The pronouncement last week which echoes today – tomorrow, and the future.
The pronouncement becomes a news trend today – the aftershock of the ruling!
The gavel powdered as pepper Secs. 1 and 3 of Revenue Regulations No. 10-2008 of the Bureau of Internal Revenue as the Supreme Court last week nullified the said provisions insofar as they disqualify MWEs who earn purely compensation income from the privilege of the MWE exemption in case they receive bonuses and other compensation-related benefits exceeding the statutory ceiling of 30, 000 for being violative of R.A 9502.
The pronouncement came from the petition of Jaime Soriano, Margarito Teves, including two Senators Francisco Escudero and Manuel Roxas who ran for President last election.
The petition narrated that on June 17, 2008, Congress passed R.A 9502 entitled “An Act Amending Secs. 22, 24, 34, 35, 51, and 79 of the 1997 Tax Code, section 1 of the thereof defines Minimum Wage Earner as “a worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with compensation income of not more than the statutory minimum wage.”
The most important proviso pertinent in the case consideration is Sec. 2 which provides further that minimum wage earners as defined in Section 22(HH) of this Code shall be exempt from the payment of income tax on their taxable income: Provided, further, That 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.
On the other hand, sec. 1 of RR No. 10-2008 disqualifies MWE from the coverage of income tax in case they receive bonuses, compensation, other compensation-related benefits exceeding 30, 000 pesos.
In other words, the BIR “added a requirement not found in the law.”
The Supreme Court, in declaring the said provision void, held:
“Nowhere in the above provisions of R.A. 9504 would one find the qualifications prescribed by the assailed provisions of RR 10-2008. The provisions of the law are clear and precise; they leave no room for interpretation – they do not provide or require any other qualification as to who are MWEs. R.A. 9504 is explicit as to the coverage of the exemption: the wages that are not in excess of the minimum wage as determined by the wage boards, including the corresponding holiday, overtime, night differential and hazard pays. In other words, the law exempts from income taxation the most basic compensation an employee receives – the amount afforded to the lowest paid employees by the mandate of law.”
It then noted that the BIR as an administrative agency of the government “may not enlarge, alter or restrict a provision of law. It cannot add to the requirements provided by law. To do so constitutes lawmaking, which is generally reserved for congress”. In short, as well-settled in this jurisdiction, the BIR as an administrative body can neither “legislate” nor “pass a law” because it is Congress’ job. Hence, it cannot make a rule containing provisions like sec. 1 and 3 of RR No. 10-2008.
This ruling in effect nullifies the practice since 2008 of disqualifying minimum wage earners from income taxation who received purely compensation exceeding 30, 000 inclusive of other benefits.
Many thanks to the Supreme Court says the MWEs.