BIR Ruling No. 187-12

March 15, 2012 BIR RULING NO. 187-12 Sections 32 (A) (1), 32 (B) (4) & 79 of the 1997 Tax Code, as amended Temic Automotive Philippines, Inc. Employees Union Federation of Free Workers Continental TEMIC Bldg., Bagsakan Rd. FTI SEZ, Taguig City Attention: Alvin R. Gonzales President Gentlemen : This refers to your letter dated January 12, 2012 requesting the confirmation of your opinion that the entitlement of women employees of special leave benefits of two (2) months with full pay based on the gross monthly compensation following surgery caused by gynecological disorder pursuant to Section 21 (B) of the Implementing Rules and Regulations of Republic Act No. 9710, otherwise known as the "Magna Carta of Women" is considered as a compensation for injuries or sickness which is excluded from gross income and is exempt from taxation as provided under Section 32 (B) (4) of the National Internal Revenue Code of 1997. In reply, please be informed that your request cannot be granted for lack of legal basis. Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute. 1 Tax exemptions must be construed strictly against the taxpayer and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. In case of doubt, non-exemption must be favored. Taxes being the lifeblood of the government that should be collected without unnecessary hindrance, every precaution must be taken not to unduly suppress it. 2 Following the above established rule and principle, we refer to Section 32 (B) (4) of the 1997 Tax Code, as amended, which provides: HTcADC SEC. 32. Gross Income. (B) Exclusions from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: (4) Compensation for Injuries or Sickness . Amounts received, through Accident or Health Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amounts of any damages received, whether by suit or agreement, on account of such injuries or sickness. Likewise, Section 63 of Revenue Regulations (RR) No. 02-40 provides that the amounts received by an insured or his estate or beneficiaries through accident or health insurance or under workmen's compensation acts as compensation for personal injuries or sickness are excluded from the gross income of the insured, his estate, and other beneficiaries. Moreover, any damages recovered by suit or agreement on account of such injuries or sickness are similarly excluded from the gross income of the individual injured or sick, if living, or of his estate or other beneficiaries entitled to receive such damages, if dead. The fact that the above provisions specifically identifies the items or transactions considered as compensation for injuries or sickness only means that the entitlement of women employees of special leave benefits of two (2) months with full pay based on the gross monthly compensation following surgery caused by gynecological disorder is not excluded from gross income under Section 32 (B) (4). Expressio unius est exclusion alterius, the mention of one thing implies the exclusion of another thing not mentioned. If a statute enumerates the things upon which it is to operate, everything else must necessarily and by implication be excluded from its operation and effect. 3 In view of the foregoing, the entitlement of women employees of special leave benefits of two (2) months with full pay based on the gross monthly compensation following surgery caused by gynecological disorder pursuant to Section 21 (B) of the Implementing Rules and Regulations of Republic Act No. 9710, otherwise known as the "Magna Carta of Women", shall be included as part of the women employees' gross income and shall be taxable under Section 32 (A) (1) of the 1997 Tax Code, as amended, and consequently subject to withholding tax as prescribed by Section 79 of the 1997 Tax Code, as implemented by Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001 and 12-2001. EHSADa Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Jaka Investment Corporation vs. Commissioner of Internal Revenue, G.R. No. 147629 citing Compagnie Financiere Sucres Et Denrees v. Commissioner of Internal Revenue, G.R. No. 133834, August 28, 2006, 499 SCRA 664, 667-668. 2. Republic vs. Caguioa, G.R. No. 168584, October 15, 2007. 3. Tolentino vs. Paqueo , 523 SCRA 377.