By Rey Panaligan
From now on, benefits received by government employees such as allowances, bonuses, and compensation for services are subject to withholding tax, the Supreme Court (SC) has ruled.
In a unanimous full court decision released yesterday, the SC said: “all income received by an employee from his/her employer are presumptively taxable and subject to withholding and the government, as an employer, has the duty to withhold and remit the proper taxes due thereon.”
The SC also ruled that its decision should “be applied prospectively” and “an employee who claims exemption from withholding taxes has the burden to prove the factual and legal bases of the claim in the proper administrative and judicial proceedings.”
At the same time, the SC said “the fiscal autonomy enjoyed by the Judiciary, Ombudsman, and Constitutional Commissions does not grant immunity or exemption from the common burden of paying taxes imposed by law.”
With the ruling, the SC affirmed the validity of the regulations issued by the Bureau of Internal Revenue (BIR) which imposed withholding tax on the erstwhile non-taxable fringe benefits of government employees.
The SC’s public information office (PIO) said the SC affirmed the validity of Sections III, IV and VII of BIR Revenue Memorandum Order (RMO) No. 23-2014 which classified as taxable compensation income allowances, bonuses, compensation for services granted to government employees and other benefits, except for the 13th month pay, in excess of P30,000, and the loyalty pay.
Under RMO 23-2014 which took effect on July 7, 2014, all fringe benefits received by employees and officers of government are subject to 30-32 percent tax.
“In upholding Sections III and IV, the Court ruled that no additional tax is imposed as the two sections merely mirror the relevant provisions of the National Internal Revenue Code (NIRC) of 1997 on withholding tax on compensation income,” the PIO said in its briefer sent to journalists.
But the SC declared null and void Section VI of RMO 23-2014 “only where it names the Governor, City Mayor, Municipal Mayor, Barangay Captain, and Heads of Office in government agencies, government-owned or controlled corporations, and other government offices, as persons required to withhold and remit withholding taxes.”
The PIO said that “the Court ruled that the CIR (Commissioner of Internal Revenue) overstepped the boundaries of its authority to interpret existing provisions of the NIRC of 1997 in issuing Section VI as the NIRC of 1997 does not require any of these officers to deduct, withhold, and remit the correct amount of withholding taxes.”
“In imposing upon these officials an obligation not found in law or in Implementing Rules, the CIR did not merely issue an interpretative rule designed to provide guidelines for enforcement of the law but supplanted details—a power vested by law only on the Secretary of Finance. For this reason, the CIR acted in grave abuse of discretion in issuing Section VI of RMO 23-2014,” it added.
The decision was issued on the petition filed by the Confederation for Unity, Recognition and Advancement of Government Employees [COURAGE], National Federation of Employees Associations of the Department of Agriculture (as intervenor), Judge Armando A. Yanga and Ma. Cristina Carmela V. Japson, and the members of the Association of Regional Trial Court Judges in Iloilo City (also as intervenors).
Aside form COURAGE, the petition questioning the validity of RMO 23-2014 was joined by Judiciary Employees Association of the Philippines (JUDEA-PHILS.), Sandiganbayan Employees Association (SEA), Sandigan ng mga Empleyadong Nagkakaisa sa Adhikain ng Demokratikong Organisasyon (S.E.N.A.D.O), Association of Court of Appeals Employees (ACAE), Department of Agrarian Reform Employees Association (DAREA), Social Welfare Employees Association of the Philippines-DSWD, Department of Trade and Industry-Employees Union, Kapisanan Para Sa Kagalingan ng mga Kawani ng MMDA, Water System Employees Response, Consolidated Union of Employees of the National Housing Authorities, and the Kapisanan ng mga Manggagawa at Kawani ng Quezon City.
The petitioners claimed that RMO 3-2014 is unconstitutional as it usurps the power and authority of the legislature and that then BIR commissioner Kim Jacinto Henares “over-stretched” her exercise of power in coming up with the said revenue without the approval of her immediate superior, the secretary of the Department of Finance (DOF).
They said the RMO would affect their socio-economic plight especially in light of the rising prices of basic commodities.
At the same time, they argued that the imposition of taxes on fringe benefits is specifically barred under the Tax Reform Act of 1997 and the 1974 Labor Code.