THE Supreme Court has scrapped several provisions of a Bureau of Internal Revenue regulation restricting tax exemptions to minimum wage earners that were mandated by Republic Act No. 9504 passed in 2008.
Consequently, the government will have to refund or credit about six months worth of taxes that were withheld from workers in the tax year 2008.
In a decision written by Chief Justice Ma. Lourdes Sereno dated Jan. 24, the Court granted the consolidated petitions for certiorari, prohibition, and mandamus against these regulations, stating that the Finance department and the BIR committed grave abuse of discretion in promulgating Sections 1 and 3 of Revenue Regulation No. 10-2008.
“Sections 1 and 3 of RR l0-2008 add a requirement not found in the law by effectively declaring that [a minimum wage earner] 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 Court said.
The Court also noted that the increased exemptions were already available much earlier than the required time of filing of the return on April 15, 2009 while RA 9504 came into law on July 6, 2008 or more than nine months before the deadline for the filing of the income tax return 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 held.
It added that there was nothing in RA 9504 that provides or even suggests a prorated application of the exemptions for taxable year 2008.
The Court en banc also declared null and void the Sections 1 and 3 of RR No.10-2008 insofar as they disqualify minimum wage earners who earn purely compensation income from the privilege of the exemption if they receive bonuses and other compensation-related benefits exceeding the statutory ceiling of P30,000.
The Court directed respondents DoF and the BIR to grant a refund, or allow the application of the refund by way of withholding tax adjustments, or allow a claim for tax credits by all individual taxpayers whose incomes for taxable year 2008 were subjected to prorated increase in personal and additional tax exemption.
The Court said the Finance department and the BIR went beyond the enforcement of the law in issuing the revenue regulations mandating the prorated application of the new amounts of personal and additional exemptions for 2008.
“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 added.
The decision stemmed from the consolidated petitions filed by several lawmakers, individuals and labor groups seeking to nullify the said provisions of the revenue regulations.
The petitioners argued that the revenue regulation departs from the actual intent of RA 9504 as it restricts the implementation of the minimum wage earners’ income tax exemption only to the period starting from July 6, 2008, instead of applying the exemption to the entire year 2008.
