SC upholds validity of taxing gov’t workers’ allowances, bonuses

The Supreme Court (SC) has upheld the validity of internal revenue rules that subject government workers' various allowances, bonuses, honoraria or benefits to withholding tax.

The SC Public Information Office on Wednesday said the high court has voted unanimously to uphold sections III, IV, and VII of the Commissioner of Internal Revenue's Memorandum Order (RMO) No. 23-2014, a directive on the obligations of state agencies, bureaus and instrumentalities as tax withholding agents.

"All income received by an employee from his/her employer are presumptively taxable and subjected to withholding tax," the SC ruled in its Tuesday en banc session, according to a briefer sent to reporters.

However, the SC struck down Section VI of the RMO "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." 

This is the SC's resolution of a 2014 petition filed by the Confederation for Unity, Recognition and Advancement of Government Employees (COURAGE) that argued allowances, bonuses, and other compensation for government workers were non-taxable fringe and "de minimis" or small value benefits.

Section III of the questioned RMO constitutes government offices as withholding agents of creditable tax required to be withheld from government employees, while Section IV lists the income types that are not subject to tax.

According to Section III, some forms of taxable compensation include, among many others, efficiency incentive benefits for legislative branch workers, additional compensation for SC workers, performance-based bonus for executive branch workers, and various other bonuses.

In upholding these sections' validity, the SC held that "no additional tax is imposed as the two sections merely mirror the relevant provisions of the National Internal Revenue Code of 1997 on compensation income."

Section VII, meanwhile, provides the penalties in case of non-compliance with the rules set by the RMO.

On the other hand, in nullifying Section VI, the SC said the commissioner of internal revenue acted in grave abuse of discretion by issuing Section VI of the RMO, as the power it exercised was vested by law only on the Secretary of Finance.

The commissioner, the SC said, "overstepped the boundaries of its authority to interpret existing provisions of the NIRC of 1997," as the said code, according to the SC, does not require the mentioned officers to deduct, withhold and remit taxes.

The SC also ruled the government as an employer is duty-bound to withhold and remit the proper taxes due, and that any employee who claims exemption from withholding taxes has the burden to prove the bases of his or her claim in the proper proceedings, the briefer said.

The decision is to be applied prospectively, it added. —KBK, GMA News