With Due Respect

Christmas bonanza for 10M taxpayers

Amid the controversy besieging the TRAIN (Tax Reform for Acceleration and Inclusion), our 10 million taxpayers may receive an early Christmas bonanza from the Bureau of Internal Revenue (BIR) by way of refunds or tax credits for excessive income taxes paid in 2008. Let me explain.

Relief from income taxes. Republic Act (RA) No. 9504, granting income tax relief to all taxpayers, was signed into law on June 17, 2008, by then President Gloria Macapagal-Arroyo. It took effect on July 6, 2008. Specifically, the law:


(1) Increased the basic personal exemption from P20,000 for a single individual, P25,000 for a head of a family, and P32,000 for a married individual to P50,000 for each individual, whether single, head of a family, or married.

(2) Increased the additional exemption for each dependent (not exceeding four) from P8,000 to P25,000; and


(3) Granted minimum wage earners (MWEs) full exemption from the payment of income taxes on their minimum wage, plus “holiday pay, overtime pay, night shift differential pay and hazard pay.”

The net effect is the reduction of income taxes for 2008 onward.

BIR’s implementing regulation. To implement the law, the BIR issued Revenue Regulation (RR) 10-2008, which, in simple language, said that:

(1) The increased personal exemptions from income tax covered by items 1 and 2 were good only for the second half of 2008, not for the first half, because the law took effect only on July 6, 2008; thus, the income tax was correspondingly reduced only for half a year, not for a full year;

(2) For the same reason, the MWEs (mentioned in item 3) were exempted from paying income taxes only for earnings made during the second half of 2008, not for the first half; and

(3) Employees were deemed fully tax-exempt MWEs only if their income originated solely from the then statutory minimum wage of P30,000 a year plus “holiday pay, overtime pay, night shift differential pay and hazard pay.” Ergo, if they received additional compensations (which were not included in the quoted excerpt), like commissions, honoraria, fringe benefits, allowances, etc., they lost their status as MWEs and had to pay income taxes on their entire income like all other employees.

In sum, the BIR strictly construed and prorated the tax exemptions. Is the BIR correct?


Court’s ruling. “No,” ruled the Supreme Court en banc in a unanimous 56-page decision penned by Chief Justice Maria Lourdes P.A. Sereno in Soriano vs Secretary of Finance (Jan. 24, 2017).

True, the Court held, exemptions from and reductions of taxes should, as a rule, be construed strictly against taxpayers and liberally in favor of the government. In this case, however, the general rule does not apply because of the clear legislative intent to grant full tax relief to taxpayers.

It cited the deliberations in the Senate, quoting extensively from Senators Francis Escudero, Miriam Santiago and Manuel Roxas (the law’s sponsor and one of the petitioners in the suit), clearly showing the legislative intent to favor low-income earners.

Besides, income taxes are computed on an annual, not semiannual, basis. The Court saw “nothing [in the law] that expressly provides or even suggests a prorated application of the exemption… ”

Thus, the Court voided the pertinent provisions of RR 10-2008 and directed the Secretary of Finance and the BIR Commissioner “to grant a refund, or allow the application of the refund by way of withholding tax adjustments, or allow a claim for tax credits…”

I estimate that, roughly, the total refund would be about P20 billion, which if divided among our 10 million taxpayers in 2008, would amount to an average of P2,000 each. Of course, the final refund for each taxpayer would vary depending on whether one is single or head of a family or married, on one’s number of dependents and on the MWE’s additional compensation.

I believe Finance Secretary Carlos G. Dominguez III and BIR Commissioner Caesar R. Dulay, both of whom had no participation in the disallowed prorating, still have time to craft the relevant revenue regulation to enable our taxpayers to get their refunds soon and help them celebrate a “Merry Christmas and a Happy New Year.”

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