prorated
application of the personal and additional exemptions for taxable year 2008 to begin only effective 6
July 2008 for being contrary to Section 4 of Republic Act No. 9504.
 G.R. No. 184508
o Then Senator Manuel Roxas, as principal author of R.A. 9504, also argues for a full taxable year treatment
of the income tax benefits of the new law.
o He says that the pro rata application of the assailed RR deprives MWEs of the financial relief
extended to them by the law;
o Senator Roxas argues that the exemption of MWEs is absolute, regardless of the amount of the other
benefits they receive.
 G.R. No. 184538
o Petitioner Trade Union Congress of the Philippine contends that the provisions of R.A. 9504 provide for the
application of the tax exemption for the full calendar year 2008.
o It also espouses the interpretation that R.A. 9504 provides for the unqualified tax exemption of the income of
MWEs regardless of the other benefits they receive.
 G.R. No. 185234
o Petitioners Senator Francis Joseph Escudero, the Tax Management Association of the Philippines, Inc., and
Ernesto Ebro allege that R.A. 9504 unconditionally grants MWEs exemption from income tax on their
taxable income, as well as increased personal and additional exemptions for other individual taxpayers, for
the whole year 2008.
o They note that the assailed RR 10-2008 restricts the start of the exemptions to 6 July 2008 and
provides that those MWEs who received "other benefits" in excess of ₱30,000 are not exempt from
income taxation. Petitioners believe this RR is a "patent nullity" 15 and therefore void.
  Comment of the OSG
o Application of R.A. 9504 was intended to be prospective, and not retroactive.

ISSUE:

Whether 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 ₱30,000 19 is no longer entitled to the exemption provided by R.A. 9504.?

RULING:

WHEREFORE, the Court resolves to: (a) GRANT the Petitions for Certiorari, Prohibition, and Mandamus; and
(b) DECLARE NULL and VOID the following provisions of Revenue Regulations No. 10-2008:
(i) Sections 1 and 3, insofar as they disqualify MWEs who earn purely compensation income from the privilege of
the MWE exemption in case they receive bonuses and other compensation-related benefits exceeding the statutory
ceiling of ₱30,000;
(ii) Section 3 insofar as it provides for the prorated application of the personal and additional exemptions under
R.A. 9504 for taxable year 2008, and for the period of applicability of the MWE exemption to begin only on 6 July 2008.
(c) DIRECT respondents Secretary of Finance and Commissioner of Internal Revenue to grant a refund, or allow the
application of the refund by way of withholding tax adjustments, or allow a claim for tax credits by (i) all individual
taxpayers whose incomes for taxable year 2008 were the subject of the prorated increase in personal and additional tax
exemption; and (ii) all MWEs whose minimum wage incomes were subjected to tax for their receipt of the 13th month pay
and other bonuses and benefits exceeding the threshold amount under Section 32(B)(7)(e) of the 1997 Tax Code.

RATIO:
 SC  Sections 1 and 3 of RR 10-2008 add a requirement not found in the law by effectively declaring that an MWE
who receives other benefits in excess of the statutory limit of ₱30,000 is no longer entitled to the exemption
provided by R.A. 9504.
 The BIR added a requirement not found in the law.
 Nowhere in the provisions of R.A. 9504 would one find the qualifications prescribed by the assailed provisions of
RR 10-2008.
 The provisions of the law are clear and precise; they leave no room for interpretation - they do not provide or
require any other qualification as to who are MWEs.
 To be exempt, one must be an MWE, a term that is clearly defined.
o Section 22(HH) 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.
 Thus, one is either an MWE or he/she is not.
 MWE is the status acquired upon passing the litmus test - whether one receives wages not exceeding the
prescribed minimum wage.
 The minimum wage referred to in the definition has itself a clear and definite meaning.
o MW  rate fixed by the Regional Tripartite Wage and Productivity Board, which is a creation of the Labor
Code.
 While the Labor Code's definition of "wage" appears to encompass any payments of any designation that an
employer pays his or her employees, the concept of minimum wage is distinct
 "Minimum wage" is wage mandated; one that employers may not freely choose on their own to designate in any
which way.
o Article 99  minimum wage rates are to be prescribed by the Regional Tripartite Wages and Productivity
Boards. In Articles 102 to 105, specific instructions are given in relation to the payment of wages. They must
be paid in legal tender at least once every two weeks, or twice a month, at intervals not exceeding 16 days,
directly to the worker, except in case of force majeure or death of the worker.
 Minimum wage exempted by R.A. 9504 is that which is referred to in the Labor Code.
o It is distinct and different from other payments including allowances, honoraria, commissions, allowances or
benefits that an employer may pay or provide an employee.
 Other compensation incomes an MWE receives that are also exempted by R.A. 9504 are all mandated by law and
are based on this minimum wage.
o Additional compensation in the form of overtime pay is mandated for work beyond the normal hours based
on the employee's regular wage.
o Those working between ten o'clock in the evening and six o'clock in the morning are required to be paid a
night shift differential based on their regular wage.
o Holiday/premium pay is mandated whether one works on regular holidays or on one's scheduled rest days
and special holidays.
 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.
 RA 9504  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.
 R.A. 9504  social legislation.
 The government, by way of the tax exemption, affords increased purchasing power to this sector of the working
class.
 The increased purchasing power is estimated at about ₱9,500 a year.
 RR 10-2008, however, takes this away.
o Declared that once an MWE receives other forms of taxable income like commissions, honoraria, and fringe
benefits in excess of the non-taxable statutory amount of ₱30,000, MWE immediately becomes ineligible for
tax exemption; and otherwise non-taxable minimum wage, along with the other taxable incomes of the
MWE, becomes taxable again.
 Respondents  R.A.9504 is a social legislation meant for social justice, but insist that it is too generous, and that
consideration must be given to the fiscal position and financial capability of the government.
 SC  While Respondents acknowledge that the intent of the income tax exemption of MWEs is to free low-income
earners from the burden of taxation, they, in the guise of clarification, proceed to redefine which incomes may or
may not be granted exemption.
o SC Respondents cannot do this without encroaching on purely legislative prerogatives.
 SC  ₱30,000 statutory ceiling on benefits has its beginning in 1994 under R. A. 7833, which amended then
Section 28(b )(8) of the 1977 NIRC.
o Substantially carried over as Section 32(B) (Exclusion from Gross Income) of Chapter VI (Computation of
Gross Income) of Title II (Tax on Income) in the 1997 NIRC (R.A. 8424).
o R.A. 9504 does not amend that provision of R.A. 8424,
 A careful reading of these provisions will show at least two distinct groups of items of compensation.
o Those that are further exempted from tax by R.A. 9504;
o Items of compensation that R.A. 9504 does not amend and are thus unchanged and in no need to be
disturbed.
 First are the different items of compensation subject to tax prior to R.A. 9504.
o These are included in the pertinent items of gross income in Section 31.
 o "Gross income" in Section 32 includes, among many other items, "compensation for services in whatever
form paid, including, but not limited to salaries, wages, commissions, and similar items."
o R.A. 9504 particularly exempts the minimum wage and its incidents; it does not provide exemption for the
many other forms of compensation.
 Second are the other items of income that, prior to R.A. 9504, were excluded from gross income and were
therefore not subject to tax.
o Other payments that employees may receive from employers pursuant to their employer-employee
relationship, such as bonuses and other benefits.
o Either mandated by law (such as the 13th month pay) or granted upon the employer's prerogative or are
pursuant to collective bargaining agreements (as productivity incentives).
o These items were not changed by R.A. 9504.
 It becomes evident that the exemption on benefits granted by law in 1994 are now extended to wages of the least
paid workers under R.A. 9504.
 Benefits not beyond ₱30,000 were exempted; wages not beyond the SMW are now exempted as well.
 Conversely, benefits in excess of ₱30,000 are subject to tax and now, wages in excess of the SMW are still subject
to tax.
 What the legislature is exempting is the MWE's minimum wage and other forms statutory compensation like holiday
pay, overtime pay, night shift differential pay, and hazard pay.
 These are not bonuses or other benefits; these are wages.
 SC  Respondents seek to frustrate this exemption granted by the legislature.
o RES  anyone receiving 13th month pay and other benefits in excess of ₱30,000 cannot be an MWE. They
seek to impose their own definition of "MWE" by arguing thus:
 SC do not agree with such argument.
o Nothing to this effect can be read from R.A. 9504.
o The amendment is silent on whether compensation-related benefits exceeding the ₱30,000 threshold would
make an MWE lose exemption. R
o .A. 9504 has given definite criteria for what constitutes an MWE, and R.R. 10-2008 cannot change this.
 SC  An administrative agency may not enlarge, alter or restrict a provision of law.
o It cannot add to the requirements provided by law.
o To do so constitutes lawmaking, which is generally reserved for Congress. 
 SC  not persuaded that RR 10-2008 merely clarifies the law.
o The CIR' s clarification is not warranted when the language of the law is plain and clear. 
 The deliberations of the Senate reflect its understanding of the outworking of this MWE exemption in relation to the
treatment of benefits, both those for the ₱30,000 threshold and the de minimis benefits
 SC  treatment of bonuses and other benefits that an employee receives from the employer in excess of the
₱30,000 ceiling cannot but be the same as the prevailing treatment prior to R.A. 9504 - anything in excess of
₱30,000 is taxable; no more, no less.
o Treatment of this excess cannot operate to disenfranchise the MWE from enjoying the exemption explicitly
granted by R.A. 9504.
 The government's argument that the RR avoids a tax distortion has no merit.
o SC  respondents are venturing into policy-making, a function that properly belongs to Congress.
o Respondents cannot interfere with the wisdom of R.A. 9504  must respect and implement it as enacted.
o SC  supposed undesirable "income distortion" has been addressed in the Senate deliberations.
o SC  Indeed, there is a distortion, one that RR 10-2008 actually engenders.
o While respondents insist that MWEs who are earning purely compensation income will lose their MWE
exemption the moment they receive benefits in excess of ₱30,000, RR 10-2008 does not withdraw the MWE
exemption from those who are earning other income outside of their employer-employee relationship.
o SC  provisions of RR 10-2008 reveal a bias against those who are purely compensation earners.
o Again, respondents are delving into policy-making they presume bad faith on the part of the employers, and
then shift the burden of this presumption and lay it on the backs of the lowest paid workers.
o This presumption of bad faith does not even reflect pragmatic reality.
o It must be remembered that a worker's holiday, 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.
 What is not acceptable is the blatant inequity between the treatment that RR 10-2008 gives to those who earn
purely compensation income and that given to those who have other sources of income.
 Respondents want to tax the MWEs who serve their employer well and thus receive higher bonuses or
performance incentives; but exempts the MWEs who serve, in addition to their employer, their other business or
professional interests.
 SC  cannot sustain respondent’s position.
 Proper Interpretation of R.A. 9504  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.
 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.