BIR: Gov’t workers’ tax not new, based on 1997 law

MANILA, Philippines – Internal Revenue Commissioner Kim Henares said on Thursday, August 7, that the revenue memorandum order being questioned in court by government employees is not a new tax.

She said the memo merely clarifies the responsibilities of the public sector in paying withholding taxes under existing laws dating back to 1997.

Henares made the clarification a day after government employees, represented by former senator Aquilino Pimentel Jr, petitioned the Supreme Court to void certain provisions of Revenue Memorandum Order (RMO) 23-2014 issued in June, and to suspend its implementing pending the court’s decision.

The group claimed that the respondents – Henares and Finance Secretary Cesar Purisima – had erred in taxing previously tax-free bonuses, allowances, and benefits of government employees since the power to impose taxes belongs to Congress.

“We would like to clarify that we did not impose any new tax. We issued an RMO to clarify that, under Section 32 of the Tax Code, all compensation, whether in cash or in kind, whatever they maybe called, are subject to income tax and therefore, proper withholding tax should have been deducted and remitted,” Henares said.

The BIR chief said the only exemption is up to P30,000 ($683)* of the 13th month pay and bonuses. 

“This has been the law since 1997. The private sector and the executive branch by and large know this and they have been strictly monitored for compliance,” Henares said.

‘Public sector must follow tax laws’

She said the impeachment of then Chief Justice Renato Corona had highlighted the judiciary’s shortcomings in complying with tax laws.

“The Corona impeachment put it to our attention that the judiciary has been remiss in complying. Since Corona was impeached and we filed a tax evasion case against him, stemming from a violation of this, and because this is the law, we have to implement the same to everyone,” Henares said.

She added, “The obligation to withhold of government is further emphasized by Section 272 [of the Tax Code] because it provides a penalty for violation committed by government.”

In March, the Department of Justice filed 6 counts of willful attempt to evade tax and 6 counts of failure to file income tax return against Corona before the Court of Tax Appeals (CTA), based on a complaint filed by the BIR in August 2013.

Corona was indicted for failing to pay P120.5 million ($2.75 million) in taxes and file his income tax return for 6 years – 2003, 2004, 2005, 2007, 2008, and 2010. The subject income was supposedly outside of his compensation as a Supreme Court justice.

In issuing RMO 23-2014 on June 20, 2014, the BIR said this only sought “to clarify and consolidate the responsibilities of the public sector to withhold taxes on its transactions as a customer (on its purchases of goods and services) and as an employer (on compensation paid to its officials and employees) under the National Internal Revenue Code (NIRC) of 1997, as amended, and other special laws.”

The petitioners are seeking certain sections of RMO 23-2014 to be declared as unconstitutional or null and void, among them, paragraphs A, B, C, and D of Section 3; and Sections 4, 6, and 7, and their provisions that impose duties on certain persons, define offenses and offenders, and impose penalties for violations.

Section 3 enumerates the taxable allowances, bonuses, and other benefits of public officials and employees in the 3 branches of government, though not limited to the following:

Legislative branch

• Anniversary bonus
• Special Technical Assistance Allowance
• Efficiency Incentive Benefits
• Additional food subsidy
• Eight (8th) Salary Range Level Allowance
• Hospitalization Benefits, Medical Allowance
• Clothing Allowance
• Longevity Pay, Food Subsidy
• Transition Allowance
• Cost of Living Allowance
• Inflationary Adjustment Assistance
• Mid-Year Economic Assistance
• Financial Relief Assistance
• Grocery Allowance
• Thirteenth (13th) Month Pay
• Cash Gift and Productivity Incentive Benefit and other allowances
• Bonuses and benefits given by the Philippine Senate and House of Representatives to their officials and employees, subject to the exemptions enumerated in the RMO

Judicial branch

• Allowances, bonuses, honoraria or benefits received by employees and officials in the Judicial Branch, such as the Additional Compensation (ADCOM)
• Extraordinary and Miscellaneous Expenses (EME)
• Monthly Special Allowance from the Special Allowance for the Judiciary
• Additional Cost of Living Allowance from the Judiciary Development Fund
• Productivity Incentive Benefit
• Grocery Allowance
• Clothing Allowance
• Emergency Economic Allowance
• Year-End Bonus
• Cash Gift
• Loyalty Cash Award (Milestone Bonus)
• SC Christmas Allowance
• Anniversary bonuses and other allowances, bonuses and benefits given by the Supreme Court of the Philippines and all other courts and offices under the Judicial Branch to their officials and employees, subject to exemptions

Constitutional offices

• Allowances, bonuses, honoraria or benefits received by employees and officials in the Constitutional bodies (Commission on Election, Commission on Audit, Civil Service Commissioner) and the Office of the Ombudsman, subject to exemptions

Executive

• Productivity Enhancement Incentive (PEI) Performance-Based Bonus
• Anniversary bonus and other allowances
• Bonuses and benefits given by the departments, agencies and other offices under the Executive Branch to their officials and employees, subject to exemptions 

The petitioners also want to lift the P30,000 cap on non-taxable compensation income in the form of 13th month pay and other benefits.

The co-petitioners include employee unions from across the 3 branches of government – employee associations from the Senate, Court of Appeals, the Sandiganbayan, Department of Agrarian Reform, Department of Trade and Industry, Metropolitan Manila Development Authority, National Housing Authority, Quezon City local government, and water districts nationwide. – Rappler.com

*$1 = P43.9