Tax relief in times of crisis ______________________ By Maria Myla S. Maralit For most of us Filipinos battered by skyrocketing prices of fuel and basic commodities, any grant of financial assistance in whatever form, subsidy or tax savings, is a welcome change. It is no wonder that when President Gloria Macapagal-Arroyo signed Republic Act (RA) No. 9504 on June 17, 2008, the news was all over the newspapers and news programs. RA No. 9504 exempts from the payment of income tax wage earners in both public and private sectors who are earning not more than the statutory minimum wage. Prior to the effectivity of this law, minimum wage earners were exempt from withholding tax but remained liable to pay income taxes. This law expressly exempts them from income tax and even extends the tax exemption to their holiday pay, overtime pay, night shift differential pay and hazard pay. Another tax relief granted by RA No. 9504 is the increase of individual taxpayers’ basic personal exemption and additional exemption for qualified dependents. From the previously allowed personal exemption of P20,000 for single or legally separated individuals with no qualified dependents, P25,000 for head of the family, and P32,000 for married individuals, the personal exemption has been increased to a standard annual deduction of P50,000. The additional exemption for dependents was likewise increased from P8,000 to P25,000 for each dependent, not exceeding four. The new law also increased the Optional Standard Deduction (OSD) from 10 percent to 40 percent, and made the OSD available not only to self-employed individuals and professionals engaged in the practice of their profession, but to domestic and resident foreign corporations as well. This 40 percent OSD is computed based on the gross sales or gross receipts in the case of individuals, and gross income in case of corporations. The OSD is a standard deduction which may be availed of in lieu of the itemized deductions under the Tax Code, as amended, such as ordinary and necessary business or professional expenses, interest, taxes, losses, bad debts, depreciation, etc. Moreover, to simplify the filing of income tax returns and encourage conscientious payment of income taxes, individuals availing the OSD are also relieved from the submission of the necessary financial statements with their tax returns. This, however, does not apply to corporations which are required to submit financial statements together with the tax returns. RA No. 9504 took effect on July 6, 2008, 15 days after its publication in two newspapers of general circulation on June 21, 2008. With the effectivity of the law in the middle of the year, a significant issue that needs to be addressed is the timing of the application of the tax relief. Will minimum wage earners get to enjoy the income tax exemption starting January 1, 2008 or July 6, 2008? Will the increased personal exemption, additional personal exemption, and OSD apply to compensation/gross sales/gross income received beginning January 1, 2008 or July 6, 2008? Since the law provides tax exemptions, should the provisions thereof be strictly construed in adherence to the basic rule in statutory construction that grants of tax exemption should be construed liberally in favor of the government and strictly against the taxpayer? In the consolidated cases of Reynaldo V. Umali vs. Hon. Jesus P. Estanislao, Secretary of Finance, and Hon. Jose U. Ong, Commissioner of Internal Revenue (G.R. No. 104037) and Rene B. Gorospe, et al. vs. Commissioner of Internal Revenue (G.R. No. 104069) promulgated on May 29, 1992, the Supreme Court En Banc held that the increased personal and additional exemptions granted by RA No. 7167 should cover or extend to compensation income earned or received during calendar year 1991, although the said law took effect on January 30, 1992, or 15 days following its publication on January 14, 1992. This case involves the passage of RA No. 7167 in December 1991 adjusting the basic personal and additional exemptions allowable to individuals for income tax purposes to the poverty threshold levels. The said law provided that it shall take effect upon approval. It was signed and approved by the President on December 19, 1991 and published on January 14, 1992 in “ Malaya”, a newspaper of general circulation. In December 1992, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 1-92 implementing RA No. 7167 stating that the regulations shall take effect on compensation income from January 1, 1992. The Supreme Court’s decision setting aside certain provisions of RR No. 1-92, and holding that the increased personal and additional exemptions should take effect on compensation income earned or received from January 1, 1991 was based on the legislative intent in passing RA No. 7167, as follows: • The sponsorship remarks captured by the Journal of the House of Representatives indicate that the intent is to mitigate the effects of inflation and of the implementation of the salary standardization law, and ease the burden of the individual income tax filers. • RA No. 7167 expressly provides for adjustments to the “poverty threshold levels”, which refer to the poverty threshold levels at the time RA No. 7167 was enacted by Congress, not poverty threshold levels in the future, at which time further adjustments may be necessary. • The personal and additional exemptions are fixed amounts to which an individual taxpayer is entitled, as a means to cushion the devastating effects of high prices and a depreciated purchasing power of the currency. • Since the increase in personal and additional exemptions will be most beneficial to the lower-income and middle-income groups of taxpayers, the Supreme Court considered the law a social legislation intended to remedy the inadequacy of the then existing personal and additional exemptions for individual taxpayers. The Honorable Court also held that since the law became effective on January 30, 1992, the exemptions were already available to individual taxpayers upon filing of their personal income tax returns on April 15, 1992, covering compensation income received in year 1991. Thus, the increase in personal and additional exemptions should not be deferred to calendar year 1992. With respect to RA No. 9504, the BIR has yet to issue the rules and regulations to implement this new law. It is currently drafting the implementing rules and regulations, and taxpayers are urged to participate in the public hearings conducted for this purpose. |