Advanced Science and Technology Institute Employees Association

March 31, 2009 BIR RULING [DA-(ECB-010) 175-09] RR 2-98 & R.A. 6975 Advanced Science and Technology Institute Employees Association ASTI Bldg. Technology Park Complex C.P. Garcia Avenue U.P. Campus, Diliman, Quezon City Attention: Mr. Rey Vincent P. Bailonia Gentlemen : This refers to your Motion for Reconsideration dated November 9, 2007 requesting for a reconsideration of Memo-049-01 dated November 24, 2005 subjecting the hazard allowance of the officials and employees of the Department of Science and Technology (DOST) to withholding tax and requesting that the hazard allowance of S&T personnel be considered as fringe benefits exempt from tax on the following grounds: EcTDCI 1) The opinion that the hazard allowance of the officials and employees of DOST should be subject to withholding tax is violative of the equal protection clause of the Constitution; and 2) The ruling on withholding an income tax on hazard allowance contravenes the true nature, intent, and essence of the grant of a hazard allowance. In reply, please be informed that this Office has carefully considered the merits of your arguments vis-a-vis our questioned ruling. However, after a careful restudy of the said ruling in the light of your arguments, this Office still finds no cogent reason to reverse the same. DIEAHc The Supreme Court held in the case of Antero M. Sison, Jr. vs. Ruben B. Ancheta, et al., SC GR No. L-59431, July 25, 1984 as follows: ". . . The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of the law's benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the idea of law. There is, however, wisdom, as well as realism, in these words of Justice Frankfurter: 'The equality at which the "equal protection" clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws', and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, addressed to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same.' Hence, the constant reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz vs. Araneta, this Court, through Justice J.B.L. Reyes, went so far as to hold 'at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation."' xxx xxx xxx . . . According to the Constitution: 'The rule of taxation shall be uniform and equitable'. This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940, when the tax 'operates with the same force and effect in every place where the subject may be found.' He likewise added: 'The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable.' . . . 'Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation, . . . As clarified by Justice Tuason, where 'the differentiation' complained of 'conforms to the practical dictates of justice and equity' it 'is not discriminatory within the meaning of this clause and is therefore uniform.' There is quite a similarity then to the standard of equal protection for all that is required is that the tax 'applies equally to all persons, firms and corporations placed in similar situation.'" ACcISa The taxability of benefits is clearly provided for under Section 24 (A) and 25 (B) of the Tax Code of 1997, as amended and Section 2.79 (B) of Revenue Regulations No. 2-98, as amended. Thus, it must be noted that these benefits are common to the rest of the government personnel. However, the tax exemption of certain benefits like those being enjoyed by the members of the PNP, are specifically granted under a special law, i.e., R.A. 6975. (RMC 12-97). Accordingly, PNP personnel are set apart as a class. It is your opinion, however, that there is a violation of the rule on equality and uniformity because the tax exemption is not made to apply to all government employees but only to PNP personnel. But applying the above Supreme Court decision, it would appear that there is a violation only if the tax exemption does not apply equally and uniformly to all PNP personnel as a class. A tax cannot be imposed unless it is supported by the clear and express language of a statute. On the other hand, once the tax is unquestionably imposed, a claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken ( Davao Gulf Lumber Corporation vs. Commissioner of Internal Revenue and Court of Appeals, G.R. No. 117359, July 23, 1998). There is much to be said about the arguments which you raised but we are compelled to abide by the maxim that all doubts must be resolved in favor of the taxing authority and that tax exemptions must be strictly construed and can only be given force when the grant is clear and categorical. This is already a well settled rule in this jurisdiction, as to dispense with the need for citations that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. The power to make laws is vested with the Congress of the Philippines. The duty of this Office is merely to interpret, enforce or implement such laws. As the legal maxim goes, "the law may be harsh but it is the law." This Office has no recourse but to apply the law as it is written. Finding no cogent reason to reverse our ruling, this Office reiterates, as it hereby reaffirms, Memo-049-01 dated November 24, 2005. This constitutes our final decision on the matter. HDCAaS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service