THE Supreme Court has ordered a tax refund for minimum wage earners who were disqualified from a legislated income tax exemption if they earned bonuses over a statutory ceiling, rapping the Bureau of Internal Revenue (BIR) for abusing its discretionary powers.
It also ordered a refund to individuals who paid higher taxes in 2008 because the BIR allowed taxpayers to claim
only half of the increase in personal and additional exemptions granted by Congress.
In a ruling, the court granted the petitions for certiorari, prohibition, and mandamus filed by Jaime N. Soriano and others, and declared null and void several provisions of Revenue Regulations No. 10-2008.
It directed “respondents Secretary of Finance and Commissioner of Internal Revenue 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 (i) all individual taxpayers whose incomes for taxable year 2008 were the subject of the prorated increase in personal and additional tax exemption; and (ii) all MWEs (minimum wage earners)whose minimum wage incomes were subjected to tax for their receipt of the 13th month pay and other bonuses and benefits exceeding the threshold amount under Section 32(B)(7)( e) of the 1997 Tax Code.”
Soriano and other petitioners assailed the BIR for going against the intent of Congress, which granted the exemptions under Republic Act 9504.
They argued that the increase in the personal exemption to P50,000 and additional exemptions to P25,000 should have been applied for the full year. Moreover, the law provides for the unconditional exemption of minimum wage earners from income tax, whatever the amount of bonuses they received, the petitioners said.
In its decision, the SC said the BIR “cannot disqualify MWEs from exemption from taxes on SMW (statutory minimum wage) and on their SMW, holiday, overtime, night shift differential, and hazard pay.”
“As an aside, we stress that the progressivity of the rate structure under the present Tax Code has lost its strength. In the main, it has not been updated since its revision in 1997, or for a period of almost 20 years,” the court said.
The court urged policymakers to allow periodic adjustments of tax rates for inflation even without legislation. “It should be emphasized that indexation to inflation is now a standard feature of a modern tax code,” it added.