BIR Ruling [DA-153-01]

September 5, 2001 BIR RULING [DA-153-01] 204; 129-99 & 234-90 Philippine National Railways PNR Management Center Torres Bugallon St., Sangandaan Caloocan City Attention: Jose Ma. I. Sarasola II General Manager Gentlemen : This refers to your letter dated July 11, 2001, requesting for waiver of the income tax due the salary differentials of your employees. You stated in your letter, that "Since 1997, the Philippine National Railways has not been implementing the Salary Standardization Law-II and the other subsequent salary increases for government employees due to its financial problems. This situation adversely affected employee morale and productivity, as employees had to suffer the financial difficulties of not receiving what is due them. Cognizant of this situation, the present Management, with the assistance of DOTC Secretary Pantaleon D. Alvarez sought the help of the National Government, culminating in the President's approval of the release of funds to pay the salary differentials of PNR employees. "Based on our computations, the employees will be getting quite a sizeable amount, considering that these differentials are reckoned starting January 1, 1997. This one-time income will therefore raise their taxable income to a much higher tax bracket, which is rather unfair to them because had their salaries been paid in accordance with the salary levels prevailing during those years, then their taxable income, if and when they were not exempted, would not be that high. There may even be cases where, even with their salaries at the appropriate levels, they may still be within the non-taxable income bracket." In reply, please be informed that this Office takes due notice of the plight of your employees and sympathizes with their predicament. However, tax exemptions are highly disfavored in law and are construed in strictissimi juris against the taxpayer. He who claims an exemption must be able to justify his claim by the clearest grant of organic law or statute. THIcCA We are, therefore, constrained to deny your request for the waiver of the income taxes due from the differentials of your employees considering that the reasons adduced by you is not one of the grounds by which the Commissioner can abate or cancel a tax liability under Section 204 of the Tax Code of 1997. Otherwise, to grant your request would create a bad precedent, as thousand others who are similarly situated or with even greater problem than your employees' might parade before us to seek the same redress. (BIR Ruling No. 129-99 dated August 20, 1999) However, your employees, in filing their annual income tax returns, should report as income and pay their respective income taxes by allocating or spreading their back wages for the years 1997, 1998, 1999, 2000 and 2001, and crediting the corresponding income tax withheld from said wage/salary payments. Accordingly, their wage/salary would be within the appropriate salary levels prevailing during those years. (BIR Ruling No. 234-90 dated December 14, 1990) This constitutes our final stand on the matter. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARRA Deputy Commissioner Legal & Inspection Group