Equal treatment on tax breaks

With the controversy over the Disbursement Acceleration Program still unsettled, another issue has come up that may aggravate the present testy relationship between the executive branch and the judiciary.

Last week, several government employees’ associations, with the active participation of court personnel, filed a petition with the Supreme Court questioning the constitutionality of Revenue Memorandum Circular 23-2014 issued by the Bureau of Internal Revenue (BIR).

The circular requires, among others, the withholding of income tax on allowances, bonuses and other benefits of similar nature received by officials and employees of the government or its branches, agencies and instrumentalities, including government-owned or -controlled corporations.

The order covers the personnel of the two houses of Congress, the judiciary, the constitutional bodies, and provincial, city, municipal and barangay (village) employees.

Regardless of the description given to the fringe benefits, e.g., special technical assistance allowance, food subsidy, inflationary adjustment assistance, or productivity enhancement incentive, these non-traditional payouts shall, unless specifically exempted by law, be subject to tax withholding.

In the case of the mandatory 13th month pay, only up to the amount of P30,000 will be tax exempt. The excess shall be subject to income tax.

Responsibility

To ensure compliance with the circular, the BIR designated key officials of the covered offices as withholding agents and gave them the responsibility of deducting, withholding and remitting the taxes withheld.

The heads of these offices, provincial governors, city and town mayors, local treasurers, chief accountants, and in the case of barangays, their captains and treasurers, have been ordered to undertake this task.

The petitioner claims that the provisions in the circular that relate to tax deductions and the criminal liability imposed on withholding agents who fail to implement it are unconstitutional and should therefore be nullified.

Ahead of the hearing of the petition, the BIR said it has not imposed new taxes on the fringe benefits of government employees and that it is simply enforcing the Tax Code provision on taxability of all kinds of income earned which has been in force since 1997.

The tribunal finds itself in an awkward position in this case because some of the benefits of court employees that the BIR wants taxes to be withheld from are drawn from the Judicial Development Fund (JDF) that is presently being reviewed by a committee of the House of Representatives.

The justices’ earlier unanimous declaration that the lawmakers’ pork barrel funds and the executive’s Disbursement Acceleration Program are unconstitutional has engendered speculations that the circular and the JDF scrutiny are the legislature’s and executive’s way of getting back at the judiciary.

Application

This case will be watched with keen interest by the business sector, more so by its workers and employees. Its favorable resolution, if it all, will redound to their benefit.

In case the tribunal rules that the fringe benefits mentioned in the circular are not compensation income and therefore exempt from tax withholding, or otherwise makes a declaration that lessens the tax imposed on them, the private or non-government employees have the right to demand the same treatment for similar benefits they enjoy.

The Tax Code provision on compensation income the BIR cited to justify the issuance of the circular does not make a distinction on whether the benefits are sourced from government coffers or business earnings.

Neither does it differentiate between government and private employees as far as taxability is concerned. Income is income regardless of how it is earned or who pays it.

The argument of low pay that the petitioners say justifies setting aside the BIR’s order applies also to many private sector employees.

They are as adversely affected as their government counterpart by high food prices, exorbitant school tuition fees, expensive medical treatment and the other financial demands of daily living.

Equal treatment

Consistent with the “equal protection” clause of the Constitution, taxpayers in the private sector should be treated in the same manner as taxpayers who draw their income from the government or any of its agencies or instrumentalities.

The same principle of equal treatment should apply to similarly situated government employees unless a law specifically provides for exemptions or differences in application on account of special circumstances.

Thus, it’s not fair for employees of the two houses of  Congress to get special treatment on the taxability of their fringe benefits simply because they’re employed in the government institution that appropriates [and if the Napoles-inspired pork barrel scam is to be believed, misappropriates] the people’s money.

Neither is it equitable that court personnel be accorded certain tax breaks because they happen to belong to the branch of government that has the final word [but not necessarily correct] on the interpretation of our tax laws.

Nobody likes paying taxes, especially if they wind up in the pockets of corrupt congressmen, senators, officials of implementing agencies and their cohorts. But we have no choice because taxes are the country’s lifeblood.

The public will be watching closely how the tribunal will act on the petition of government employees, which include personnel from its own ranks, to carve out an exception in their favor in the application of income tax laws.

Its credibility and integrity are on the line.

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