SC orders tax refund for minimum wage earners for 2008

MANILA, Philippines – The Supreme Court (SC) has ordered the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) to refund minimum wage earners and other individual taxpayers who were not exempted from income tax payment and were kept from availing of other benefits provided by a tax relief law for the whole of 2008.

The High Court has declared null and void several provisions of Revenue Regulation (RR) No 10-2008, which restricted the enforcement of Republic Act No 9504, a law enacted in July 2008, raising the tax exemption for minimum wage earners, and also the ceiling on personal and additional exemptions for individual taxpayers starting that year.

In a 56-page decision penned by Chief Justice Maria Lourdes Sereno, the Court en banc nullified Sections 1 and 3 of RR 10-2008, which disqualified from tax exemption minimum wage earners who received bonuses and other compensation-related benefits exceeding P30,000.

The Court also declared null and void the provision in Section 3 of RR 10-2008 that provides for the prorated application of the personal and additional exemptions under RA 9504 for taxable year 2008, and for the exemption period to begin only on July 6, 2008.

Tax refund

The SC directed the the DOF and the BIR to grant a refund, or allow the application of the refund through withheld tax adjustments, or though a claim for tax credits by all individual taxpayers whose incomes for taxable year 2008 were subjected to prorated increase in personal and additional tax exemption.

Also covered by the refund order are minimum wage earners whose incomes were subjected to tax for their receipt of the 13th month pay and other bonuses and benefits.

The case stemmed from the consolidated petitions filed  by lawmakers, individuals, and labor groups against the DOF and the BIR over certain sections of RR 10-2008.

Among the petitioners were former senator and ex-interior secretary Manuel Roxas II, the principal author of RA 9504.  

In October 2008, then senator Roxas filed a petition before the SC seeking the full implementation of RA 9504 after the BIR issued the implementing rules and regulations for the law which. He argued that the IRR violated the intent of the law as it insisted that the law should only apply beginning July 6, 2008, when the law took effect, and not from the start of the taxable year or January 1, 2008.

The petitioners also challenged the BIR’s adoption of the prorated application of the new set of personal and additional exemptions for taxable year 2008; and the condition set by RR 10-2008 on minimum wage earners that they cannot avail of income tax exemption if they receive other benefits in excess of P30,000. 

‘Grave abuse of discretion’

In granting the consolidated petitions, the Court held that the DOF and the BIR committed grave abuse of discretion in promulgating Sections 1 and 3 of RR 10-2008.

 “Sections 1 and 3 of RR l0-2008 add a requirement not found in the law by effectively declaring that an MWE who receives other benefits in excess of the statutory limit of P30,000 is no longer entitled to the exemption provided by RA 9504,” the High Court said. 

It noted that the exemptions were provided by law as early as July 2008 – months ahead of April 15, 2009, or the income tax deadline for taxable year 2008.

“Here, not only did RA 9504 take effect before the deadline for the filing of the return and payment for the taxes due for taxable year 2008, it took effect way before the close of that taxable year. Therefore, the operation of the new set of personal and additional exemption in the present case was all the more prospective,” the Court said.

It added that there was nothing in the law that provides or even suggests a prorated application of the exemptions for taxable year 2008. The High Court said the DOF and the BIR went beyond the enforcement of the law in issuing the subject revenue regulations mandating it.

“Therefore, there is no legal basis for the BIR to reintroduce the prorating of the new personal and additional exemptions. In so doing, respondents overstepped the bounds of their rule-making power. It is an established rule that administrative regulations are valid only when these are the laws they administer,” the Court said. – Rappler.com