BIR Ruling

July 11, 1969 Alemar's P. O. Box 2119 Manila Attention: Mrs . Angelina A . Villanueva Controller M a d a m : This refers to your letter dated March 24, 1969 requesting for a clarification on the following points relative to the 1968 amendments of the rates of income taxes as embodied in Republic Act Nos. 5325 and 5431: LexLib "1. Where the amendatory law was approved in June or July 1968, would it not be violative of the Constitution to apply the same retroactively? "2. As regards individual taxpayers, the new rates of tax as reproduced at the back of the revised income tax returns (BIR Form 1701A) became effective as of January 1, 1968, whereas the amendatory law was approved on June 15, 1968. Is this not giving a retroactive effect to the law? "3. How about for corporation? The amendatory law took effect on Sept. 30, 1968. I understand that corporate taxpayers are allowed to use the old rates of income tax for the 1st half and the new rates for the second half of the net income subject to tax. Kindly give a more detailed elucidation on this point. Can we not do the same with respect to individual taxpayers?" LexLib In reply, I have the honor to inform you as follows: 1. Although the amendatory law (Republic Act No. 5325) was approved in June, 1968, to apply the same retroactively (that means, applying it to income for the taxable years beginning January 1, 1968) will not amount to a violation of any provision of the Constitution for the following reasons: Firstly , the law is not actually retrospective in effect because the taxable year (the receipt of income) does not antedate the amendatory law. The taxable year or period covered by the amendatory law is based on the calendar year which means the 12 months from January 1 to December 31. It is precisely for this reason why the law is to apply beginning January 1, 1968. Secondly , granting that the amendatory law is retroactive in effect, it is still not violative of any provision of the Constitution. What the Constitution condemns are ex post facto laws and bills of attainder. There is no prohibition in the Constitution against retrospective laws. A tax is not necessarily unconstitutional because retroactive. Taxation is neither a penalty imposed on the taxpayer nor a liability which he assumed by contract. It is but a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens. Since no citizen enjoys immunity from that burden, its retroactive imposition does not necessarily infringe due process and to challenge the present tax it is not enough to point out that the taxable event, the receipt of income, antedated and statute. (Welch vs. Henry, 305 U.S. 134). Thirdly , the purpose and intention of the legislature to give the law a retroactive application is expressly declared in the law itself. Section 5 of the amendatory law expressly provided that the provides that the provision thereof shall apply to income beginning January 1, 1968. LibLex 2. Although the new rates of tax should be applied beginning January 1, 1968, where the amendatory law (Republic Act No. 5325) was only approved on June 15, 1968, the application of the new rates of tax beginning from the former date (January 1, 1968) will not give retroactive effect to the new law because, as we have stated in the preceding paragraph, the taxable year (the receipt of income) does not virtually antedate the amendatory law. The taxable year (1968) covered by the said law (Republic Act No. 5325) is based on the calendar year which means 12 months beginning from January 1 to December 31. 3. The effective dates of laws are provided for by the laws themselves. Republic Act No. 5325 expressly provides that it shall apply to income earned beginning January 1, 1968. Necessarily the increased rates of tax shall be applied on income earned from that date. Republic Act No. 5431, on the other hand, provides that it shall apply to income earned from taxable years beginning after June 30, 1968. Necessarily, therefore, the increased rates of corporate income tax must be applied beginning July 1, (not September 30) 1968. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue