MARGARITO B.

TEVES, in his capacity as Secretary of the Department of Finance and

SIXTO S. ESQUIVIAS IV, in his capacity as Commissioner of the Bureau of Internal
Today is Saturday, February 10, 2018 Revenue, Respondents.

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SERENO, CJ.:

EN BANC Before us are consolidated Petitions for Certiorari, Prohibition and Mandamus, under
Rule 65 of the 1997 Revised Rules of Court. These Petitions seek to nullify certain
January 24, 2017 RR 10-2008 provisions of Revenue Regulation No. (RR) 10-2008. The RR was issued by the Bureau
of Internal Revenue (BIR) on 24 September 2008 to implement the provisions of
G.R. No. 184450 Tax Code Amendment Republic Act No. (R.A.) 9504. The law granted, among others, income tax exemption for
minimum wage earners (MWEs), as well as an increase in personal and additional
JAIME N. SORIANO, MICHAEL VERNON M. GUERRERO, MARY ANN L. exemptions for individual taxpayers.
REYES, MARAH SHARYN M. DE CASTRO and CRIS P. TENORIO, Petitioners,
vs. Petitioners assail the subject RR as an unauthorized departure from the legislative intent
SECRETARY OF FINANCE and the COMMISSIONER OF INTERNAL REVENUE, of R.A. 9504. The regulation allegedly restricts the implementation of the MWEs income
Respondents. 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
x-----------------------x 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
G.R. No. 184508 availment by MWEs of the exemption provided by R.A. 9504. Supposedly, in the event
they receive other benefits in excess of ₱30,000, they can no longer avail themselves of
SENATOR MANUEL A. ROXAS, Petitioner, that exemption. Petitioners contend that the law provides for the unconditional exemption
vs. of MWEs from income tax and, thus, pray that the RR be nullified.
MARGARITO B. TEVES, in his capacity as Secretary of the Department of Finance and
LILIAN B. HEFTI, in her capacity as Commissioner of the Bureau of Internal Revenue, ANTECEDENT FACTS
Respondents.
R.A. 9504
x-----------------------x
On 19 May 2008, the Senate filed its Senate Committee Report No. 53 on Senate Bill No.
G.R. No. 184538 (S.B.) 2293. On 21 May 2008, former President Gloria M. Arroyo certified the passage of
the bill as urgent through a letter addressed to then Senate President Manuel Villar. On
TRADE UNION CONGRESS OF THE PHILIPPINES (TUCP), represented by its the same day, the bill was passed on second reading IN the Senate and, on 27 May 2008,
President, DEMOCRITO T. MENDOZA, Petitioner, Arroyo signed into bill RA 9504 on third reading. The following day, 28 May 2008, the Senate sent S.B. 2293 to the
vs. Amending the Tax Code House of Representatives for the latter's concurrence.
MARGARITO B. TEVES, in his capacity as Secretary of the Department of Finance and
LILIAN B. HEFTI, in her capacity as Commissioner of the Bureau of Internal Revenue, On 04 June 2008, S.B. 2293 was adopted by the House of Representatives as an
Respondents. 5 Salient Features amendment to House Bill No. (H.B.) 3971.
1. Increased basic personal TE
x-----------------------x On 17 June 2008, R.A. 9504 entitled "An Act Amending Sections 22, 24, 34, 35, 51, and
2. Increased additional TE for each dependent
79 of Republic Act No. 8424, as Amended, Otherwise Known as the National Internal
3. Raised Optional Standard Deduction (OSD) for individual taxpayers Revenue Code of 1997," was approved and signed into law by President Arroyo. The
G.R. No. 185234
4. Introduced OSD to corporate taxpayers; AND following are the salient features of the new law:
SENATOR FRANCIS JOSEPH G. ESCUDERO, TAX MANAGEMENT
ASSOCIATION OF THE PHILIPPINES, INC. and ERNESTO G. EBRO, Petitioners, 1. It increased the basic personal exemption from ₱20,000 for a single individual,
vs. ₱25,000 for the head of the family, and ₱32,000 for a married individual to P50,000 for
5. granted MWE TE from income tax on SMW, overtime
each individual.
pay, night shift differential pay, holiday pay, and hazard pay

Effectivity: 15 days after publication (July 6 2008) BIR issued RR10-2008

 Income Tax collected on Compensation Income: 3) excessive de minimis benefits shall be considered as other benefits
1) Employer must withhold 4) MWE with other benefits exceeding 30k statutory limit will not be
2) No WT required for SMW, overtime pay, night shift differnetial pay, holiday pay, and hazard pay considered an MWE; hence taxable both with income and benefits
Productivity Board (RTWPB)/National Wages and Productivity Commission (NWPC),
2. It increased the additional exemption for each dependent not exceeding four from applicable to the place where he/she is assigned.
₱8,000 to ₱25,000.
The aforesaid income shall likewise be exempted from income tax.
3. It raised the Optional Standard Deduction (OSD) for individual taxpayers from 10% of
gross income to 40% of the gross receipts or gross sales. 'Statutory Minimum Wage' (SMW) shall refer to the rate fixed by the Regional Tripartite
Wage and Productivity Board (RTWPB), as defined by the Bureau of Labor and
4. It introduced the OSD to corporate taxpayers at no more than 40% of their gross SMW Employment Statistics (BLES) of the Department of Labor and Employment (DOLE).
income. MWE’s TE: SHON Holiday The RTWPB of each region shall determine the wage rates in the different regions based
Hazard on established criteria and shall be the basis of exemption from income tax for this
5. It granted MWEs exemption from payment of income tax on their minimum wage, Overtime purpose.
holiday pay, overtime pay, night shift differential pay and hazard pay. 1
Nightshift
Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the
Section 9 of the law provides that it shall take effect 15 days following its publication in aforementioned MWE shall likewise be covered by the above exemption. Provided,
the Official Gazette or in at least two newspapers of general circulation. Accordingly, however, that an employee who receives/earns additional compensation such as
R.A. 9504 was published in the Manila Bulletin and Malaya on 21 June 2008. On 6 July commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory
2008, the end of the 15-day period, the law took effect. amount of ₱30,000.00, taxable allowances and other taxable income other than the SMW,
holiday pay, overtime pay, hazard pay and night shift differential pay shall not enjoy the
RR 10-2008 privilege of being a MWE and, therefore, his/her entire earnings are not exempt from
income tax, and consequently, from withholding tax.
On 24 September 2008, the BIR issued RR 10-2008, dated 08 July 2008, implementing
the provisions of R.A. 9504. The relevant portions of the said RR read as follows: 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
SECTION 1. Section 2.78.1 of RR 2-98, as amended, is hereby further amended to read income are not exempted from income tax on their entire income earned during the
as follows: 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.
Sec. 2.78.1. Withholding of Income Tax on Compensation Income.
For purposes of these regulations, hazard pay shall mean the amount paid by the
de minimis benefits not considered in determining 30k ceiling of other benefits
xxxx employer to MWEs who were actually assigned to danger or strife-torn areas, disease-
infested places, or in distressed or isolated stations and camps, which expose them to
The amount of 'de minimis' benefits conforming to the ceiling herein prescribed shall not great danger of contagion or peril to life. Any hazard pay paid to MWEs which does not
be considered in determining the ₱30,000.00 ceiling of 'other benefits' excluded from satisfy the above criteria is deemed subject to income tax and consequently, to
gross income under Section 32 (b) (7) (e) of the Code. Provided that, the excess of the 'de withholding tax.
minimis' benefits over their respective ceilings prescribed by these regulations shall be
considered as part of 'other benefits' and the employee receiving it will be subject to tax xxxx
only on the excess over the ₱30,000.00 ceiling. Provided, further, that MWEs receiving
'other benefits' exceeding the ₱30,000.00 limit shall be taxable on the excess benefits, as SECTION 3. Section 2. 79 of RR 2-98, as amended, is hereby further amended to read as
well as on his salaries, wages and allowances, just like an employee receiving follows:
compensation income beyond the SMW.
Sec. 2.79. Income Tax Collected at Source on Compensation Income. --
xxxx
(A) Requirement of Withholding. - Every employer must withhold from compensation
(B) Exemptions from Withholding Tax on Compensation. - The following income paid an amount computed in accordance with these Regulations. Provided, that no
payments are exempted from the requirements of withholding tax on compensation: withholding of tax shall be required on the SMW, including holiday pay, overtime pay,
night shift differential and hazard pay of MWEs in the private/public sectors as defined in
xxxx these Regulations. Provided, further, that an employee who receives additional
compensation such as commissions, honoraria, fringe benefits, benefits in excess of the
(13) Compensation income of MWEs who work in the private sector and being paid the allowable statutory amount of ₱30,000.00, taxable allowances and other taxable income
Statutory Minimum Wage (SMW), as fixed by Regional Tripartite Wage and other than the SMW, holiday pay, overtime pay, hazard pay and night shift differential
pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings benefits. He says that the pro rata application of the assailed RR deprives MWEs of the
are not exempt from income tax and, consequently, shall be subject to withholding tax. financial relief extended to them by the law;8 that Umali v. Estanislao9serves as
jurisprudential basis for his position that R.A. 9504 should be applied on a full-year basis
xxxx to taxable year 2008; 10 and that the social justice provisions of the 1987 Constitution,
particularly Articles II and XIII, mandate a full application of the law according to the
For the year 2008, however, being the initial year of implementation of R.A. 9504, there spirit of R.A. 9504. 11
shall be a transitory withholding tax table for the period from July 6 to December 31,
2008 (Annex "D") determined by prorating the annual personal and additional On the scope of exemption of MWEs under R.A. 9504, Senator Roxas argues that the
exemptions under R.A. 9504 over a period of six months. Thus, for individuals, exemption of MWEs is absolute, regardless of the amount of the other benefits they
regardless of personal status, the prorated personal exemption is ₱25,000, and for each receive. Thus, he posits that the Department of Finance (DOF) and the BIR committed
qualified dependent child (QDC), ₱12,500. grave abuse of discretion amounting to lack and/or excess of jurisdiction. They
supposedly did so when they provided in Section l of RR 10-2008 the condition that an
xxxx MWE who receives "other benefits" exceeding the ₱30,000 limit would lose the tax
exemption. 12 He further contends that the real intent of the law is to grant income tax
SECTION 9. Effectivity. - exemption to the MWE without any limitation or qualification, and that while it would be
reasonable to tax the benefits in excess of ₱30,000, it is unreasonable and unlawful to tax
These Regulations shall take effect beginning July 6, 2008. (Emphases supplied) both the excess benefits and the salaries, wages and allowances. 13

The issuance and effectivity of RR 10-2008 implementing R.A. 9504 spawned the G.R. No. 184538
present Petitions.1âwphi1
contentions: just go to issues Petitioner Trade Union Congress of the Philippine contends that the provisions of R.A.
G.R. No. 184450 page 4 9504 provide for the application of the tax exemption for the full calendar year 2008. It
also espouses the interpretation that R.A. 9504 provides for the unqualified tax exemption
Petitioners Jaime N. Soriano et al. primarily assail Section 3 of RR 10-2008 providing for of the income of MWEs regardless of the other benefits they receive. 14 In conclusion, it
the prorated application of the personal and additional exemptions for taxable year 2008 says that RR 10-2008, which is only an implementing rule, amends the original intent of
to begin only effective 6 July 2008 for being contrary to Section 4 of Republic Act No. R.A. 9504, which is the substantive law, and is thus null and void.
9504.2
G.R. No. 185234
Petitioners argue that the prorated application of the personal and additional exemptions
under RR 10-2008 is not "the legislative intendment in this jurisdiction."3 They stress Petitioners Senator Francis Joseph Escudero, the Tax Management Association of the
that Congress has always maintained a policy of "full taxable year treatment"4 as regards Philippines, Inc., and Ernesto Ebro allege that R.A. 9504 unconditionally grants MWEs
the application of tax exemption laws. They allege further that R.A. 9504 did not provide exemption from income tax on their taxable income, as well as increased personal and
for a prorated application of the new set of personal and additional exemptions. 5 additional exemptions for other individual taxpayers, for the whole year 2008. They note
that the assailed RR 10-2008 restricts the start of the exemptions to 6 July 2008 and
G.R. No. 184508 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
Then Senator Manuel Roxas, as principal author of R.A. 9504, also argues for a full therefore void.
taxable year treatment of the income tax benefits of the new law. He relies on what he
says is clear legislative intent. In his "Explanatory Note of Senate Bill No. 103," he Comment of the OSG
stresses "the very spirit of enacting the subject tax exemption law"6 as follows:
The Office of the Solicitor General (OSG) filed a Consolidated Comment16 and took the
With the poor, every little bit counts, and by lifting their burden of paying income tax, we position that the application of R.A. 9504 was intended to be prospective, and not
give them opportunities to put their money to daily essentials as well as savings. retroactive. This was supposedly the general 1ule under the rules of statutory
Minimum wage earners can no longer afford to be taxed and to be placed in the construction: law will only be applied retroactively if it clearly provides for retroactivity,
cumbersome income tax process in the same manner as higher-earning employees. It is which is not provided in this instance. 17
our obligation to ease their burdens in any way we can.7 (Emphasis Supplied)
The OSG contends that Umali v. Estanislao is not applicable to the present case.1âwphi1
Apart from raising the issue of legislative intent, Senator Roxas brings up the following It explains that R.A. 7167, the subject of that case, was intended to adjust the personal
legal points to support his case for the full-year application of R.A. 9504's income tax exemption levels to the poverty threshold prevailing in 1991. Hence, the Court in that
 Petitioners contend that the RR goes beyond the law 3) Ps contend that MWE TE is absolute, regardless of amounts of benefits,
based on clear wording of the law
case held that R.A. 7167 had been given a retroactive effect. The OSG believes that the
grant of personal exemptions no longer took into account the poverty threshold level This Court ruled in the affirmative, considering that the increased exemptions were
under R.A. 9504, because the amounts of personal exemption far exceeded the poverty already available on or before 15 April 1992, the date for the filing of individual income
threshold levels. 18 tax returns. Further, the law itself provided that the new set of personal and additional
exemptions would be immediately available upon its effectivity. While R.A. 7167 had not
The OSG further argues that the legislative intent of non-retroactivity was effectively yet become effective during calendar year 1991, the Court found that it was a piece of
confirmed by the "Conforme" of Senator Escudero, Chairperson of the Senate Committee social legislation that was in part intended to alleviate the economic plight of the lower-
on Ways and Means, on the draft revenue regulation that became RR 10-2008. income taxpayers. For that purpose, the new law provided for adjustments "to the poverty
threshold level" prevailing at the time of the enactment of the law. The relevant
ISSUES discussion is quoted below:

Assailing the validity of RR 10-2008, all four Petitions raise common issues, which may [T]he Court is of the considered view that Rep. Act 7167 should cover or extend to
be distilled into three major ones: compensation income earned or received during calendar year 1991.
1) personal and additional TE should be applied to the whole 2008
First, whether the increased personal and additional exemptions provided by R.A. 9504 Sec. 29, par.(L), Item No. 4 of the National Internal Revenue Code, as amended,
should be applied to the entire taxable year 2008 or prorated, considering that R.A. 9504 provides:
took effect only on 6 July 2008.
2) MWE should be TE for whole 2008 Upon the recommendation of the Secretary of Finance, the President shall automatically
Second, whether an MWE is exempt for the entire taxable year 2008 or from 6 July 2008 adjust not more often than once every three years, the personal and additional exemptions
only. taking into account, among others, the movement in consumer price indices, levels of
3) Other benefits beyond 30k statutory limit should not disqualify MWE TE minimum wages, and bare subsistence levels.
Third, 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 As the personal and additional exemptions of individual taxpayers were last adjusted in
no longer entitled to the exemption provided by R.A. 9504. 1986, the President, upon the recommendation of the Secretary of Finance, could have
1) Ps contend Congress has always maintained a policy adjusted the personal and additional exemptions in 1989 by increasing the same even
THE COURT'S RULING of full taxable year treatment without any legislation providing for such adjustment. But the President did not.
OSG contends that the law was intended to be
I. prospective However, House Bill 28970, which was subsequently enacted by Congress as Rep. Act
7167, was introduced in the House of Representatives in 1989 although its passage was
Whether the increased personal and additional exemptions provided by R.A. 9504 should delayed and it did not become effective law until 30 January 1992. A perusal, however,
be applied to the entire taxable year 2008 or prorated, considering that the law took effect of the sponsorship remarks of Congressman Hernando B. Perez, Chairman of the House
only on 6 July 2008 Committee on Ways and Means, on House Bill 28970, provides an indication of the
intent of Congress in enacting Rep. Act 716 7. The pertinent legislative journal contains
The personal and additional exemptions established by R.A. 9504 should be applied to the following:
the entire taxable year 2008.
Issue: WON whole 2008 or July Onwards At the outset, Mr. Perez explained that the Bill Provides for increased personal additional
Umali is applicable. held: Whole 2008 exemptions to individuals in view of the higher standard of living.

Umali v. Estanislao20supports this Comi's stance that R.A. 9504 should be applied on a The Bill, he stated, limits the amount of income of individuals subject to income tax to
full-year basis for the entire taxable year 2008.21 In Umali, Congress enacted R.A. 7167 enable them to spend for basic necessities and have more disposable income.
amending the 1977 National Internal Revenue Code (NIRC). The amounts of basic
personal and additional exemptions given to individual income taxpayers were adjusted xxxx
to the poverty threshold level. R.A. 7167 came into law on 30 January 1992. Controversy
arose when the Commission of Internal Revenue (CIR) promulgated RR 1-92 stating that Mr. Perez added that inflation has raised the basic necessities and that it had been three
the regulation shall take effect on compensation income earned beginning 1 January years since the last exemption adjustment in 1986.
1992. The issue posed was whether the increased personal and additional exemptions
could be applied to compensation income earned or received during calendar year 1991, xxxx
given that R.A. 7167 came into law only on 30 January 1992, when taxable year 1991
had already closed.
ADMIN ISSUE: PAGE 12
Subsequently, Mr. Perez stressed the necessity of passing the measure to mitigate the the implementing regulations collide frontally with Section 3 of Rep. Act 7167 which
effects of the current inflation and of the implementation of the salary standardization states that the statute "shall take effect upon its approval." The objective of the Secretary
law. Stating that it is imperative for the government to take measures to ease the burden of Finance and the Commissioner of Internal Revenue in postponing through Revenue
of the individual income tax filers, Mr. Perez then cited specific examples of how the Regulations No. 1-92 the legal effectivity of Rep. Act 7167 is, of course, entirely
measure can help assuage the burden to the taxpayers. understandable - to defer to 1993 the reduction of governmental tax revenues which
irresistibly follows from the application of Rep. Act 7167. But the law-making authority
He then reiterated that the increase in the prices of commodities has eroded the has spoken and the Court can not refuse to apply the law-maker's words. Whether or not
purchasing power of the peso despite the recent salary increases and emphasized that the the government can afford the drop in tax revenues resulting from such increased
Bill will serve to compensate the adverse effects of inflation on the taxpayers. x x x exemptions was for Congress (not this Court) to decide.22 (Emphases supplied)
(Journal of the House of Representatives, May 23, 1990, pp. 32-33).
In this case, Senator Francis Escudero's sponsorship speech for Senate Bill No. 2293
It will also be observed that Rep. Act 7167 speaks of the adjustments that it provides for, reveals two important points about R.A. 9504: (1) it is a piece of social legislation; and
as adjustments "to the poverty threshold level." Certainly, "the poverty threshold level" is (2) its intent is to make the proposed law immediately applicable, that is, to taxable year
the poverty threshold level at the time Rep. Act 7167 was enacted by Congress, not 2008:
poverty threshold levels in futuro, at which time there may be need of further adjustments
in personal exemptions. Moreover, the Court can not lose sight of the fact that these Mr. President, distinguished colleagues, Senate Bill No. 2293 seeks, among others, to
personal and additional exemptions are fixed amounts to which an individual taxpayer is exempt minimum wage earners from the payment of income and/or withholding tax. It is
entitled, as a means to cushion the devastating effects of high prices and a depreciated an attempt to help our people cope with the rising costs of commodities that seem to be
purchasing power ofthe currency. In the end, it is the lower-income and the middle- going up unhampered these past few months.
income groups of taxpayers (not the high-income taxpayers) who stand to benefit most
from the increase of personal and additional exemptions provided for by Rep. Act 7167. Mr. President, a few days ago, the Regional Tripartite and Wages Productivity Board
To that extent, the act is a social legislation intended to alleviate in part the present granted an increase of ₱20 per day as far as minimum wage earners are concerned. By
economic plight of the lower income taxpayers. It is intended to remedy the inadequacy way of impact, Senate Bill No. 2293 would grant our workers an additional salary or
of the heretofore existing personal and additional exemptions for individual taxpayers. take-home pay of approximately ₱34 per day, given the exemption that will be granted to
all minimum wage earners. It might be also worthy of note that on the part of the public
And then, Rep. Act 7167 says that the increased personal exemptions that it provides for sector, the Senate Committee on Ways and Means included, as amongst those who will
shall be available thenceforth, that is, after Rep. Act 7167 shall have become effective. In be exempted from the payment of income tax and/or withholding tax, government
other words, these exemptions are available upon the filing of personal income tax workers receiving Salary Grade V. We did not make any distinction so as to include
returns which is, under the National Internal Revenue Code, done not later than the 15th Steps 1 to 8 of Salary Grade V as long as one is employed in the public sector or in
day of April after the end of a calendar year. Thus, under Rep. Act 7167, which became government.
effective, as aforestated, on 30 January 1992, the increased exemptions are literally
available on or before 15 April 1992 (though not before 30 January 1992). But these In contradistinction with House Bill No. 3971 approved by the House of Representatives
increased exemptions can be available on 15 April 1992 only in respect of compensation pertaining to a similar subject matter, the House of Representatives, very much like the
income earned or received during the calendar year 1991. Senate, adopted the same levels of exemptions which are:

The personal exemptions as increased by Rep. Act 7167 cannot be regarded as available From an allowable personal exemption for a single individual of ₱20,000, to a head of
in respect of compensation income received during the 1990 calendar year; the tax due in family of ₱25,000, to a married individual of ₱32,000, both the House and the Senate
respect of said income had already accrued, and been presumably paid, by 15 April 1991 versions contain a higher personal exemption of ₱50,000.
and by 15 July 1991, at which time Rep. Act 7167 had not been enacted. To make Rep.
Act 7167 refer back to income received during 1990 would require language explicitly Also, by way of personal additional exemption as far as dependents are concerned, up to
retroactive in purport and effect, language that would have to authorize the payment of four, the House, very much like the Senate, recommended a higher ceiling of ₱25,000 for
refunds of taxes paid on 15 April 1991 and 15 July 1991: such language is simply not each dependent not exceeding four, thereby increasing the maximum additional
found in Rep. Act 7167. exemptions and personal additional exemptions to as high as ₱200,000, depending on
one's status in life.
The personal exemptions as increased by Rep. Act 7167 cannot be regarded as available
only in respect of compensation income received during 1992, as the implementing The House also, very much like the Senate, recommended by way of trying to address the
Revenue Regulations No. 1-92 purport to provide. Revenue Regulations No. 1-92 would revenue loss on the part of the government, an optional standard deduction (OSD) on
in effect postpone the availability of the increased exemptions to 1 January-15 April gross sales, and/or gross receipts as far as individual taxpayers are concerned. However,
1993, and thus literally defer the effectivity of Rep. Act 7167 to 1 January 1993. Thus,
the House, unlike the Senate, recommended a Simplified Net Income Tax Scheme
(SNITS) in order to address the remaining balance of the revenue loss. Thank you, Mr. President. (Emphases Supplied)24

By way of contrast, the Senate Committee on Ways and Means recommended, in lieu of Clearly, Senator Escudero expressed a sense of urgency for passing what would
SNITS, an optional standard deduction of 40% for corporations as far as their gross subsequently become R.A. 9504. He was candid enough to admit that the bill needed
income is concerned. improvement, but because time was of the essence, he urged the Senate to pass the bill
immediately. The idea was immediate tax relief to the individual taxpayers, particularly
Mr. President, if we total the revenue loss as well as the gain low-compensation earners, and an increase in their take-home pay.25

brought about by the 40% OSD on individuals on gross sales and receipts and 40% on Senator Miriam Defensor-Santiago also remarked during the deliberations that "the
gross income as far as corporations are concerned, with a conservative availment rate as increase in personal exemption from ₱20,000 to ₱50,000 is timely and appropriate given
computed by the Department of Finance, the government would still enjoy a gain of ₱.78 the increased cost of living. Also, the increase in the additional exemption for dependent
billion or ₱780 million if we use the high side of the computation however improbable it children is necessary and timely."26
may be.
Finally, we consider the President's certification of the necessity of the immediate
For the record, we would like to state that if the availment rate is computed at 15% for enactment of Senate Bill No. 2293. That certification became the basis for the Senate to
individuals and 10% for corporations, the potential high side of a revenue gain would dispense with the three-day rule27 for passing a bill. It evinced the intent of the President
amount to approximately ₱18.08 billion. to afford wage earners immediate tax relief from the impact of a worldwide increase in
the prices of commodities. Specifically, the certification stated that the purpose was to
Mr. President, we have received many suggestions increasing the rate of personal "address the urgent need to cushion the adverse impact of the global escalation of
exemptions and personal additional exemptions. We have likewise received various commodity prices upon the most vulnerable within the low income group by providing
suggestions pertaining to the expansion of the coverage of the tax exemption granted to expanded income tax relief."28
minimum wage earners to encompass as well other income brackets.
In sum, R.A. 9504, like R.A. 7167 in Umali, was a piece of social legislation clearly
However, the only suggestion other than or outside the provisions contained in House intended to afford immediate tax relief to individual taxpayers, particularly low-income
Bill No. 3971 that the Senate Committee on Ways and Means adopted, was an expansion compensation earners. Indeed, if R.A. 9504 was to take effect beginning taxable year
of the exemption to cover overtime, holiday, nightshift differential, and hazard pay also 2009 or half of the year 2008 only, then the intent of Congress to address the increase in
being enjoyed by minimum wage earners. It entailed an additional revenue loss of ₱l the cost of living in 2008 would have been negated.
billion approximately on the part of the government. However, Mr. President, that was
taken into account when I stated earlier that there will still be a revenue gain on the Therefore, following Umali, the test is whether the new set of personal and additional
conservative side on the part of government of ₱780 million. 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
Mr. President, [my distinguished colleagues in the Senate, we wish to provide a higher taxable year, 29 their personal and additional exemptions - and consequently the
exemption for our countrymen because of the incessant and constant increase in the price computation of their taxable income - are reckoned when the tax becomes due, and not
of goods. Nonetheless, not only Our Committee, but also the Senate and Congress, must while the income is being earned or received.
act responsibly in recognizing that much as we would like to give all forms of help that
we can and must provide to our people, we also need to recognize the need of the The NIRC is clear on these matters. The taxable income of an individual taxpayer shall
government to defray its expenses in providing services to the public. This is the most be computed on the basis of the calendar year.30 The taxpayer is required to file an
that we can give at this time because the government operates on a tight budget and is income tax return on the 15th of April of each year covering income of the preceding
short on funds when it comes to the discharge of its main expenses.]23 taxable year. 31 The tax due thereon shall be paid at the time the return is filed. 32

Mr. President, time will perhaps come and we can improve on this version, but at present, It stands to reason that the new set of personal and additional exemptions, adjusted as a
this is the best, I believe, that we can give our people. But by way of comparison, it is still form of social legislation to address the prevailing poverty threshold, should be given
₱10 higher than what the wage boards were able to give minimum wage earners. Given effect at the most opportune time as the Court ruled in Umali.
that, we were able to increase their take-home pay by the amount equivalent to the tax
exemption we have granted. The test provided by Umali is consistent with Ingalls v. Trinidad, 33 in which the Court
dealt with the matter of a married person's reduced exemption. As early as 1923, the
We urge our colleagues, Mr. President, to pass this bill in earnest so that we can Court already provided the reference point for determining the taxable income:
immediately grant relief to our people.
effectivity: July 2008
filing of return: April 2009
law came into effect 9 months before deadline for filing
[T]hese statutes dealing with the manner of collecting the income tax and with the
deductions to be made in favor of the taxpayer have reference to the time when the return We are not persuaded.
is filed and the tax assessed. If Act No. 2926 took, as it did take, effect on January 1,
1921, its provisions must be applied to income tax returns filed, and assessments made The variance raised by respondents borders on the superficial. The message of Umali is
from that date. This is the reason why Act No. 2833, and Act No. 2926, in their that there must be an event recognized by Congress that occasions the immediate
respective first sections, refer to income received during the preceding civil year. (Italics application of the increased amounts of personal and additional exemptions. In Umali,
in the original) that event was the failure to adjust the personal and additional exemptions to the
prevailing poverty threshold level. In this case, the legislators specified the increase in the
There, the exemption was reduced, not increased, and the Court effectively ruled that price of commodities as the basis for the immediate availability of the new amounts of
income tax due from the individual taxpayer is properly determined upon the filing of the personal and additional exemptions.
return. This is done after the end of the taxable year, when all the incomes for the
immediately preceding taxable year and the corresponding personal exemptions and/or We find the facts of this case to be substantially identical to those of Umali.
deductions therefor have been considered. Therefore, the taxpayer was made to pay a
higher tax for his income earned during 1920, even if the reduced exemption took effect First, both cases involve an amendment to the prevailing tax code. The present petitions
on 1 January 1921. call for the interpretation of the effective date of the increase in personal and additional
exemptions. Otherwise stated, the present case deals with an amendment (R.A. 9504) to
In the present case, the increased exemptions were already available much earlier than the the prevailing tax code (R.A. 8424 or the 1997 Tax Code). Like the present case, Umali
required time of filing of the return on 15 April 2009. R.A. 9504 came into law on 6 July involved an amendment to the then prevailing tax code - it interpreted the effective date
2008, more than nine months before the deadline for the filing of the income tax return of R.A. 7167, an amendment to the 1977 NIRC, which also increased personal and
for taxable year 2008. Hence, individual taxpayers were entitled to claim the increased additional exemptions.
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. Second, the amending law in both cases reflects an intent to make the new set of personal
and additional exemptions immediately available after the effectivity of the law. As
Even more compelling is the fact that R.A. 9504 became effective during the taxable year already pointed out, in Umali, R.A. 7167 involved social legislation intended to adjust
in question. In Umali, the Court ruled that the application of the law was prospective, personal and additional exemptions. The adjustment was made in keeping with the
even if the amending law took effect after the close of the taxable year in question, but poverty threshold level prevailing at the time.
before the deadline for the filing of the return and payment of the taxes due for that year.
Here, not only did R.A. 9504 take effect before the deadline for the filing of the return Third, both cases involve social legislation intended to cure a social evil - R.A. 7167 was
and payment for the taxes due for taxable year 2008, it took effect way before the close of meant to adjust personal and additional exemptions in relation to the poverty threshold
that taxable year. Therefore, the operation of the new set of personal and additional level, while R.A. 9504 was geared towards addressing the impact of the global increase in
exemption in the present case was all the more prospective. the price of goods.

Additionally, as will be discussed later, the rule of full taxable year treatment for the Fourth, in both cases, it was clear that the intent of the legislature was to hasten the
availment of personal and additional exemptions was established, not by the amendments enactment of the law to make its beneficial relief immediately available.
introduced by R.A. 9504, but by the provisions of the 1997 Tax Code itself. The new law
merely introduced a change in the amounts of the basic and additional personal Pansacola is not applicable.
exemptions. Hence, the fact that R.A. 9504 took effect only on 6 July 2008 is irrelevant.
In lieu of Umali, the OSG relies on our ruling in Pansacola [Link] of Internal
The present case issubstantially Revenue. 35 In that case, the 1997 Tax Code (R.A. 8424) took effect on 1 January 1998,
identical with Umali and not with and the petitioner therein pleaded for the application of the new set of personal and
Pansacola. additional exemptions provided thereunder to taxable year 1997. R.A. 8424 explicitly
provided for its effectivity on 1 January 1998, but it did not provide for any retroactive
Respondents argue that Umali is not applicable to the present case. They contend that the application.
increase in personal and additional exemptions were necessary in that case to conform to
the 1991 poverty threshold level; but that in the present case, the amounts under R.A. We ruled against the application of the new set of personal and additional exemptions to
9504 far exceed the poverty threshold level. To support their case, respondents cite the previous taxable year 1997, in which the filing and payment of the income tax was
figures allegedly coming from the National Statistical Coordination Board. According to due on 15 April 1998, even if the NIRC had already taken effect on 1 January 1998. This
those figures, in 2007, or one year before the effectivity of R.A. 9504, the poverty court explained that the NIRC could not be given retroactive application, given the
threshold per capita was ₱14,866 or ₱89,196 for a family of six. 34 specific mandate of the law that it shall take effect on 1 January 1998; and given the
absence of any reference to the application of personal and additional exemptions to xxxx
income earned prior to 1January 1998. We further stated that what the law considers for
the purpose of determining the income tax due is the status at the close of the taxable Emphasis must be made that Section 35(C) of the NIRC allows a taxpayer to still claim
year, as opposed to the time of filing of the return and payment of the corresponding tax. the corresponding full amount of exemption for a taxable year, e.g. if he marries; have
additional dependents; he, his spouse, or any of his dependents die; and if any of his
The facts of this case are not identical with those of Pansacola. dependents marry, turn 21 years old; or become gainfully employed. It is as if the
changes in his or his dependents status took place at the close of the taxable year.
First, Pansacola interpreted the effectivity of an entirely new tax code - R.A. 8424, the
Tax Reform Act of 1997. The present case, like Umali, involves a mere amendment of Consequently, his correct taxable income and his corresponding allowable deductions e.g.
some specific provisions of the prevailing tax code: R.A. 7167 amending then P.D. 1158 personal and additional deductions, if any, had already been determined as of the end of
(the 1977 NIRC) in Umali and R.A. 9504 amending R.A. 8424 herein. the calendar year.

Second, in Pansacola, the new tax code specifically provided for an effective date - the x x x. Since the NIRC took effect on January 1, 1998, the increased amounts of personal
beginning of the following year - that was to apply to all its provisions, including new tax and additional exemptions under Section 35, can only be allowed as deductions from the
rates, new taxes, new requirements, as well as new exemptions. The tax code did not individual taxpayers gross or net income, as the case maybe, for the taxable year 1998 to
make any exception to the effectivity of the subject exemptions, even if transitory be filed in 1999. The NIRC made no reference that the personal and additional
provisions36 specifically provided for different effectivity dates for certain provisions. exemptions shall apply on income earned before January 1, 1998.37

Hence, the Court did not find any legislative intent to make the new rates of personal and It must be remembered, however, that the Court therein emphasized that Umali was
additional exemptions available to the income earned in the year previous to R.A. 8424's interpreting a social legislation:
effectivity. In the present case, as previously discussed, there was a clear intent on the
part of Congress to make the new amounts of personal and additional exemptions In Umali, we noted that despite being given authority by Section 29(1)(4) of the National
immediately available for the entire taxable year 2008. R.A. 9504 does not even need a Internal Revenue Code of 1977 to adjust these exemptions, no adjustments were made to
provision providing for retroactive application because, as mentioned above, it is actually cover 1989. Note that Rep. Act No. 7167 is entitled "An Act Adjusting the Basic Personal
prospective - the new law took effect during the taxable year in question. and Additional Exemptions Allowable to Individuals for Income Tax Purposes to the
Poverty Threshold Level, Amending for the Purpose Section 29, Paragraph (L), Items (1)
Third, in Pansacola, the retroactive application of the new rates of personal and additional and (2) (A), of the National Internal Revenue Code, As Amended, and For Other
exemptions would result in an absurdity - new tax rates under the new law would not Purposes." Thus, we said in Umali, that the adjustment provided by Rep. Act No. 7167
apply, but a new set of personal and additional exemptions could be availed of. This effective 1992, should consider the poverty threshold level in 1991, the time it was
situation does not obtain in this case, however, precisely because the new law does not enacted. And we observed therein that since the exemptions would especially benefit
involve an entirely new tax code. The new law is merely an amendment to the rates of lower and middle-income taxpayers, the exemption should be made to cover the past year
personal and additional exemptions. 1991. To such an extent, Rep. Act No. 7167 was a social legislation intended to remedy
the non-adjustment in 1989. And as cited in Umali, this legislative intent is also clear in
Nonetheless, R.A. 9504 can still be made applicable to taxable year 2008, even if we the records of the House of Representatives' Journal.
apply the Pansacola test. We stress that Pansacola considers the close of the taxable year
as the reckoning date for the effectivity of the new exemptions. In that case, the Court This is not so in the case at bar. There is nothing in the NIRC that expresses any such
refused the application of the new set of personal exemptions, since they were not yet intent. The policy declarations in its enactment do not indicate it was a social legislation
available at the close of the taxable year. In this case, however, at the close of the taxable that adjusted personal and additional exemptions according to the poverty threshold level
year, the new set of exemptions was already available. In fact, it was already available nor is there any indication that its application should retroact. x x x.38 (Emphasis
during the taxable year - as early as 6 July 2008 - when the new law took effect. Supplied)

There may appear to be some dissonance between the Court's declarations in Umali and Therefore, the seemingly inconsistent pronouncements in Umali and Pansacola are more
those in Pansacola, which held: apparent than real. The circumstances of the cases and the laws interpreted, as well as the
legislative intents thereof, were different.
Clearly from the abovequoted provisions, what the law should consider for the purpose of
determining the tax due from an individual taxpayer is his status and qualified dependents The policy in this jurisdiction is full
at the close of the taxable year and not at the time the return is filed and the tax due
thereon is paid. Now comes Section 35(C) of the NIRC which provides, taxable year treatment.
We have perused R.A. 9504, and we see nothing that expressly provides or even suggests We note that the prorating of personal and additional exemptions was employed in the
a prorated application of the exemptions for taxable year 2008. On the other hand, the 1939 Tax Code. Section 23(d) of that law states:
policy of full taxable year treatment, especially of the personal and additional
exemptions, is clear under Section 35, particularly paragraph C of R.A. 8424 or the 1997 Change of status. - - If the status of the taxpayer insofar as it affects the personal and
Tax Code: additional exemptions for himself or his dependents, changes during the taxable year, the
amount of the personal and additional exemptions shall be apportioned, under rules and
SEC. 35. Allowance of Personal Exemption for Individual Taxpayer. - regulations prescribed by the Secretary of Finance, in accordance with the number of
months before and after such change. For the purpose of such apportionment a fractional
(A) In General. - For purposes of determining the tax provided in Section 24(A) of this part of a month shall be disregarded unless it amounts to more than half a month, in
Title, there shall be allowed a basic personal exemption as follows: which case it shall be considered as a month.40 (Emphasis supplied)

xxxx On 22 September 1950, R.A. 590 amended Section 23(d) of the 1939 Tax Code by
restricting the operation of the prorating of personal exemptions. As amended, Section
(B) Additional Exemption for Dependents.-There shall be allowed an additional 23(d) reads:
exemption of... for each dependent not exceeding four (4).
(d) Change of status. - If the status of the taxpayer insofar as it affects the personal and
x x xx additional exemption for himself or his dependents, changes during the taxable year by
reason of his death, the amount of the personal and additional exemptions shall be
(C) Change of Status. - If the taxpayer marries or should have additional dependent(s) as apportioned, under rules and regulations prescribed by the Secretary of Finance, in
defined above during the taxable year, the taxpayer may claim the corresponding accordance with the number of months before and after such change. For the purpose of
additional exemption, as the case may be, in full for such year. such apportionment a fractional part of a month shall be disregarded unless it amounts to
more than half a month, in which case it shall be considered as a month.41 (Emphasis
If the taxpayer dies during the taxable year, his estate may still claim the personal and supplied)
additional exemptions for himself and his dependent(s) as if he died at the close of such
year. Nevertheless, in 1969, R. A. 6110 ended the operation of the prorating scheme in our
jurisdiction when it amended Section 23(d) of the 1939 Tax Code and adopted a full
If the spouse or any of the dependents dies or if any of such taxable year treatment of the personal and additional exemptions. Section 23(d), as
amended, reads:
dependents marries, becomes twenty-one (21) years old or becomes gainfully employed
during the taxable year, the taxpayer may still claim the same exemptions as if the spouse (d) Change of status. -
or any of the dependents died, or as if such dependents married, became twenty-one (21)
years old or became gainfully employed at the close of such year. (Emphases supplied) If the taxpayer married or should have additional dependents as defined in subsection (c)
above during the taxable year the taxpayer may claim the corresponding personal
Note that paragraph C does not allow the prorating of the personal and additional exemptions in full for such year.
exemptions provided in paragraphs A and B, even in case a status-changing event occurs
during the taxable year. Rather, it allows the fullest benefit to the individual taxpayer. If the taxpayer should die during the taxable year, his estate may still claim the personal
This manner of reckoning the taxpayer's status for purposes of the personal and additional and additional deductions for himself and his dependents as if he died at the close of such
exemptions clearly demonstrates the legislative intention; that is, for the state to give the year.
taxpayer the maximum exemptions that can be availed, notwithstanding the fact that the
latter's actual status would qualify only for a lower exemption if prorating were If the spouse or any of the dependents should die during the year, the taxpayer may still
employed. claim the same deductions as if they died at the close of such year.

We therefore see no reason why we should make any distinction between the income P.D. 69 followed in 1972, and it retained the full taxable year scheme. Section 23(d)
earned prior to the effectivity of the amendment (from 1 January 2008 to 5 July 2008) thereof reads as follows:
and that earned thereafter (from 6 July 2008 to 31 December 2008) as none is indicated in
the law. The principle that the courts should not distinguish when the law itself does not (d) Change of status. - If the taxpayer marries or should have additional dependents as
distinguish squarely app1ies to this case. 39 defined in subsection (c) above during the taxable year the taxpayer may claim the
corresponding personal exemptions in full for such year.
If the taxpayer should die during the taxable year, his estate may still claim the personal the change-of-status provision utilizing the full-year scheme in the 1997 Tax Code was
and additional deductions for himself and his dependents as if he died at the close of such left untouched by R.A. 9504.
year.
We now arrive at this important point: the policy of full taxable year treatment is
If the spouse or any of the dependents should die or become twenty-one years old during established, not by the amendments introduced by R.A. 9504, but by the provisions of the
the taxable year, the taxpayer may still claim the same exemptions as if they died, or as if 1997 Tax Code, which adopted the policy from as early as 1969.
such dependents became twenty-one years old at the close of such year.
There is, of course, nothing to prevent Congress from again adopting a policy that
The 1977 Tax Code continued the policy of full taxable year treatment. Section 23(d) prorates the effectivity of basic personal and additional exemptions. This policy,
thereof states: however, must be explicitly provided for by law - to amend the prevailing law, which
provides for full-year treatment. As already pointed out, R.A. 9504 is totally silent on the
(d) Change of status.- If the taxpayer married or should have additional dependents as matter. This silence cannot be presumed by the BIR as providing for a half-year
defined in subsection (c) above during the taxable year, the taxpayer may claim the application of the new exemption levels. Such presumption is unjust, as incomes do not
corresponding personal exemption in full for such year. remain the same from month to month, especially for the MWEs.

If the taxpayer should die during the taxable year, his estate may still claim the personal Therefore, there is no legal basis for the BIR to reintroduce the prorating of the new
and additional exemptions for himself and his dependents as if he died at the close of personal and additional exemptions. In so doing, respondents overstepped the bounds of
such year. their rule-making power. It is an established rule that administrative regulations are valid
only when these are consistent with the law. 43 Respondents cannot amend, by mere
If the spouse or any of the dependents should die or become regulation, the laws they administer.44 To do so would violate the principle of non-
delegability of legislative powers.45
twenty-one years old during the taxable year, the taxpayer may still claim the same
exemptions as if they died, or as if such dependents became twenty-one years old at the The prorated application of the new set of personal and additional exemptions for the
close of such year. year 2008, which was introduced by respondents, cannot even be justified under the
exception to the canon of non-delegability; that is, when Congress makes a delegation to
While Section 23 of the 1977 Tax Code underwent changes, the provision on full taxable the executive branch.46 The delegation would fail the two accepted tests for a valid
year treatment in case of the taxpayer's change of status was left untouched.42 Executive delegation of legislative power; the completeness test and the sufficient standard test.47
Order No. 37, issued on 31 July 1986, retained the change of status provision verbatim. The first test requires the law to be complete in all its terms and conditions, such that the
The provision appeared under Section 30(1)(3) of the NIRC, as amended: only thing the delegate will have to do is to enforce it.48 The sufficient standard test
requires adequate guidelines or limitations in the law that map out the boundaries of the
(3) Change of status.- If the taxpayer married or should have additional dependents as delegate's authority and canalize the delegation.49
defined above during the taxable year, the taxpayer may claim the corresponding personal
and additional exemptions, as the case may be, in full for such year. In this case, respondents went beyond enforcement of the law, given the absence of a
provision in R.A. 9504 mandating the prorated application of the new amounts of
If the taxpayer should die during the taxable year, his estate may still claim the personal personal and additional exemptions for 2008. Further, even assuming that the law
and additional exemptions for himself and his dependents as if he died at the close of intended a prorated application, there are no parameters set forth in R.A. 9504 that would
such year. delimit the legislative power surrendered by Congress to the delegate. In contrast, Section
23(d) of the 1939 Tax Code authorized not only the prorating of the exemptions in case
If the spouse or any of the dependents should die or if any of such of change of status of the taxpayer, but also authorized the Secretary of Finance to
prescribe the corresponding rules and regulations.
dependents becomes twenty-one years old during the taxable year, the taxpayer may still
claim the same exemptions as if they died, or if such dependents become twenty-one II.
years old at the close of such year.
Whether an MWE is exempt for the entire taxable
Therefore, the legislative policy of full taxable year treatment of the personal and year 2008 or from 6 July 2008 only
additional exemptions has been in our jurisdiction continuously since 1969. The prorating
approach has long since been abandoned. Had Congress intended to revert to that scheme, The MWE is exempt for the entire taxable year 2008.
then it should have so stated in clear and unmistakeable terms. There is nothing, however,
in R.A. 9504 that provides for the reinstatement of the prorating scheme. On the contrary,
As in the case of the adjusted personal and additional exemptions, the MWE exemption the BIR was requesting the conformity of petitioner Senator Escudero to the proposed
should apply to the entire taxable year 2008, and not only from 6 July 2008 onwards. We implementing rules, subject to the remarks contained in the Matrix. Certainly, it cannot
see no reason why Umali cannot be made applicable to the MWE exemption, which is be said that Senator Escudero's conforme is evidence of legislative intent to the effect that
undoubtedly a piece of social legislation. It was intended to alleviate the plight of the the benefits of the law would not apply to income earned from 1 January 2008 to 5 July
working class, especially the low-income earners. In concrete terms, the exemption 2008.
translates to a ₱34 per day benefit, as pointed out by Senator Escudero in his sponsorship
speech.50 Senator Escudero himself states in G.R. No. 185234:

As it stands, the calendar year 2008 remained as one taxable year for an individual In his bid to ensure that the BIR would observe the effectivity dates of the grant of tax
taxpayer. Therefore, RR 10-2008 cannot declare the income earned by a minimum wage exemptions and increased basic personal and additional exemptions under Republic Act
earner from 1 January 2008 to 5 July 2008 to be taxable and those earned by him for the No. 9504, Petitioner Escudero, as Co-Chairperson of the Congressional Oversight
rest of that year to be tax-exempt. To do so would be to contradict the NIRC and Committee on Comprehensive Tax Reform Program, and his counterpart in the House of
jurisprudence, as taxable income would then cease to be determined on a yearly basis. Representatives, Hon. Exequiel B. Javier, conveyed through a letter, dated 16 September
2008, to Respondent Teves the legislative intent that "Republic Act (RA) No. 9504 must
Respondents point to the letter of former Commissioner of Internal Revenue Lilia B. be made applicable to the entire taxable year 2008" considering that it was "a social
Hefti dated 5 July 2008 and petitioner Sen. Escudero's signature on the Conforme portion legislation intended to somehow alleviate the plight of minimum wage earners or low
thereof. This letter and the conforme supposedly establish the legislative intent not to income taxpayers". They also jointly expressed their "fervent hope that the corresponding
make the benefits of R.A. 9504 effective as of 1 January 2008. Revenue Regulations that will be issued reflect the true legislative intent and rightful
statutory interpretation of R.A. No. 9504." 54
We are not convinced. The conforme is irrelevant in the determination of legislative
intent. Senator Escudero repeats in his Memorandum:

We quote below the relevant portion of former Commissioner Hefti's letter: On 16 September 2008, the Chairpersons (one of them being herein Petitioner Sen.
Escudero) of the Congressional Oversight Committee on Comprehensive Tax Reform
Attached herewith are salient features of the proposed regulations to implement RA 9504 Program of both House of Congress wrote Respondent DOF Sec. Margarito Teves, and
x x x. We have tabulated critical issues raised during the public hearing and comments requested that the revenue regulations (then yet still to be issued)55 to implement
received from the public which we need immediate written resolution based on the Republic Act No. 9504 reflect the true intent and rightful statutory interpretation thereof,
inten[t]ion of the law more particularly the effectivity clause. Due to the expediency and specifically that the grant of tax exemption and increased basic personal and additional
clamor of the public for its immediate implementation, may we request your confirmation exemptions be made available for the entire taxable year 2008. Yet, the DOF
on the proposed recommendation within five (5) days from receipt hereof. Otherwise, we promulgated Rev. Reg. No. 10-2008 in contravention of such legislative intent.x x x.56
shall construe your affirmation. 51
We have gone through the records and we do not see anything that would to suggest that
We observe that a Matrix of Salient Features of Proposed Revenue Regulations per R.A. respondents deny the senator's assertion.
9504 was attached to the letter.52 The Matrix had a column entitled "Remarks" opposite
the Recommended Resolution. In that column, noted was a suggestion coming from Clearly, Senator Escudero's assertion is that the legislative intent is to make the MWE' s
petitioner TMAP: tax exemption and the increased basic personal and additional exemptions available for
the entire year 2008. In the face of his assertions, respondents' claim that his conforme to
TMAP suggested that it should be retroactive considering that it was [for] the benefit of Commissioner Hefti's letter was evidence of legislative intent becomes baseless and
the majority and to alleviate the plight of workers. Exemption should be applied for the specious. The remarks described above and the subsequent letter sent to DOF Secretary
whole taxable year as provided in the NIRC. x x x Umali v. Estanislao [ruled] that the Teves, by no less than the Chairpersons of the Bi-camera! Congressional Oversight
increase[d] exemption in 1992 [was applicable] [to] 1991. Committee on Comprehensive Tax Reform Program, should have settled for respondents
the matter of what the legislature intended for R.A. 9504's exemptions.
Majority issues raised during the public hearing last July 1, 2008 and emails received
suggested [a] retroactive implementation. 53(Italics in the original) Accordingly, we agree with petitioners that RR 10-2008, insofar as it allows the
availment of the MWE's tax exemption and the increased personal and additional
The above remarks belie the claim that the conforme is evidence of the legislative intent exemptions beginning only on 6 July 2008 is in contravention of the law it purports to
to make the benefits available only from 6 July 2008 onwards. There would have been no implement.
need to make the remarks if the BIR had merely wanted to confirm was the availability of
the law's benefits to income earned starting 6 July 2008. Rather, the implication is that
A clarification is proper at this point. Our ruling that the MWE exemption is available for
the entire taxable year 2008 is premised on the fact of one's status as an MWE; that is, statutory limit of ₱30,000 is no longer entitled to the exemption provided
whether the employee during the entire year of 2008 was an MWE as defined by R.A.
9504. When the wages received exceed the minimum wage anytime during the taxable by R.A. 9504, is consistent with the law.
year, the employee necessarily loses the MWE qualification. Therefore, wages become
taxable as the employee ceased to be an MWE. But the exemption of the employee from Sections 1 and 3 of RR 10-2008 add a requirement not found in the law by effectively
tax on the income previously earned as an MWE remains. 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.
This rule reflects the understanding of the Senate as gleaned from the exchange between
Senator Miriam Defensor-Santiago and Senator Escudero: The BIR added a requirement not
found in the law.
Asked by Senator Defensor-Santiago on how a person would be taxed if, during the year,
he is promoted from Salary Grade 5 to Salary Grade 6 in July and ceases to be a The assailed Sections 1 and 3 of RR 10-2008 are reproduced hereunder for easier
minimum wage employee, Senator Escudero said that the tax computation would be reference.
based starting on the new salary in July. 57 RR10-2008
SECTION 1. Section 2.78.1 of RR 2-98, as amended, is hereby further amended to read
As the exemption is based on the employee's status as an MWE, the operative phrase is as follows:
"when the employee ceases to be an MWE. Even beyond 2008, it is therefore possible for
one employee to be exempt early in the year for being an MWE for that period, and Sec. 2.78.1. Withholding of Income Tax on Compensation Income. -
subsequently become taxable in the middle of the same year with respect to the
compensation income, as when the pay is increased higher than the minimum wage. The (A) Compensation Income Defined. – x x x
improvement of one's lot, however, cannot justly operate to make the employee liable for
tax on the income earned as an MWE. xxxx

Additionally, on the question of whether one who ceases to be an MWE may still be (3) Facilities and privileges of relatively small value. - Ordinarily, facilities, and
entitled to the personal and additional exemptions, the answer must necessarily be yes. privileges (such as entertainment, medical services, or so-called "courtesy" discounts on
The MWE exemption is separate and distinct from the personal and additional purchases), otherwise known as "de minimis benefits," furnished or offered by an
exemptions. One's status as an MWE does not preclude enjoyment of the personal and employer to his employees, are not considered as compensation subject to income tax and
additional exemptions. Thus, when one is an MWE during a part of the year and later consequently to withholding tax, if such facilities or privileges are of relatively small
earns higher than the minimum wage and becomes a non-MWE, only earnings for that value and are offered or furnished by the employer merely as means of promoting the
period when one is a non-MWE is subject to tax. It also necessarily follows that such an health, goodwill, contentment, or efficiency of his employees.
employee is entitled to the personal and additional exemptions that any individual
taxpayer with taxable gross income is entitled. The following shall be considered as "de minimis" benefits not subject to income tax,
hence, not subject to withholding tax on compensation income of both managerial and
A different interpretation will actually render the MWE exemption a totally oppressive rank and file employees:
legislation. It would be a total absurdity to disqualify an MWE from enjoying as much as
₱150,00058 in personal and additional exemptions just because sometime in the year, he (a) Monetized unused vacation leave credits of employees not exceeding ten (10) days
or she ceases to be an MWE by earning a little more in wages. Laws cannot be during the year and the monetized value of leave credits paid to government officials and
interpreted with such absurd and unjust outcome. It is axiomatic that the legislature is employees;
assumed to intend right and equity in the laws it passes.59
(b) Medical cash allowance to dependents of employees not exceeding ₱750.00 per
Critical, therefore, is how an employee ceases to become an MWE and thus ceases to be employee per semester or ₱125 per month;
entitled to an MWE's exemption.
(c) Rice subsidy of ₱l,500.00 or one (1) sack of 50-kg. rice per month amounting to not
III. more than ₱l,500.00;

Whether Sections 1 and 3 of RR 10-2008 are consistent with the law in (d) Uniforms and clothing allowance not exceeding ₱4,000.00 per annum;

declaring that an MWE who receives other benefits in excess of the (e) Actual yearly medical benefits not exceeding ₱10,000.00 per annum;
 The aforesaid income shall likewise be exempted from income tax.
(f) Laundry allowance not exceeding ₱300.00 per month;
"Statutory Minimum Wage" (SMW) shall refer to the rate fixed by the Regional
(g) Employees achievement awards, e.g., for length of service or safety achievement, Tripartite Wage and Productivity Board (RTWPB), as defined by the Bureau of Labor
which must be in the form of a tangible personal property other than cash or gift and Employment Statistics (BLES) of the Department of Labor and Employment
certificate, with an annual monetary value not exceeding ₱10,000.00 received by the (DOLE). The RTWPB of each region shall determine the wage rates in the different
employee under an established written plan which does not discriminate in favor of regions based on established criteria and shall be the basis of exemption from income tax
highly paid employees; for this purpose.

(h) Gifts given during Christmas and major anniversary celebrations not exceeding Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the
₱5,000.00per employee per annum; aforementioned MWE shall likewise be covered by the above exemption. Provided,
however, that an employee who receives/earns additional compensation such as
(i) Flowers, fruits, books, or similar items given to employees under special commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory
circumstances, e.g., on account of illness, marriage, birth of a baby, etc.; and amount of ₱30,000.00, taxable allowances and other taxable income other than the SMW,
holiday pay, overtime pay, hazard pay and night shift differential pay shall not enjoy the
(j) Daily meal allowance for overtime work not exceeding twenty-five percent (25%) of privilege of being a MWE and, therefore, his/her entire earnings are not exempt form
the basic minimum wage.60 income tax, and consequently, from withholding tax.

The amount of 'de minimis' benefits conforming to the ceiling herein prescribed shall not MWEs receiving other income, such as income from the conduct of trade, business, or
be considered in determining the ₱30,000.00 ceiling of 'other benefits' excluded from practice of profession, except income subject to final tax, in addition to compensation
gross income under Section 32(b)(7)(e) of the Code. Provided that, the excess of the 'de income are not exempted from income tax on their entire income earned during the
minimis' benefits over their respective ceilings prescribed by these regulations shall be taxable year. This rule, notwithstanding, the [statutory minimum wage], [h]oliday pay,
considered as part of 'other benefits' and the employee receiving it will be subject to tax overtime pay, night shift differential pay and hazard pay shall still be exempt from
only on the excess over the ₱30,000.00 ceiling. Provided, further, that MWEs receiving withholding tax.
'other benefits' exceeding the P30,000.00 limit shall be taxable on the excess benefits, as
well as on his salaries, wages and allowances, just like an employee receiving For purposes of these regulations, hazard pay shall mean x x x.
compensation income beyond the SMW.
In case of hazardous employment, x x x
Any amount given by the employer as benefits to its employees, whether classified as 'de
minimis' benefits or fringe benefits, shall constitute [a] deductible expense upon such The NWPC shall officially submit a Matrix of Wage Order by region x x x
employer.
Any reduction or diminution of wages for purposes of exemption from income tax shall
Where compensation is paid in property other than money, the employer shall make constitute misrepresentation and therefore, shall result to the automatic disallowance of
necessary arrangements to ensure that the amount of the tax required to be withheld is expense, i.e. compensation and benefits account, on the part of the employer. The
available for payment to the Bureau of Internal Revenue. offenders may be criminally prosecuted under existing laws.

xxxx (14) Compensation income of employees in the public sector with compensation income
of not more than the SMW in the non-agricultural sector, as fixed by RTWPB/NWPC,
(B) Exemptions from Withholding Tax on Compensation. - The following income applicable to the place where he/she is assigned.
payments are exempted from the requirements of withholding tax on compensation:
The aforesaid income shall likewise be exempted from income tax.
xxxx
The basic salary of MWEs in the public sector shall be equated to the SMW in the non-
(13) Compensation income of MWEs who work agricultural sector applicable to the place where he/she is assigned. The determination of
the SMW in the public sector shall likewise adopt the same procedures and consideration
in the private sector and being paid the Statutory Minimum Wage (SMW), as fixed by as those of the private sector.
Regional Tripartite Wage and Productivity Board (RTWPB)/National Wages and
Productivity Commission (NWPC), applicable to the place where he/she is assigned. Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the
aforementioned MWE in the public sector shall likewise be covered by the above
exemption. Provided, however, that a public sector employee who receives additional SECTION 1. Section 22 of Republic Act No. 8424, as amended, otherwise known as the
compensation such as commissions, honoraria, fringe benefits, benefits in excess of the National Internal Revenue Code of 1997, is hereby further amended by adding the
allowable statutory amount of ₱30,000.00, taxable allowances and other taxable income following definitions after Subsection (FF) to read as follows:
other than the SMW, holiday pay, overtime pay, night shift differential pay and hazard
pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings Section 22. Definitions.- when used in this Title:61
are not exempt from income tax and, consequently, from withholding tax.
(A) x x x
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 (FF) x x x RT WAP defined by DOLE
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 (GG) The term 'statutory minimum wage' shall refer to the rate fixed by the Regional
differential pay and hazard pay shall still be exempt from withholding tax. Tripartite Wage and Productivity Board, as defined by the Bureau of Labor and
Employment Statistics (BLES) of the Department of Labor and Employment (DOLE).
For purposes of these regulations, hazard pay shall mean xxx
(HH) The term 'minimum wage earner' shall refer to a worker in the private sector paid
In case of hazardous employment, x x x the statutory minimum wage, or to an employee in the public sector with compensation
income of not more than the statutory minimum wage in the non-agricultural sector
xxxx where he/she is assigned.

SECTION 3. Section 2.79 of RR 2-98, as amended, is hereby further amended to read as SECTION 2. Section 24(A) of Republic Act No. 8424, as amended, otherwise known as
follows: the National Internal Revenue Code of 1997, is hereby further amended to read as
follows:
Sec. 2.79. Income Tax Collected at Source on Compensation Income. -
SEC. 24. Income Tax Rates. -
(A) Requirement of Withholding. - Every employer must withhold from compensation
paid an amount computed in accordance with these Regulations. Provided, that no (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the
withholding of tax shall be required on the SMW, including holiday pay, overtime pay, Philippines. - MWE: private sector worker paid SMW
night shift differential and hazard pay of MWEs in the private/public sectors as defined in public sector employee w/
these Regulations. Provided, further, that an employee who receives additional (l)x x x
compensation income not more than
compensation such as commissions, honoraria, fringe benefits, benefits in excess of the
allowable statutory amount of₱30,000.00, taxable allowances and other taxable income x x x x; and
SMW in the non-agri sector he/she is
other than the SMW, holiday pay, overtime pay, hazard pay and night shift differential assigned
pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings (c) On the taxable income defined in Section 31 of this Code, other than income subject
are not exempt from income tax and, consequently, shall be subject to withholding tax. to tax under Subsections (B), (C) and (D)of this Section, derived for each taxable year
from all sources within the Philippines by an individual alien who is a resident of the
xxxx Philippines.

For the year 2008, however, being the initial year of implementation of R.A. 9504, there (2) Rates of Tax on Taxable Income of Individuals. - The tax shall be computed in
shall be a transitory withholding tax table for the period from July 6 to December 31, accordance with and at the rates established in the following schedule:
2008 (Annex "D") determined by prorating the annual personal and additional
exemptions under R.A. 9504 over a period of six months. Thus, for individuals, xxxx
regardless of personal status, the prorated personal exemption is ₱25,000, and for each
qualified dependent child (QDC), ₱12,500. For married individuals, the husband and wife, subject to the provision of Section 51 (D)
hereof, shall compute separately their individual income tax based on their respective
On the other hand, the pertinent provisions of law, which are supposed to be implemented total taxable income: Provided, That if any income cannot be definitely attributed to or
by the above-quoted sections of RR10-2008, read as follows: identified as income exclusively earned or realized by either of the spouses, the same
shall be divided equally between the spouses for the purpose of determining their
respective taxable income.
Provided, That mm1mum wage earners as defined in Section 22(HH) of this Code shall deduct and withhold upon such wages a tax determined in accordance with the rules and
be exempt from the payment of income tax on their taxable income: Provided, further, regulations to be prescribed by the Secretary of Finance, upon recommendation of the
That the holiday pay, [Link] pay, night shift differential pay and hazard pay received Commissioner. (Emphases supplied)
by such minimum wage earners shall likewise be exempt from income tax.
Nowhere in the above provisions of R.A. 9504 would one find the qualifications
xxxx 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
SECTION 5. Section 51(A)(2) of Republic Act No. 8424, as amended, otherwise known other qualification as to who are MWEs.
as the National Internal Revenue Code of 1997, is hereby further amended to read as
follows: To be exempt, one must be an MWE, a term that is clearly defined. Section 22(HH) says
he/she must be one who is paid the statutory minimum wage if he/she works in the
SEC. 51. Individual Return. - 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
(A) Requirements. - an MWE or he/she is not. Simply put, MWE is the status acquired upon passing the
litmus test - whether one receives wages not exceeding the prescribed minimum wage.
(1) Except as provided in paragraph (2) of this Subsection, the following individuals are
required to file an income tax return: The minimum wage referred to in the definition has itself a clear and definite meaning.
The law explicitly refers to the rate fixed by the Regional Tripartite Wage and
(a) x x x Productivity Board, which is a creation of the Labor Code.62 The Labor Code clearly
describes wages and Minimum Wage under Title II of the Labor Code. Specifically,
xxxx Article 97 defines "wage" as follows:

(2) The following individuals shall not be required to file an income tax return: (f) "Wage" paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or ascertained
(a) x x x on a time, task, piece, or commission basis, or other method of calculating the same,
which is payable by an employer to an employee under a written or unwritten contract of
(b) An individual with respect to pure compensation income, as defined in Section employment for work done or to be done, or for services rendered or to be rendered and
32(A)(l), derived from sources within the Philippines, the income tax on which has been includes the fair and reasonable value, as determined by the Secretary of Labor and
correctly withheld under the provisions of Section 79 of this Code: Employment, of board, lodging, or other facilities customarily furnished by the employer
to the employee. "Fair and reasonable value" shall not include any profit to the employer,
Provided, That an individual deriving compensation concurrently from two or more or to any person affiliated with the employer.
employers at any time during the taxable year shall file an income tax return; Labor Code Wage: any payments of any designation made by employer to employee
While the Labor Code's definition of "wage" appears to encompass any payments of any
(c) x x x; and designation that an employer pays his or her employees, the concept of minimum wage is
distinct.63 "Minimum wage" is wage mandated; one that employers may not freely
(d) A minimum wage earner as defined in Section 22(HH) of this Code or an individual choose on their own to designate in any which way.
who is exempt from income tax pursuant to the provisions of this Code and other laws, SMW under Tax Code: mandated, cannot be designated
general or special. In Article 99, minimum wage rates are to be prescribed by the

xxxx 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
SECTION 6. Section 79(A) of Republic Act No. 8424, as amended, otherwise known as tender at least once every two weeks, or twice a month, at intervals not exceeding 16
the National Internal Revenue Code of 1997, is hereby further amended to read as days, directly to the worker, except in case of force majeure or death of the worker.
follows:
These are the wages for which a minimum is prescribed. Thus, the minimum wage
SEC. 79. Income Tax Collected at Source. – exempted by R.A. 9504 is that which is referred to in the Labor Code. It is distinct and
different from other payments including allowances, honoraria, commissions, allowances
(A) Requirement of Withholding. - Except in the case of a minimum wage earner as or benefits that an employer may pay or provide an employee.
defined in Section 22(HH) of this Code, every employer making payment of wages shall
Likewise, the other compensation incomes an MWE receives that are also exempted by burden of taxation, respondents, in the guise of clarification, proceed to redefine which
R.A. 9504 are all mandated by law and are based on this minimum wage. Additional incomes may or may not be granted exemption. These respondents cannot do without
compensation in the form of overtime pay is mandated for work beyond the normal hours encroaching on purely legislative prerogatives.
based on the employee's regular wage.64 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 By way of review, this ₱30,000 statutory ceiling on benefits has its beginning in 1994
based on their regular wage.65 Holiday/premium pay is mandated whether one works on under R. A. 7833, which amended then Section 28(b )(8) of the 1977 NIRC. It is
regular holidays or on one's scheduled rest days and special holidays. In all of these substantially carried over as Section 32(B) (Exclusion from Gross Income) of Chapter VI
cases, additional compensation is mandated, and computed based on the employee's (Computation of Gross Income) of Title II (Tax on Income) in the 1997 NIRC (R.A.
regular wage.66 8424). R.A. 9504 does not amend that provision of R.A. 8424, which reads:
TE of new law is EXPLICIT as to coverage: SHON
R.A. 9504 is explicit as to the coverage of the exemption: the wages that are not in excess SEC. 32. Gross Income.-
of the minimum wage as determined by the wage boards, including the corresponding
holiday, overtime, night differential and hazard pays. (A) General Definition.- x x x

In other words, the law exempts from income taxation the most basic compensation an (B) Exclusions from Gross Income.- The following items shall not be included in gross
employee receives - the amount afforded to the lowest paid employees by the mandate of income and shall be exempt from taxation under this title:
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. This is (1) x x x
the essence of R.A. 9504 as a social legislation. The government, by way of the tax
exemption, affords increased purchasing power to this sector of the working class. xxxx Origins of 30k statutory
ceiling: 1977 Tax Code
This intent is reflected in the Explanatory Note to Senate Bill No. 103 of Senator Roxas: (7) Miscellaneous Items. - Amendment (in 1994)

This bill seeks to exempt minimum wage earners in the private sector and government (a) x x x GR: Benefits are excluded from IT
workers in Salary Grades 1 to 3, amending certain provisions of Republic Act 8424, EX: Benefits exceeding 30k will be included in IT
otherwise known as the National Internal Revenue Code of 1997, as amended. xxxx

As per estimates by the National Wages and Productivity Board, there are 7 million (e) 13th Month Pay and Other Benefits.- Gross benefits received by officials and
workers earning the minimum wage and even below. While these workers are in the employees of public and private entities: Provided, however, That the total exclusion
verge of poverty, it is unfair and unjust that the Government, under the law, is taking under this subparagraph shall not exceed Thirty thousand pesos (₱30,000) which shall
away a portion of their already subsistence-level income. cover:

Despite this narrow margin from poverty, the Government would still be mandated to (i) Benefits received by officials and employees of the national and local government
take a slice away from that family's meager resources. Even if the Government has pursuant to Republic Act No. 668670;
recently exempted minimum wage earners from withholding taxes, they are still liable to
pay income taxes at the end of the year. The law must be amended to correct this (ii) Benefits received by employees pursuant to Presidential Decree No. 85171, as
injustice. (Emphases supplied) amended by Memorandum Order No. 28, dated August 13, 1986;

The increased purchasing power is estimated at about ₱9,500 a year.67 RR 10-2008, (iii) Benefits received by officials and employees not covered by Presidential decree No.
however, takes this away. In declaring that once an MWE receives other forms of taxable 851, as amended by Memorandum Order No. 28, dated August 13, 1986;and
income like commissions, honoraria, and fringe benefits in excess of the non-taxable
statutory amount of ₱30,000, RR 10-2008 declared that the MWE immediately becomes (iv) Other benefits such as productivity incentives and Christmas bonus: Provided,
ineligible for tax exemption; and otherwise non-taxable minimum wage, along with the further, That the ceiling of Thirty thousand pesos (₱30,000) may be increased through
other taxable incomes of the MWE, becomes taxable again. rules and regulations issued by the Secretary of Finance, upon recommendation of the
Commissioner, after considering among others, the effect on the same of the inflation rate
Respondents acknowledge that R.A.9504 is a social legislation meant for social justice,68 at the end of the taxable year.
but they insist that it is too generous, and that consideration must be given to the fiscal
position and financial capability of the government.69 While they acknowledge that the (f) x x x
intent of the income tax exemption of MWEs is to free low-income earners from the
 2008 Amendment to Tax Code
MWE TE on TI, including overtime, night shift, holiday, hazard
The exemption granted to MWEs by R.A. 9504 reads: It should be noted that the intent of the income tax exemption of MWEs is to free the
low-income earner from the burden of tax. R.A. No. 9504 and R.R. No. 10-2008 define
Provided, That minimum wage earners as defined in Section 22(HH) of this Code shall be who are the low-income earners. Someone who earns beyond the incomes and benefits
exempt from the payment of income tax on their taxable income: Provided, further, That above-enumerated is definitely not a low-income earner. 72
the holiday pay, overtime pay, night shift differential pay and hazard pay received by
such minimum wage earners shall likewise be exempt from income tax. We do not agree.

"Taxable income" is defined as follows: As stated before, nothing to this effect can be read from R.A. 9504. The amendment is
specified income items - deductions and/or exemptions silent on whether compensation-related benefits exceeding the ₱30,000 threshold would
SEC. 31. Taxable Income Defined.- The term taxable income means the pertinent items make an MWE lose exemption. R.A. 9504 has given definite criteria for what constitutes
of gross income specified in this Code, less the deductions and/or personal and additional an MWE, and R.R. 10-2008 cannot change this.
exemptions, if any, authorized for such types of income by this Code or other special
laws. An administrative agency may not enlarge, alter or restrict a provision of law. It cannot
2 groups 1) exempted by new law 2) prior items unchanged by new law
add to the requirements provided by law. To do so constitutes lawmaking, which is
A careful reading of these provisions will show at least two distinct groups of items of generally reserved for Congress. 73 In CIR v. Fortune Tobacco, 74 we applied the plain
compensation. On one hand are those that are further exempted from tax by R.A. 9504; meaning rule when the Commissioner of Internal Revenue ventured into unauthorized
on the other hand are items of compensation that R.A. 9504 does not amend and are thus administrative lawmaking:
unchanged and in no need to be disturbed.
1) new law exempts SMW and its incidents; not for other forms of compensation [A]n administrative agency issuing regulations may not enlarge, alter or restrict the
First are the different items of compensation subject to tax prior to R.A. 9504. These are provisions of the law it administers, and it cannot engraft additional requirements not
included in the pertinent items of gross income in Section 31. "Gross income" in Section contemplated by the legislature. The Court emphasized that tax administrators are not
32 includes, among many other items, "compensation for services in whatever form paid, allowed to expand or contract the legislative mandate and that the "plain meaning rule" or
including, but not limited to salaries, wages, commissions, and similar items." R.A. 9504 verba legis in statutory construction should be applied such that where the words of a
particularly exempts the minimum wage and its incidents; it does not provide exemption statute are clear, plain and free from ambiguity, it must be given its literal meaning and
for the many other forms of compensation. applied without attempted interpretation.
2) exclusions even prior to the new law, inc. benefits
Second are the other items of income that, prior to R.A. 9504, were excluded from gross As we have previously declared, rule-making power must be confined to details for
income and were therefore not subject to tax. Among these are other payments that regulating the mode or proceedings in order to carry into effect the law as it has been
employees may receive from employers pursuant to their employer-employee enacted, and it cannot be extended to amend or expand the statutory requirements or to
relationship, such as bonuses and other benefits. These are either mandated by law (such embrace matters not covered by the statute. Administrative regulations must always be in
as the 13th month pay) or granted upon the employer's prerogative or are pursuant to harmony with the provisions of the law because any resulting discrepancy between the
collective bargaining agreements (as productivity incentives). These items were not two will always be resolved in favor of the basic law. 75 (Emphases supplied)
changed by R.A. 9504.
TE of benefits in 1994 are now EXTENDED to wages in new law We are not persuaded that RR 10-2008 merely clarifies the law. The CIR' s clarification
It becomes evident that the exemption on benefits granted by law in 1994 are now is not warranted when the language of the law is plain and clear. 76
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. The deliberations of the Senate reflect its understanding of the outworking of this MWE
Conversely, benefits in excess of ₱30,000 are subject to tax and now, wages in excess of exemption in relation to the treatment of benefits, both those for the ₱30,000 threshold
the SMW are still subject to tax. and the de minimis benefits:

What the legislature is exempting is the MWE's minimum wage and other forms statutorySenator Defensor Santiago. Thank you. Next question: How about employees who are
compensation like holiday pay, overtime pay, night shift differential pay, and hazard pay.
only receiving a minimum wage as base pay, but are earning significant amounts of
These are not bonuses or other benefits; these are wages. Respondents seek to frustrate
income from sales, commissions which may be even higher than their base pay? Is their
this exemption granted by the legislature. entire income from commissions also tax-free? Because strictly speaking, they are
Erroneous View of Respondents: Anyone w/ benefits exceeding 30k cannot be a MWE minimum wage earners. For purposes of ascertaining entitlement to tax exemption, is the
In respondents' view, anyone receiving 13th month pay and other benefits in excess of basis only the base pay or should it be the aggregate compensation that is being received,
₱30,000 cannot be an MWE. They seek to impose their own definition of "MWE" by that is, inclusive of commissions, for example?
arguing thus: Rule-making power: confined to
DETAILS FOR REGULATION
Correct View CANNOT BE EXTENDED TO
Benefits below 30k were TE; wages below SMW are now TE also AMEND/EXPAND STATUTORY
Benefits above 30k are taxable; wages above SMW are still taxable REQUIREMENTS
Senator Escudero. Mr. President, what is included would be only the base pay and, if any, We do not sit in judgment as a supra-legislature to decide, after a law is passed by
the hazard pay, holiday pay, overtime pay and night shift differential received by a Congress, which state interest is superior over another, or which method is better suited
minimum wage earner. As far as commissions are concerned, only to the extent of to achieve one, some or all of the state's interests, or what these interests should be in the
₱30,000 would be exempted. Anything in excess of ₱30,000 would already be taxable if first place. This policy-determining power, by constitutional fiat, belongs to Congress as
it is being received by way of commissions. Add to that de minimis benefits being it is its function to determine and balance these interests or choose which ones to pursue.
received by an employee, such as rice subsidy or clothing allowance or transportation Time and again we have ruled that the judiciary does not settle policy issues. The Court
allowance would also be exempted; but they are exempted already under the existing law. can only declare what the law is and not what the law should be. Under our system of
government, policy issues are within the domain of the political branches of government
Senator Defensor Santiago. I would like to thank the sponsor. That makes it clear. 77 and of the people themselves as the repository of all state power. Thus, the legislative
(Emphases supplied) classification under the classification freeze provision, after having been shown to be
rationally related to achieve certain legitimate state interests and done in good faith, must,
Given the foregoing, the treatment of bonuses and other benefits that an employee perforce, end our inquiry.
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 Concededly, the finding that the assailed law seems to derogate, to a limited extent, one
more, no less. of its avowed objectives (i.e. promoting fair competition among the players in the
industry) would suggest that, by Congress's own standards, the current excise tax system
The treatment of this excess cannot operate to disenfranchise the MWE from enjoying the on sin products is imperfect. But, certainly, we cannot declare a statute unconstitutional
exemption explicitly granted by R.A. 9504. merely because it can be improved or that it does not tend to achieve all of its stated
objectives. This is especially true for tax legislation which simultaneously addresses and
The government's argument that the impacts multiple state interests. Absent a clear showing of breach of constitutional
RR avoids a tax distortion has no limitations, Congress, owing to its vast experience and expertise in the field of taxation,
merit. must be given sufficient leeway to formulate and experiment with different tax systems to
address the complex issues and problems related to tax administration. Whatever
The government further contends that the "clarification" avoids a situation akin to wage imperfections that may occur, the same should be addressed to the democratic process to
distortion and discourages tax evasion. They claim that MWE must be treated equally as refine and evolve a taxation system which ideally will achieve most, if not all, of the
other individual compensation income earners "when their compensation does not state's objectives.
warrant exemption under R.A. No. 9504. Otherwise, there would be gross inequity
between and among individual income taxpayers."78 For illustrative purposes, In fine, petitioner may have valid reasons to disagree with the policy decision of
respondents present three scenarios: Congress and the method by which the latter sought to achieve the same. But its remedy
is with Congress and not this Court. (Emphases supplied and citations deleted)
37.1. In the first scenario, a minimum wage earner in the National Ca[ital Region
receiving ₱382.00 per day has an annual salary of ₱119,566.00, while a non-minimum Respondents cannot interfere with the wisdom of R.A. 9504. They must respect and
wage earner with a basic pay of ₱385.00 per day has an annual salary of ₱120,505.00. implement it as enacted.
The difference in their annual salaries amounts to only ₱939.00, but the non-minimum
wage earner is liable for a tax of ₱8,601.00, while the minimum wage earner is tax- Besides, the supposed undesirable "income distortion" has been addressed in the Senate
exempt? deliberations. The following exchange between Senators Santiago and Escudero reveals
the view that the distortion impacts only a few - taxpayers who are single and have no
37.2. In the second scenario, the minimum wage earner's "other benefits" exceed the dependents:
threshold of ₱30,000.00 by ₱20,000.00. The non-minimum wage earner is liable for
₱8,601.00, while the minimum wage earner is still tax-exempt. Senator Santiago.... It seems to me awkward that a person is earning just Pl above the
minimum wage is already taxable to the full extent simply because he is earning ₱l more
37.3. In the third scenario, both workers earn "other benefits" at ₱50,000.00 more than each day, or o more than P30 a month, or ₱350 per annum. Thus, a single individual
the ₱30,000 threshold. The non-minimum wage earner is liable for the tax of ₱l8,601.00, earning ₱362 daily in Metro Manila pays no tax but the same individual if he earns ₱363
while the minimum wage earner is still tax-exempt.79 (Underscoring in the original) a day will be subject to tax, under the proposed amended provisions, in the amount of
₱4,875 - I no longer took into account the deductions of SSS, e cetera- although that
Again, respondents are venturing into policy-making, a function that properly belongs to worker is just ₱360 higher than the minimum wage.
Congress. In British American Tobacco v. Camacho, we explained:80
xxxx
I repeat, I am raising respectfully the point that a person who is earning just Pl above the MWEs receiving other income, such as income from the conduct of trade, business, or
minimum wage is already taxable to the full extent just for a mere Pl. May I please have practice of profession, except income subject to final tax, in addition to compensation
the Sponsor's comment. Senator Escudero...I fully subscribe and accept the analysis and income are not exempted from income tax on their entire income earned during the
computation of the distinguished Senator, Mr. President, because this was the very taxable year. This rule, notwithstanding, the SMW, Holiday pay, overtime pay, night shift
concern of this representation when we were discussing the bill. It will create wage differential pay and hazard pay shall still be exempt from withholding tax.
distortions up to the extent wherein a person is paying or rather receiving a salary which
is only higher by ₱6,000 approximately from that of a minimum wage earner. So xxxx
anywhere between P1 to approximately ₱6,000 higher, there will be a wage distortion,
although distortions disappears as the salary goes up. (14) Compensation income of employees in the public sector with compensation income
of not more than the SMW in the nonagricultural sector, as fixed by RTWPB/NWPC,
However, Mr. President, as computed by the distinguished Senator, the distortion is only applicable to the place where he/she is assigned.
made apparent if the taxpayer is single or is not married and has no dependents. Because
at two dependents, the distortion would already disappear; at three dependents, it would xxxx
not make a difference anymore because the exemption would already cover
approximately the wage distortion that would be created as far as individual or single Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the
taxpayers are concerned.81 (Emphases in the original) aforementioned MWE in the public sector shall likewise be covered by the above
exemption. Provided, however, that a public sector employee who receives additional
Indeed, there is a distortion, one that RR 10-2008 actually engenders. While respondents compensation such as commissions, honoraria, fringe benefits, benefits in excess of the
insist that MWEs who are earning purely compensation income will lose their MWE allowable statutory amount of ₱30,000.00, taxable allowances and other taxable income
exemption the moment they receive benefits in excess of ₱30,000, RR 10-2008 does not other than the SMW, holiday pay, overtime pay, night shift differential pay and hazard
withdraw the MWE exemption from those who are earning other income outside of their pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings
employer-employee relationship. Consider the following provisions of RR 10-2008: are not exempt from income tax and, consequently, from withholding tax.

Section 2.78.l (B): 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
(B) Exemptions from Withholding Tax on 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
The following income payments are exempted from the requirements of withholding tax differential pay and hazard pay shall still be exempt from withholding tax.
on compensation:
These provisions of RR 10-2008 reveal a bias against those who are purely compensation
xxxx earners. In their consolidated comment, respondents reason:

(13) Compensation income of MWEs who work in the private sector and being paid the Verily, the interpretation as to who is a minimum wage earner as petitioners advance will
Statutory Minimum Wage (SMW), as fixed by Regional Tripartite Wage and open the opportunity for tax evasion by the mere expedient of pegging the salary or wage
Productivity Board (RTWPB)/National Wages and Productivity Commission (NWPC), of a worker at the minimum and reflecting a worker's other incomes as some other
applicable to the place where he/she is assigned. benefits. This situation will not only encourage tax evasion, it will likewise discourage
able employers from paying salaries or wages higher than the statutory minimum. This
xxxx should never be countenanced. 82

Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the Again, respondents are delving into policy-making they presume bad faith on the part of
aforementioned MWE shall likewise be covered by the above exemption. Provided, the employers, and then shift the burden of this presumption and lay it on the backs of the
however, that an employee who receives/earns additional compensation such as lowest paid workers. This presumption of bad faith does not even reflect pragmatic
commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory reality. It must be remembered that a worker's holiday, overtime and night differential
amount of ₱30,000.00, taxable allowances and other taxable income other than the SMW, pays are all based on the worker's regular wage. Thus, there will always be pressure from
holiday pay, overtime pay, hazard pay and night shift differential pay shall not enjoy the the workers to increase, not decrease, their basic pay.
privilege of being a MWE and, therefore, his/her entire earnings are not exempt from
income tax, and consequently, from withholding tax. 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. Tax Burden87

We cannot sustain respondent’s position. RA 716788

In sum, the proper interpretation of R.A. 9504 is that it imposes taxes only on the taxable RA 749689
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 1992
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 WO 3 (1993 Dec)
they receive other than as MWEs may be subjected to appropriate taxes.
₱135.00
R.A. 9504 must be liberally construed.
₱24,255
We are mindful of the strict construction rule when it comes to the interpretation of tax
exemption laws. 83 The canon, however, is tempered by several exceptions, one of which ₱1,343.05
is when the taxpayer falls within the purview of the exemption by clear legislative intent.
In this situation, the rule of liberal interpretation applies in favor of the grantee and 3.2%
against the government. 84
WO 5 (1997 May)
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 ₱185.00
discussed, this intent can be seen from both the law and the deliberations.
₱39,905
Accordingly, we see no reason why we should not liberally interpret R.A. 9504 in favor
of the taxpayers. ₱3,064.55

R.A. 9504 is a grant of tax relief long overdue. 5.3%

We do not lose sight of the fact that R.A. 9504 is a tax relief that is long overdue. RA 842490

Table 1 below shows the tax burden of an MWE over the years. We use as example one (1997 NIRC)
who is a married individual without dependents and is working in the National Capital
Region (NCR). For illustration purposes, R.A. 9504 is applied as if the worker being paid 1998
the statutory minimum wage is not tax exempt:
WO 6 (1998 Feb)
Table 1 -Tax Burden of MWE over the years
₱198.00
Law
₱29,974
Effective
₱2,497.40
NCR Minimum Daily Wage85
40.%
Taxable Income86
WO 13 (2007 Aug)
Tax Due
₱362.00
(Annual)
₱81,306 from ₱18,000 to ₱32,000 for a married individual without dependents. It may be noted
that while the tax table was revised, a closer scrutiny of Table 3 below would show that
₱10,761.20 the rates actually increased for those who were earning less.

9.5% As the minimum wage continued to increase, the MWE's tax burden likewise did - by
August 2007, it was 9.5%. This means that in 2007, of the ₱362 minimum wage, the
WO 14 (2008 June) MWE's take-home pay was only ₱327.62, after a tax of ₱34.38.

₱382.00 This scenario does not augur well for the wage earners. Over the years, even with the
occasional increase in the basic personal and additional exemptions, the contribution the
₱87,566 government exacts from its MWEs continues to increase as a portion of their income.
This is a serious social issue, which R.A. 9504 partly addresses. With the ₱20 increase in
₱12,013.20 minimum wage from ₱362 to ₱382 in 2008, the tax due thereon would be about ₱30. As
seen in their deliberations, the lawmakers wanted all of this amount to become additional
10.0% take-home pay for the MWEs in 2008.92

RA 950491 The foregoing demonstrates the effect of inflation. When tax tables do not get adjusted,
inflation has a profound impact in terms of tax burden. "Bracket creep," "the process by
2008 which inflation pushes individuals into higher tax brackets,"93 occurs, and its deleterious
results may be explained as follows:
WO 14 (2008 Aug)
[A]n individual whose dollar income increases from one year to the next might be
₱382.00 obliged to pay tax at a higher marginal rate (say 25% instead of 15%) on the increase, this
being a natural consequence of rate progression. If, however, due to inflation the benefit
₱69,566 of the increase is wiped out by a corresponding increase in the cost of living, the effect
would be a heavier tax burden with no real improvement in the taxpayer's economic
₱8,434.90 position. Wage and salary-earners are especially vulnerable. Even if a worker gets a raise
in wages this year, the raise will be illusory if the prices of consumer goods rise in the
7.1% same proportion. If her marginal tax rate also increased, the result would actually be a
decrease in the taxpayer's real disposable income.94
WO 20 (2016 June)
Table 2 shows how MWEs get pushed to higher tax brackets with higher tax rates due
₱491.00 only to the periodic increases in the minimum wage. This unfortunate development
illustrates how "bracket creep" comes about and how inflation alone increases their tax
₱103,683 burden:

₱15,236.60 Table 2

9.9% Law

As shown on Table 1, we note that in 1992, the tax burden upon an MWE was just about Effective
3.2%, when Congress passed R.A. 7167, which increased the personal exemptions for a
married individual without dependents from ₱12,000 to ₱18,000; and R.A. 7496, which NCR Minimum Daily Wage95
revised the table of graduated tax rates (tax table).
Highest Applicable Tax Rate (Bracket Creep)
Over the years, as the minimum wage increased, the tax burden of the MWE likewise
increased. In 1997, the MWE's tax burden was about 5.3%. When R.A. 8424 became Tax Due (Annual)
effective in 1998, some relief in the MWE's tax burden was seen as it was reduced to
4.0%. This was mostly due to the increase in personal exemptions, which were increased Tax Burden96
 20%
RA 716797
₱10,761.20
1992
9.5%
WO 3 (1993 Dec)
WO 14 (2008 June)
₱135.00
₱382.00
11%
20%
₱1,343.05
₱12,013.20
3.2%
10.0%
RA 749698
RA 9504100

WO 5 (1997 May) 2008

₱185.00 WO 14 (2008 Aug)

11% ₱382.00

₱3,064.55 15%

5.3% ₱8,434.90

RA 842499 7.1%

(1997 NIRC) WO 20 (2016 June)

1998 ₱491.00

WO 6 (1998 Feb) 20%

₱198.00 ₱15,236.60

10% 9.9%

₱2,497.40 The overall effect is the diminution, if not elimination, of the progressivity of the rate
structure under the present Tax Code. We emphasize that the graduated tax rate schedule
4.0% for individual taxpayers, which takes into account the ability to pay, is intended to
breathe life into the constitutional requirement of equity. 101

WO 13 (2007 Aug) R.A. 9504 provides relief by declaring that an MWE, one who is paid the statutory
minimum wage (SMW), is exempt from tax on that income, as well as on the associated
₱362.00 statutory payments for hazardous, holiday, overtime and night work.
R.R. 10-2008, however, unjustly removes this tax relief. While R.A. 9504 grants MWEs
zero tax rights from the beginning or for the whole year 2008, RR 10-2008 declares that 10%
certain workers - even if they are being paid the SMW, "shall not enjoy the privilege."
Over ₱20,000 but not over ₱30,000
Following RR10-2008's "disqualification" injunction, the MWE will continue to be
pushed towards the higher tax brackets and higher rates. As Table 2 shows, as of June 11%
2016, an MWE would already belong to the 4th highest tax bracket of 20% (see also
Table 3), resulting in a tax burden of 9.9%. This means that for every ₱100 the MWE Over ₱30,000 but not over ₱40,000
earns, the government takes back ₱9.90.

Further, a comparative view of the tax tables over the years (Table 3) shows that while 15%
the highest tax rate was reduced from as high as 70% under the 1977 NTRC, to 35% in
1992, and 32% presently, the lower income group actually gets charged higher taxes. 15%
Before R.A. 8424, one who had taxable income of less than ₱2,500 did not have to pay
any income tax; under R.A. 8424, he paid 5% thereof. The MWEs now pay 20% or even Over ₱40,000 but not over ₱60,000
more, depending on the other benefits they receive including overtime, holiday, night
shift, and hazard pays. 15%

Table 3 – Tax Tables: Comparison of Tax Brackets and Rates Over ₱60,000 but not over ₱70,000

Taxable Income Bracket 19%

Rates under R. A. 7496 (1992) Over ₱70,000 but not over ₱100,000

Rates under R. A. 8424 (1998) 20%

Rates under R. A. 9504 (2008) 20%

Not Over ₱2,500 Over ₱100,000 but not over ₱140,000

0% 24%

5% Over ₱140,000 but not over ₱250,000

5% 25%

Over ₱2,500 but not over ₱5,000 25%

1% Over ₱250,000 but not over ₱500,000

Over ₱5,000 but not over ₱10,000 29%

3% 30%

Over ₱10,000 but not over ₱20,000 30%

7% Over ₱500,00

10% 35%
 xxxx
34%
(4) De minimis benefits as defined in the rules and regulations to be promulgated by the
32% Secretary of Finance, upon recommendation of the Commissioner.

The relief afforded by R.A.9504 is thus long overdue. The law must be now given full WHEREFORE, the Court resolves to
effect for the entire taxable year 2008, and without the qualification introduced by RR 10-
2008. The latter cannot disqualify MWEs from exemption from taxes on SMW and on (a) GRANT the Petitions for Certiorari, Prohibition, and Mandamus; and
their on his SMW, holiday, overtime, night shift differential, and hazard pay.
(b) DECLARE NULL and VOID the following provisions of Revenue Regulations No.
CONCLUSION 10-2008:

The foregoing considered, we find that respondents committed grave abuse of discretion (i) Sections 1 and 3, insofar as they disqualify MWEs who earn purely compensation
in promulgating Sections 1 and 3 of RR 10-2008, insofar as they provide for (a) the income from the privilege of the MWE exemption in case they receive bonuses and other
prorated application of the personal and additional exemptions for taxable year 2008 and compensation-related benefits exceeding the statutory ceiling of ₱30,000;
for the period of applicability of the MWE exemption for taxable year 2008 to begin only
on 6 July 2008; and (b) the disqualification of MWEs who earn purely compensation (ii) Section 3 insofar as it provides for the prorated application of the personal and
income, whether in the private or public sector, from the privilege of availing themselves additional exemptions under R.A. 9504 for taxable year 2008, and for the period of
of the MWE exemption in case they receive compensation-related benefits exceeding the applicability of the MWE exemption to begin only on 6 July 2008.
statutory ceiling of ₱30,000.
(c) DIRECT respondents Secretary of Finance and Commissioner of Internal Revenue to
As an aside, we stress that the progressivity of the rate structure under the present Tax grant a refund, or allow the application of the refund by way of withholding tax
Code has lost its strength. In the main, it has not been updated since its revision in 1997, adjustments, or allow a claim for tax credits by (i) all individual taxpayers whose incomes
or for a period of almost 20 years. The phenomenon of "bracket creep" could be for taxable year 2008 were the subject of the prorated increase in personal and additional
prevented through the inclusion of an indexation provision, in which the graduated tax tax exemption; and (ii) all MWEs whose minimum wage incomes were subjected to tax
rates are adjusted periodically without need of amending the tax law. The 1997 Tax for their receipt of the 13th month pay and other bonuses and benefits exceeding the
Code, however, has no such indexation provision. It should be emphasized that threshold amount under Section 32(B)(7)(e) of the 1997 Tax Code.
indexation to inflation is now a standard feature of a modern tax code. 102
SO ORDERED.
We note, however, that R.A. 8424 imposes upon respondent Secretary of Finance and
Commissioner of Internal Revenue the positive duty to periodically review the other MARIA LOURDES P.A. SERENO
benefits, in consideration of the effect of inflation thereon, as provided under Section Chief Justice
32(B)(7)(e) entitled" 13th Month Pay and Other Benefits":
WE CONCUR:
(iv) Other benefits such as productivity incentives and Christmas bonus: Provided,
further, That the ceiling of Thirty thousand pesos (₱30,000) may be increased through ANTONIO T. CARPIO
rules and regulations issued by the Secretary of Finance, upon recommendation of the Associate Justice PRESBITERO J. VELASCO, JR.
Commissioner, after considering among others, the effect on the same of the inflation rate Associate Justice
at the end of the taxable year. TERESITA J. LEONARDO-DE CASTRO
Associate Justice DIOSDADO M. PERALTA
This same positive duty, which is also imposed upon the same officials regarding the de Associate Justice
minimis benefits provided under Section 33(C)(4), is a duty that has been exercised LUCAS P. BERSAMIN
several times. The provision reads: Associate Justice MARIANO C. DEL CASTILLO
Associate Justice
(C) Fringe Benefits Not Taxable. - The following fringe benefits are not taxable under JOSE CATRAL MENDOZA
this Section: Associate Justice BIENVENIDO L. REYES
Associate Justice
(l) x x x ESTELA M. PERLAS-BERNABE
Associate Justice MARVIC M.V.F. LEONEN
Associate Justice
FRANCIS H. JARDELEZA Article II
Associate Justice ALFREDO BENJAMIN S. CAGUIOA DECLARATION OF PRINCIPLES AND STATE POLICIES
Associate Justice
CERTIFICATION xxxx

Pursuant to the Section 13, Article VIII of the Constitution, I certify that the conclusions Section 9. The State shall promote a just and dynamic social order that will ensure the
in the above Decision had been reached in consultation before the case was assigned to prosperity and independence of the nation and free the people from poverty through
the writer of the opinion of the Court’s Division. policies that provide adequate social services, promote full employment, a rising standard
of living, and an improved quality of life for all.
MARIA LOURDES P.A. SERENO
Chief Justice Section 10. The State shall promote social justice in all phases of national development.

xxxx
Footnotes
Section 18. The State affirms labor as a primary social economic force. It shall protect the
1 R.A. 9504 - Section 2. Section 24 (A) of Republic Act No. 8424, as amended, rights of workers and promote their welfare.
otherwise known as the
Article XIII:
National Internal Revenue Code of l997, is hereby further amended to read as follows: SOCIAL JUSTICE AND HUMAN RIGHTS

xxxx Section 1. The Congress shall give highest priority to the enactment of measures that
protect and enhance the right of all the people to human dignity, reduce social, economic,
Provided, That minimum wage earners as defined in Section 22 (HH) of this Code shall and political inequalities, and remove cultural inequities by equitably diffusing wealth
be exempt from the payment of income tax on their taxable income: Provided, further, and political power for the common good.
That the holiday pay, overtime pay, night shift differential and hazard pay received by
such minimum wage earners shall likewise be exempt from income tax. To this end, the State shall regulate the acquisition, ownership, use, and disposition of
property and its increments.
xxxx
Section 2. The promotion of social justice shall include the commitment to create
2 Rollo (G.R. No. 184450), p. 14. economic opportunities based on freedom of initiative and self-reliance.

3 Id. at 9. LABOR

4 Id. Section 3. The State shall afford full protection to labor, local and overseas, organized
and unorganized, and promote full employment and equality of employment
5Id. at 8. opportunities for all.

6 Rollo (G.R. No. 184508), p. 16. It shall guarantee the rights of all workers to self-organization, collective bargaining and
negotiations, and peaceful concerted activities, including the right to strike in accordance
7 Id. with law. They shall be entitled to security of tenure, humane conditions of work, and a
living wage. They shall also participate in policy and decision-making processes affecting
8 Rollo (G.R. No. 184450), p. 18. their rights and benefits as may be provided by law. The State shall promote the principle
of shared responsibility between workers and employers and the preferential use of
9 G.R. Nos. 104037 & 104069, 29 May 1992, 209 SCRA 446. voluntary modes in settling disputes, including conciliation, and shall enforce their
mutual compliance therewith to foster industrial peace.
10 Id. at 18.

11 Petitioner Sen. Roxas cites the following provisions of the 1987 Constitution:
The State shall regulate the relations between workers and employers, recognizing the 23 Translated in the vernacular. The original paragraph is quoted below:
right of labor to its just share in the fruits of production and the right of enterprises to
reasonable returns to investments, and to expansion and growth. Mr. President, mga kagalang-galang kong kasamahan dito sa Senado, gusto sana naming
ibigay ang mas mataas na exemption para sa ating mga kababayan dahil na rin sa walang
xxxx tigil at walang humpay na pagtaas ng presyo ng bilihin. Subalit kinakailangang maging
responsible, hindi lamang ng ating Komite kundi pati na rin ang Senado at ang Kongreso
12 Rollo (G.R. No. 184508), p. 23. sa pagkilala, na bagaman nais nating ibigay ang lahat ng tulong na puwede at dapat
nating ibigay sa ating mga kababayan, kinakailangan din nating kilalanin ang
13 Id. at 24. pangangailangan ng gobyerno pagdating sa pagtustos ng mga gastusing ito na may
kinalaman sa pagbibigay ng serbisyosa ating mga kababayan. Ito po ang pinakamataas na
14 Rollo (G.R. No. 184538), pp. 11-12. puwede nating ibigay sa kasalukuyang panahon dahil na rin mahigpit sa pondo ngayon at
gipit sa pondo ang pamahalaan pagdating sa pagtustos ng mga pangunahing gastusin nito.
15 Rollo, (G.R. No. 185234) p.7.
24 IV Record, Senate 14th Congress 1st Session 218-219, 20 May 2008.
16 Rollo (G.R. No. 184450), pp. 99-149; (G.R. No. 184538), pp. 80-128; and (G.R. No.
185234), pp. 97- 146. 25 During the interpellation by Senator Juan Ponce-Enrile, Senator Escudero said that the
increased personal and additional exemptions translates to a tax-free income of ₱200,000
17 Rollo (G.R. No. 184450), p. 90. to a family of six. The pertinent legislative journal reads:

18 Id. at 101-103. In reply to Senator Enrile's queries, Senator Escudero stated that the proposed measure
seeks to increase the current personal exemption for a married individual from P32,000 to
19 As provided under Section 32(7)(e) of R.A. 8428, which reads: ₱50,000 and the current additional exemption per children from ₱8,000 to ₱25,000, so a
couple with four children would have a total non-taxable income of ₱200,000, translating
(e) 13th Month Pay and Other Benefits. - Gross benefits received by officials and to an additional income of ₱104,000 for the family. x x x (II Journal, Senate 14th
employees of public and private entities: Provided, however, That the total exclusion Congress 1st Session 1471, 20May 2008).
under this subparagraph shall not exceed Thirty thousand pesos (₱30,000) which shall
cover: 26 IV Record, Senate Fourteenth Congress First Session 291, 20 May 2008.

(i) Benefits received by officials and employees of the national and local government 27 A1ticle VI, Section 26(2) of the 1987 Constitution states:
pursuant to Republic Act No. 6686;
(2) No bill passed by either House shall become a law unless it has passed three readings
(ii) Benefits received by employees pursuant to Presidential Decree No. 851, as amended on separate days, and printed copies thereof in its final form have been distributed to its
by Memorandum Order No. 28, dated August 13, 1986; Members three days before its passage, except when the President certifies to the
necessity of its immediate enactment to meet a public calamity or emergency. Upon the
(iii) Benefits received by officials and employees not covered by Presidential Decree No. last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall
851, as amended by Memorandum Order No. 28, dated August 13, 1986; and be taken immediately thereafter, and the yeas and nays entered in the Journal.

(iv) Other benefits such as productivity incentives and Christmas bonus: Provided, 28 IV Record, Senate 14th Congress 1st Session 319, 27 May 2008.
further, That the ceiling of Thirty thousand pesos (P30,000) may be increased through
rules and regulations issued by the Secretary of Finance, upon recommendation of the 29 Section 35(C), Republic Act No. 8424 (1997).
Commissioner, after considering, among others, the effect on the same of the inflation
rate at the end of the taxable year. 30 Section 43, Republic Act No. 8424 (1997).

20 G.R. Nos. 104037 & 104069, 29 May 1992, 209 SCRA 446. 31 Section 51(C), Republic Act No. 8424 (1997).

21 Rollo (G.R. No. 184450), pp. 18-19. 32 Section 56, Republic Act No. 8424 (1997).

22 Umali v. Estanislao, supra at 451-454. 33 Ingalls v. Trinidad, 46 Phil. 807, 808-809 (1923).
34 Rollo (GR No. 184450), p. 145.
55 RR 10-2008 was issued on 24 September 2008 (see
35 537 Phil. 296 (2006). The OSG raised this argument in its Comment filed in G.R. No. [Link] (last accessed on
184450 on 19 February 2009; See rollo (G.R. No. 184450), pp. 83-106. 23 November 2016).

36 Sec Republic Act No. 8424 (1997), Section 5 (Transitory Provisions) and Section 7 56 Rollo (G.R. No. 185234), pp. 280-281; Memorandum. pp. 4-5.
(Repealing Clauses).
57 II JOURNAL, SENATE 14TH CONGRESS, 1ST SESSION 1513, 26 May 2008;
37 Pansacola v. CIR, supra, at 306-307. Rollo (G.R. No. 184508), p. 124, Consolidated Comments.

38 Id. at 307-308. 58 ₱25,000 for each dependent not exceeding four and the basic personal exemption of
₱50,000.
39 See Philippine British Assurance Co. Inc. v. Intermediate Appellate Court, 234 Phil. S
12 (1987). 59 Commissioner of Internal Revenue v. TMX Sales. Inc., 282 Phil. 199 (1992).

40 National Internal Revenue Code, Commonwealth Act No. 466 (1939). 60 Total of the de minimis benefits, excluding items (a), (i) and (j), could amount to
₱51,350 annually.
41 Amending the NIRC Re: Income Tax, Republic, Act No. 590 (1950).
61 Title II, Tax on Income, R.A. 8424, as amended.
42 See An Act Amending Certain Provisions of the National Internal Revenue Code of
1977, as Amended, and for Other Purposes, Batas Pambansa Blg. 135, (1981), 62 See Article 122, Presidential Decree 442, as amended by R.A. 6727 (1989).
Amendments to Section 23 and Section 45 of the NIRC of 1977, As Amended, Granting
Special Additional Personal Exemption to Individual Taxpayers, P.O. No. 1868 (1983) 63 In Employers Confederation of the Philippines v. National Wages and Productivity
and Executive Order No. 999 (1985). Commission, 278 Phil. 747, 755 (1991), we held as follows:

43 CIR v. Fortune Tobacco Corporation. 581 Phil. 146 (2008). The concept of "minimum wage" is, however, a different thing, and certainly, it means
more than setting a floor wage to upgrade existing wages, as ECOP takes it to
44 Commissioner of Internal Revenue v. Central Luzon Drug Corp., 496 Phil. 307 mean.""Minimum wages'' underlies the effort of the State, as Republic Act No. 6727
(2005). expresses it, "to promote productivity-improvement and gain-sharing measures to ensure
a decent standard of living for the workers and their families; to guarantee the rights of
45 Tatad v. Secretary of the Department of Energy, 346 Phil. 321 (1997). labor to its just share in the fruits of production; to enhance employment generation in the
countryside through industry dispersal; and to allow business and industry reasonable
46 Id. returns on investment, expansion and growth," 25 and as the Constitution expresses it to
affirm "labor as a primary social economic force." 26 As the Court indicated, the statute
47Id. would have no need for a board if the question were simply "how much." The State is
concerned, in addition, that wages are not distributed unevenly, and more important, that
48 Id. social justice is subserved.

49 Id. 64 Labor Code, Art. 87.

50 See note 22. 65 Labor Code, Art. 86.

51 Rollo (G.R. No. 185234), p. 132; Annex 1, p. 1. 66 Labor Code, Arts. 93 and 94.

52 Rollo (G.R. No. 184450), pp. 108-115. 67 Rollo (G.R. No. 184508), p. 16; See for example, Roxas Petition, p.14.

53 Rollo(G.R. No. 185234), p. 133. 68 Id. at 111, 115; Consolidated Comment, pp. 13, 17.

54 Id. at 14-15; Petition, pp. 12-13. 69 Id. at 115; Consolidated Comment, p. 17.
 providing for a maximum of Php18,000 for each married individual deriving taxable
70 An Act Authorizing Annual Christmas Bonus to National and local Government income.
Officials and Employees Starting CY 1988, R.A. No. 6686, 14 December 1988.
89 R.A. 7496 (May 1992) revised the tax table.
71 Requiring All Employers to Pay Their Employees a 13th Month Pay, P.O. No. 851, 16
December 1976. 90 R.A. 8424 (effective 1998), the Tax Reform Act of 1997 (1997 NIRC), revised the tax
table & increased personal exemptions, among others. Married individuals without
72 Rollo (G.R. No. 185234), p. 119. dependents are now entitled to ₱32,000.

73 CIR v. Luzon Drug Company, 496 Phil. 307 (2005). 91 R.A. 9504 (2008), among others, amended the Personal Exemption, now uniform at
₱50,000 for each individual taxpayer; and granted exemption to minimum wage earners
74 Commissioner of Internal Revenue v. Fortune Tobacco Corp., 581 Phil. 146 (2008). (MWEs). For purposes of illustration, we compute the tax liability of an MWE, as if he is
not exempt (as RR 10-2008 provides for individuals paid the SMW but happens to have
75 Id. at 162-163. other income the BIR deems disqualifying the MWE from entitlement to the exemption).

76 Republic of the Philippines v. Court of Appeals, 359 Phil. 530 (1998). 92 See Escudero speech on SB 2293, quoted in pp. 12-13 hereof.

77 IV RECORD, SENATE, 14TH CONGRESS 1ST SESSION 286-287, 26 May 2008. 93 Black’s Law Dictionary, 6th ed., p. 187.

78 Rollo (G.R. No. 185234), p. 121. 94 FEDERAL INCOME TAXATION, Marvin A. Chirelstein, 11th edition (2009), p. 7.

79 Rollo (G.R. No. 184538), pp. 236-237. 95 Assuming full 313 working days are worked and paid, with no OT or worked holiday
pay (365 days less 53 days off, holidays not worked but paid).
80 584 Phil. 489, 547-548 (2008).
96 The tax burden is computed by dividing the tax due by the amount earned by the
81 IV Record, Senate 14th Congress 1st Session 287. 26 May 2008. minimum wage earner (minimum wage multiplied by the days worked & paid).

82 Rollo (G.R. No. 184508), p. 105; Consolidated Comment, p. 28. 97 R.A. 7167 (1992) increased the Personal Exemption, the maximum being ₱18,000 for
a married without dependents (which we use in our example).
83 Commissioner of Internal Revenue v. Arnoldus Carpentry Shop, Inc., 242 Phil. 688
(1998). 98 R.A. 7496 (1992) revised the tax table.

84 Id. 99 R.A. 8424 (1998) amended the NIRC which revised the tax table & increased personal
exemptions, among others. Married individuals without dependents are now entitled to
85 Assuming full 313 working days are worked and paid, with no OT or worked holiday ₱32,000.
pay (365 days less 53 days oft: holidays not worked but paid). Rates used are for the
National Capital Region, for non-agricultural workers. 100 R.A. 9504 (2008), among others, amended the Personal Exemption, now uniform at
₱50,000; and granted exemption to minimum wage earners (MWE). For purposes of
86 For illustration purposes, taxable Income is computed assuming a married worker illustration, we compute the tax liability of an MWE, as if he is not exempt (as RR 10-
without dependents works and gets paid for each working day in a year (365 days less 52 2008 provides for individuals paid the SMW but happens to have other income that the
days oft), and the same minimum wage rate is assumed uniformly earned for the whole BIR deems disqualifying the MWE from entitlement to the exemption).
year.
101 Reynaldo Geronimo, Bar Reviewer on Taxation, Income Tax CD Version, 2009.
87 The tax burden is here computed by dividing the tax due by the amount earned by the Further, Article VI, Section 28(1) of the 1987 Constitution reads:
minimum wage earner (minimum wage multiplied by the days worked & paid).
SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall
88 R.A. 7167 (1991 December)) increased the Personal Exemption, the maximum being evolve a progressive system of taxation.
₱18,000 for married individuals (or a maximum of P9,000 for each married individual
computing tax separately. The exemption was amended by R.A. 7497 (May 1992)
102 Lyman Stone, Inflation Indexing in the Individual Income Tax Testimony before the
Maryland House Ways and Means Committee, Tax Foundation (18 February 2014)
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