EN BANC

[ G.R. No. 213446. July 03, 2018 ]

CONFEDERATION FOR UNITY, RECOGNITION AND ADVANCEMENT

OF GOVERNMENT EMPLOYEES (COURAGE); JUDICIARY EMPLOYEES
ASSOCIATION OF THE PHILIPPINES (JUDEA-PHILS);
SANDIGANBAYAN EMPLOYEES ASSOCIATION (SEA); SANDIGAN NG
MGA EMPLEYADONG NAGKAKAISA SA ADHIKAIN NG
DEMOKRATIKONG ORGANISASYON (S.E.N.A.D.O.); ASSOCIATION OF
COURT OF APPEALS EMPLOYEES (ACAE); DEPARTMENT OF
AGRARIAN REFORM EMPLOYEES ASSOCIATION (DAREA); SOCIAL
WELFARE EMPLOYEES ASSOCIATION OF THE PHILIPPINES-
DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT (SWEAP-
DSWD); DEPARTMENT OF TRADE AND INDUSTRY EMPLOYEES UNION
(DTI-EU); KAPISANAN PARA SA KAGALINGAN NG MGA KAWANI NG
METRO MANILA DEVELOPMENT AUTHORITY (KKK-MMDA); WATER
SYSTEM EMPLOYEES RESPONSE (WATER); CONSOLIDATED UNION
OF EMPLOYEES OF THE NATIONAL HOUSING AUTHORITIES (CUE-
NHA); AND KAPISANAN NG MGA MANGGAGAWA AT KAWANI NG
QUEZON CITY (KASAMA KA-QC), PETITIONERS, V. COMMISSIONER,
BUREAU OF INTERNAL REVENUE AND THE SECRETARY,
DEPARTMENT OF FINANCE, RESPONDENTS.

NATIONAL FEDERATION OF EMPLOYEES ASSOCIATIONS OF THE

DEPARTMENT OF AGRICULTURE (NAFEDA), REPRESENTED BY ITS
EXECUTIVE VICE PRESIDENT ROMAN M. SANCHEZ, DEPARTMENT OF
AGRICULTURE EMPLOYEES ASSOCIATION OFFICE OF THE
SECRETARY (DAEA-OSEC), REPRESENTED BY ITS ACTING PRESIDENT
ROWENA GENETE, NATIONAL AGRICULTURAL AND FISHERIES
COUNCIL EMPLOYEES ASSOCIATION (NAFCEA), REPRESENTED BY
ITS PRESIDENT SOLIDAD B. BERNARDO, COMMISSION ON
ELECTIONS EMPLOYEES UNION (COMELEC EU), REPRESENTED BY
ITS PRESIDENT MARK CHRISTOPHER D. RAMIREZ, MINES AND
GEOSCIENCES BUREAU EMPLOYEES ASSOCIATION CENTRAL
OFFICE (MGBEA CO), REPRESENTED BY ITS PRESIDENT MAYBELLYN
A. ZEPEDA, LIVESTOCK DEVELOPMENT COUNCIL EMPLOYEES
ASSOCIATION (LDCEA), REPRESENTED BY ITS PRESIDENT JOVITA M.
GONZALES, ASSOCIATION OF CONCERNED EMPLOYEES OF
PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY (ACE OF PFDA),
REPRESENTED BY ITS PRESIDENT ROSARIO DEBLOIS, INTERVENORS.

[G.R. No. 213658, July 3, 2018]

JUDGE ARMANDO A. YANGA, IN HIS PERSONAL CAPACITY AND IN

HIS CAPACITY AS PRESIDENT OF THE RTC JUDGES ASSOCIATION OF
MANILA, AND MA. CRISTINA CARMELA I. JAPZON, IN HER PERSONAL
CAPACITY AND IN HER CAPACITY AS PRESIDENT OF THE PHILIPPINE
ASSOCIATION OF COURT EMPLOYEES-MANILA CHAPTER,
PETITIONERS, V. HON. COMMISSIONER KIM S. JACINTO-HENARES, IN
 HER CAPACITY AS COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE, RESPONDENT.

THE MEMBERS OF THE ASSOCIATION OF REGIONAL TRIAL COURT

JUDGES IN ILOILO CITY, INTERVENORS.

DECISION

CAGUIOA, J:

G.R. Nos. 213446 and 213658 are petitions for Certiorari, Prohibition and/or
Mandamus under Rule 65 of the Rules of Court, with Application for Issuance of
Temporary Restraining Order and/or Writ of Preliminary Injunction, uniformly
seeking to: (a) issue a Temporary Restraining Order to enjoin the implementation of
Revenue Memorandum Order (RMO) No. 23- 2014 dated June 20, 2014 issued by the
Commissioner of Internal Revenue (CIR); and (b) declare null, void and
unconstitutional paragraphs A, B, C, and D of Section III, and Sections IV, VI and
VII of RMO No. 23-2014. The petition in G.R. No. 213446 also prays for the issuance
of a Writ of Mandamus to compel respondents to upgrade the P30,000.00 non-taxable
ceiling of the 13th month pay and other benefits for the concerned officials and
employees of the government.

The Antecedents

On June 20, 2014, respondent CIR issued the assailed RMO No. 23-2014, in
furtherance of Revenue Memorandum Circular (RMC) No. 23-2012 dated February
14, 2012 on the "Reiteration of the Responsibilities of the Officials and Employees of
Government Offices for the Withholding of Applicable Taxes on Certain Income
Payments and the Imposition of Penalties for Non-Compliance Thereof," in order to
clarify and consolidate the responsibilities of the public sector to withhold taxes on its
transactions as a customer (on its purchases of goods and services) and as an
employer (on compensation paid to its officials and employees) under the National
Internal Revenue Code (NIRC or Tax Code) of 1997, as amended, and other special
laws.

The Petitions

G.R. No. 213446

On August 6, 2014, petitioners Confederation for Unity, Recognition and

Advancement of Government Employees (COURAGE), et al., organizations/unions
of government employees from the Sandiganbayan, Senate of the Philippines, Court
of Appeals, Department of Agrarian Reform, Department of Social Welfare and
Development, Department of Trade and Industry, Metro Manila Development
Authority, National Housing Authority and local government of Quezon City, filed a
Petition for Prohibition and Mandamus,1 imputing grave abuse of discretion on the
part of respondent CIR in issuing RMO No. 23-2014. According to petitioners, RMO
No. 23-2014 classified as taxable compensation, the following allowances, bonuses,
compensation for services granted to government employees, which they alleged to be
considered by law as non-taxable fringe and de minimis benefits, to wit:
I. Legislative Fringe Benefits

a. Anniversary Bonus

b. Additional Food Subsidy

c. 13th Month Pay

d. Food Subsidy

e. Cash Gift

f. Cost of Living Assistance

g. Efficiency Incentive Bonus

h. Financial Relief Assistance

i. Grocery Allowance

j. Hospitalization

k. Inflationary Assistance Allowance

l. Longevity Service Pay

m. Medical Allowance

n. Mid-Year Eco. Assistance

o. Productivity Incentive Benefit

p. Transition Allowance

q. Uniform Allowance

II. Judiciary Benefits

a. Additional Compensation Income

b. Extraordinary & Miscellaneous Expenses

c. Monthly Special Allowance

d. Additional Cost of Living Allowance (from Judiciary

Development Fund)

e. Productivity Incentive Benefit

f. Grocery Allowance
 g. Clothing Allowance

h. Emergency Economic Assistance

i. Year-End Bonus (13th Month Pay)

j. Cash Gift

k. Loyalty Cash Award (Milestone Bonus)

l. Christmas Allowance m. Anniversary Bonus2

Petitioners further assert that the imposition of withholding tax on these

allowances, bonuses and benefits, which have been allotted by the Government to its
employees free of tax for a long time, violates the prohibition on non-diminution of
benefits under Article 100 of the Labor Code;3 and infringes upon the fiscal autonomy
of the Legislature, Judiciary, Constitutional Commissions and Office of the
Ombudsman granted by the Constitution.4

Petitioners also claim that RMO No. 23-2014 (1) constitutes a usurpation of
legislative power and diminishes the delegated power of local government units
inasmuch as it defines new offenses and prescribes penalty therefor, particularly upon
local government officials;5 and (2) violates the equal protection clause of the
Constitution as it discriminates against government officials and employees by
imposing fringe benefit tax upon their allowances and benefits, as opposed to the
allowances and benefits of employees of the private sector, the fringe benefit tax of
which is borne and paid by their employers.6

Further, the petition also prays for the issuance of a writ of mandamus ordering
respondent CIR to perform its duty under Section 32(B)(7)(e)(iv) of the NIRC of
1997, as amended, to upgrade the ceiling of the 13th month pay and other benefits for
the concerned officials and employees of the government, including petitioners. 7

G.R. No. 213658

On August 19, 2014, petitioners Armando A. Yanga, President of the Regional

Trial Court (RTC) Judges Association of Manila, and Ma. Cristina Carmela I. Japzon,
President of the Philippine Association of Court Employees – Manila Chapter, filed a
Petition for Certiorari and Prohibition8 as duly authorized representatives of said
associations, seeking to nullify RMO No. 23-2014 on the following
grounds: (1) respondent CIR is bereft of any authority to issue the assailed RMO. The
NIRC of 1997, as amended, expressly vests to the Secretary of Finance the authority
to promulgate all needful rules and regulations for the effective enforcement of tax
provisions;9 and (2) respondent CIR committed grave abuse of discretion amounting
to lack or excess of jurisdiction in the issuance of RMO No. 23-2014 when it
subjected to withholding tax benefits and allowances of court employees which are
tax-exempt such as: (a) Special Allowance for Judiciary (SAJ) under Republic Act
(RA) No. 9227 and additional cost of living allowance (AdCOLA) granted under
Presidential Decree (PD) No. 1949 which are considered as non-taxable fringe
benefits under Section 33(A) of the NIRC of 1997, as amended; (b) cash gift, loyalty
awards, uniform and clothing allowance and additional compensation (ADCOM)
granted to court employees which are considered de minimis under Section 33(C)(4)
of the same Code; (c) allowances and benefits granted by the Judiciary which are not
taxable pursuant to Section 32(7)(E) of the NIRC of 1997, as amended;
and (d) expenses for the Judiciary provided under Commission on Audit (COA)
Circular 2012-001.10

Petitioners further assert that RMO No. 23-2014 violates their right to due process
of law because while it is ostensibly denominated as a mere revenue issuance, it is an
illegal and unwarranted legislative action which sharply increased the tax burden of
officials and employees of the Judiciary without the benefit of being heard. 11

On October 21, 2014, the Court resolved to consolidate the foregoing cases. 12

Respondents, through the Office of the Solicitor General (OSG), filed their
Consolidated Comment13 on December 23, 2014. They argue that the petitions are
barred by the doctrine of hierarchy of courts and petitioners failed to present any
special and important reasons or exceptional and compelling circumstance to justify
direct recourse to this Court.14

Maintaining that RMO No. 23-2014 was validly issued in accordance with the
power of the CIR to make rulings and opinion in connection with the implementation
of internal revenue laws, respondents aver that unlike Revenue Regulations (RRs),
RMOs do not require the approval or signature of the Secretary of Finance, as these
merely provide directives or instructions in the implementation of stated policies,
goals, objectives, plans and programs of the Bureau.15 According to them, RMO No.
23-2014 is in fact a mere reiteration of the Tax Code and previous RMOs, and can be
traced back to RR No. 01-87 dated April 2, 1987 implementing Executive Order No.
651 which was promulgated by then Secretary of Finance Jaime V. Ongpin upon
recommendation of then CIR Bienvenido A. Tan, Jr. Thus, the CIR never usurped the
power and authority of the legislature in the issuance of the assailed RMO. 16 Also,
contrary to petitioners' assertion, the due process requirements of hearing and
publication are not applicable to RMO No. 23-2014.17

Respondents further argue that petitioners' claim that RMO No. 23-2014 is
unconstitutional has no leg to stand on. They explain that the constitutional guarantee
of fiscal autonomy to Judiciary and Constitutional Commissions does not include
exemption from payment of taxes, which is the lifeblood of the nation. 18 They also
aver that RMO No. 23-2014 never intended to diminish the powers of local
government units. It merely reiterates the obligation of the government as an
employer to withhold taxes, which has long been provided by the Tax Code. 19

Moreover, respondents assert that the allowances and benefits enumerated in

Section III A, B, C, and D, are not fringe benefits which are exempt from taxation
under Section 33 of the Tax Code, nor de minimis benefits excluded from employees'
taxable basic salary. They explain that the SAJ under RA No. 9227 and AdCOLA
under PD No. 1949 are additional allowances which form part of the employee's basic
salary; thus, subject to withholding taxes.20
 Respondents also claim that RMO No. 23-2014 does not violate petitioners' right
to equal protection of laws as it covers all employees and officials of the government.
It does not create a new category of taxable income nor make taxable those which are
not taxable but merely reflect those incomes which are deemed taxable under existing
laws.21

Lastly, respondents aver that mandamus will not lie to compel respondents to
increase the ceiling for tax exemptions because the Tax Code does not impose a
mandatory duty on the part of respondents to do the same.22

The Petitions-in-Intervention

Meanwhile, on September 11, 2014, the National Federation of Employees

Associations of the Department of Agriculture (NAFEDA) et al., duly registered
union/association of employees of the Department of Agriculture, National
Agricultural and Fisheries Council, Commission on Elections, Mines and Geosciences
Bureau, and Philippine Fisheries Development Authority, claiming similar interest as
petitioners in G.R. No. 213446, filed a Petition-in-Intervention23 seeking the
nullification of items III, VI and VII of RMO No. 23-2014 based on the following
grounds: (1) that respondent CIR acted with grave abuse of discretion and usurped the
power of the Legislature in issuing RMO No. 23-2014 which imposes additional taxes
on government employees and prescribes penalties for government official's failure to
withhold and remit the same;24 (2) that RMO No. 23-2014 violates the equal
protection clause because the Commission on Human Rights (CHR) was not included
among the constitutional commissions covered by the issuance and the ADCOM of
employees of the Judiciary was subjected to withholding tax but those received by
employees of the Legislative and Executive branches are not; 25 and (3) that
respondent CIR failed to upgrade the tax exemption ceiling for benefits under Section
32(B)(7) of the NIRC of 1997, as amended.26

In its Comment,27 respondents, through the OSG, sought the denial of the Petition-
in-Intervention for failure of the intervenors to seek prior leave of Court and to
demonstrate that the existing consolidated petitions are not sufficient to protect their
interest as parties affected by the assailed RMO. 28 They further contend that, contrary
to the intervenors' position, the CHR is not exempt from the applicability of RMO No.
23-2014.29 They explain that the enumeration of government offices and
constitutional bodies covered by RMO No. 23-2014 is not exclusive; Section III
thereof in fact states that RMO No. 23-2014 covers all employees of the public
sector.30 They also allege that the ADCOM referred to in Section III(B) of the assailed
RMO is unique to the Judiciary; employees and officials in the executive and
legislative do not receive this specific type of ADCOM enjoyed by the employees and
officials of the Judicial branch.31

On October 10, 2014, a Motion for Intervention with attached Complaint in

Intervention32 was filed, in G.R. No. 213658, by the Members of the Association of
Regional Trial Court Judges in Iloilo City. Claiming that they are similarly situated
with petitioners, said intervenors pray that the Court declare null and void RMO No.
23-2014 and direct the Bureau of Internal Revenue (BIR) to refund the amount
illegally exacted from the salaries/compensations of the judges by virtue of the
implementation of RMO No. 23-2014.33 The intervenors claim that RMO No. 23-
2014 violates their right to due process as it takes away a portion of their salaries and
compensation without giving them the opportunity to be heard. 34 They also aver that
the implementation of RMO No. 23-2014 resulted in the diminution of their
salaries/compensation in violation of Sections 3 and 10, Article VIII of the
Constitution.35

In their Comment36 to the Motion, respondents adopted the arguments in their

Consolidated Comment and further stated that: (1) RMO No. 23-2014 does not
diminish the salaries and compensation of members of the judiciary as it has been
judicially settled that the imposition of taxes on salaries and compensation of judges
and justices is not equivalent to diminution of the same; 37 (2) the allowances and
benefits enumerated under Section III(B) of RMO No. 23-2014 are not fringe benefits
exempt from taxation;38 (3) the AdCOLA and SAJ are not fringe benefits as these are
considered part of the basic salary of government employees subject to income
tax;39 and (4) there is no valid ground for the refund of the taxes withheld pursuant to
RMO No. 23-2014.40

In sum, petitioners and intervenors (collectively referred to as petitioners) argue

that:

1. RMO No. 23-2014 is ultra vires insofar as:

a. Sections III and IV of RMO No. 23-2014, for subjecting to

withholding taxes non-taxable allowances, bonuses and
benefits received by government employees;

b. Sections VI and VII, for defining new offenses and

prescribing penalties therefor, particularly upon government
officials;

2. RMO No. 23-2014 violates the equal protection clause as it discriminates

against government employees;

3. RMO No. 23-2014 violates fiscal autonomy enjoyed by government

agencies;

4. The implementation of RMO No. 23-2014 results in diminution of

benefits of government employees, a violation of Article 100 of the Labor
Code; and

5. Respondents may be compelled through a writ of mandamus to increase

the tax-exempt ceiling for 13th month pay and other benefits.

On the other hand, respondents counter that:

1. The instant consolidated petitions are barred by the doctrine of hierarchy

of courts;

2. The CIR did not abuse its discretion in the issuance of RMO No. 23-2014
because:
 a. It was issued pursuant to the CIR's power to interpret the
NIRC of 1997, as amended, and other tax laws, under
Section 4 of the NIRC of 1997, as amended;

b. RMO No. 23-2014 does not discriminate against government

employees. It does not create a new category of taxable
income nor make taxable those which are exempt;

c. RMO No. 23-2014 does not result in diminution of benefits;

d. The allowances, bonuses or benefits listed under Section III

of the assailed RMO are not fringe benefits;

e. The fiscal autonomy granted by the Constitution does not

include tax exemption; and

3. Mandamus does not lie against respondents because the NIRC of 1997, as
amended, does not impose a mandatory duty upon them to increase the
tax-exempt ceiling for 13th month pay and other benefits.

Incidentally, in a related case docketed as A.M. No. 16-12-04-SC, the Court, on

July 11, 2017, issued a Resolution directing the Fiscal Management and Budget
Office of the Court to maintain the status quo by the non-withholding of taxes from
the benefits authorized to be granted to judiciary officials and personnel, namely, the
Mid-year Economic Assistance, the Year-end Economic Assistance, the Yuletide
Assistance, the Special Welfare Assistance (SWA) and the Additional SWA, until
such time that a decision is rendered in the instant consolidated cases.ℒαwρhi৷

The Court's Ruling

I.

Procedural

Non-exhaustion of
administrative remedies.

It is an unquestioned rule in this jurisdiction that certiorari under Rule 65 will only
lie if there is no appeal, or any other plain, speedy and adequate remedy in the
ordinary course of law against the assailed issuance of the CIR.41 The plain, speedy
and adequate remedy expressly provided by law is an appeal of the assailed RMO
with the Secretary of Finance under Section 4 of the NIRC of 1997, as amended, to
wit:

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to

Decide Tax Cases. – The power to interpret the provisions of this
Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary
of Finance.
 The power to decide disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto, or other
matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court
of Tax Appeals.42

The CIR's exercise of its power to interpret tax laws comes in the form of revenue
issuances, which include RMOs that provide "directives or instructions; prescribe
guidelines; and outline processes, operations, activities, workflows, methods and
procedures necessary in the implementation of stated policies, goals, objectives, plans
and programs of the Bureau in all areas of operations, except auditing." 43 These
revenue issuances are subject to the review of the Secretary of Finance. In relation
thereto, Department of Finance Department Order No. 007-0244 issued by the
Secretary of Finance laid down the procedure and requirements for filing an appeal
from the adverse ruling of the CIR to the said office. A taxpayer is granted a period of
thirty (30) days from receipt of the adverse ruling of the CIR to file with the Office of
the Secretary of Finance a request for review in writing and under oath. 45

In Asia International Auctioneers, Inc. v. Parayno, Jr., 46 the Court dismissed the
petition seeking the nullification of RMC No. 31-2003 for failing to exhaust
administrative remedies. The Court held:

x x x It is settled that the premature invocation of the court's

intervention is fatal to one's cause of action. If a remedy within the
administrative machinery can still be resorted to by giving the
administrative officer every opportunity to decide on a matter that comes
within his jurisdiction, then such remedy must first be exhausted before
the court's power of judicial review can be sought. The party with an
administrative remedy must not only initiate the prescribed administrative
procedure to obtain relief but also pursue it to its appropriate conclusion
before seeking judicial intervention in order to give the administrative
agency an opportunity to decide the matter itself correctly and prevent
unnecessary and premature resort to the court.47

The doctrine of exhaustion of administrative remedies is not without practical and

legal reasons. For one thing, availment of administrative remedy entails lesser
expenses and provides for a speedier disposition of controversies. It is no less true to
state that courts of justice for reasons of comity and convenience will shy away from
a dispute until the system of administrative redress has been completed and complied
with so as to give the administrative agency concerned every opportunity to correct its
error and to dispose of the case.48 While there are recognized exceptions to this
salutary rule, petitioners have failed to prove the presence of any of those in the
instant case.

Violation of the rule on

hierarchy of courts.
 Moreover, petitioners violated the rule on hierarchy of courts as the petitions
should have been initially filed with the CTA, having the exclusive appellate
jurisdiction to determine the constitutionality or validity of revenue issuances.

In The Philippine American Life and General Insurance Co. v. Secretary of

Finance,49 the Court held that rulings of the Secretary of Finance in its exercise of its
power of review under Section 4 of the NIRC of 1997, as amended, are appealable to
the CTA.50 The Court explained that while there is no law which explicitly provides
where rulings of the Secretary of Finance under the adverted to NIRC provision are
appealable, Section 7(a)51 of RA No. 1125, the law creating the CTA, is nonetheless
sufficient, albeit impliedly, to include appeals from the Secretary's review under
Section 4 of the NIRC of 1997, as amended.

Moreover, echoing its pronouncements in City of Manila v. Grecia-Cuerdo,52 that

the CTA has the power of certiorari within its appellate jurisdiction, the Court
declared that "it is now within the power of the CTA, through its power of certiorari,
to rule on the validity of a particular administrative rule or regulation so long as it is
within its appellate jurisdiction. Hence, it can now rule not only on the propriety of an
assessment or tax treatment of a certain transaction, but also on the validity of the
revenue regulation or revenue memorandum circular on which the said assessment is
based."53

Subsequently, in Banco de Oro v. Republic,54 the Court, sitting En Banc, further

held that the CTA has exclusive appellate jurisdiction to review, on certiorari, the
constitutionality or validity of revenue issuances, even without a prior issuance of an
assessment. The Court En Banc reasoned:

We revert to the earlier rulings in Rodriguez, Leal, and Asia

International Auctioneers, Inc. The Court of Tax Appeals has exclusive
jurisdiction to determine the constitutionality or validity of tax laws, rules
and regulations, and other administrative issuances of the Commissioner
of Internal Revenue.

Article VIII, Section 1 of the 1987 Constitution provides

the general definition of judicial power:

ARTICLE [VIII]
JUDICIAL DEPARTMENT

Section 1. The judicial power shall be vested in one Supreme

Court and in such lower courts as may be established by law.

Judicial power includes the duty of the courts of justice to

settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or
not there has been a grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government. (Emphasis supplied)
 Based on this constitutional provision, this Court recognized, for the
first time, in The City of Manila v. Hon. Grecia-Cuerdo, the Court of Tax
Appeals' jurisdiction over petitions for certiorari assailing interlocutory
orders issued by the Regional Trial Court in a local tax case. Thus:

[W]hile there is no express grant of such power, with respect

to the CTA, Section 1, Article VIII of the 1987 Constitution
provides, nonetheless, that judicial power shall be vested in
one Supreme Court and in such lower courts as may be
established by law and that judicial power includes the duty
of the courts of justice to settle actual controversies
involving rights which are legally demandable and
enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or
instrumentality of the Government.

On the strength of the above constitutional provisions, it

can be fairly interpreted that the power of the CTA includes
that of determining whether or not there has been grave
abuse of discretion amounting to lack or excess of
jurisdiction on the part of the RTC in issuing an interlocutory
order in cases falling within the exclusive appellate
jurisdiction of the tax court. It, thus, follows that the CTA,
by constitutional mandate, is vested with jurisdiction to issue
writs of certiorari in these cases. (Emphasis in the original)

This Court further explained that the Court of Tax Appeals' authority
to issue writs of certiorari is inherent in the exercise of its appellate
jurisdiction:

A grant of appellate jurisdiction implies that there is

included in it the power necessary to exercise it effectively,
to make all orders that will preserve the subject of the action,
and to give effect to the final determination of the appeal. It
carries with it the power to protect that jurisdiction and to
make the decisions of the court thereunder effective. The
court, in aid of its appellate jurisdiction, has authority to
control all auxiliary and incidental matters necessary to the
efficient and proper exercise of that jurisdiction. For this
purpose, it may, when necessary, prohibit or restrain the
performance of any act which might interfere with the proper
exercise of its rightful jurisdiction in cases pending before it.

Lastly, it would not be amiss to point out that a court

which is endowed with a particular jurisdiction should have
powers which are necessary to enable it to act effectively
within such jurisdiction. These should be regarded as powers
which are inherent in its jurisdiction and the court must
possess them in order to enforce its rules of practice and to
 suppress any abuses of its process and to defeat any
attempted thwarting of such process.

In this regard, Section 1 of RA 9282 states that the CTA

shall be of the same level as the CA and shall possess all the
inherent powers of a court of justice.

Indeed, courts possess certain inherent powers which may

be said to be implied from a general grant of jurisdiction, in
addition to those expressly conferred on them. These
inherent powers are such powers as are necessary for the
ordinary and efficient exercise of jurisdiction; or are essential
to the existence, dignity and functions of the courts, as well
as to the due administration of justice; or are directly
appropriate, convenient and suitable to the execution of their
granted powers; and include the power to maintain the
court's jurisdiction and render it effective in behalf of the
litigants.

Thus, this Court has held that "while a court may be

expressly granted the incidental powers necessary to
effectuate its jurisdiction, a grant of jurisdiction, in the
absence of prohibitive legislation, implies the necessary and
usual incidental powers essential to effectuate it, and, subject
to existing laws and constitutional provisions, every
regularly constituted court has power to do all things that are
reasonably necessary for the administration of justice within
the scope of its jurisdiction and for the enforcement of its
judgments and mandates." Hence, demands, matters or
questions ancillary or incidental to, or growing out of, the
main action, and coming within the above principles, may be
taken cognizance of by the court and determined, since such
jurisdiction is in aid of its authority over the principal matter,
even though the court may thus be called on to consider and
decide matters which, as original causes of action, would not
be within its cognizance. (Citations omitted)

Judicial power likewise authorizes lower courts to determine the

constitutionality or validity of a law or regulation in the first instance.
This is contemplated in the Constitution when it speaks of appellate
review of final judgments of inferior courts in cases where such
constitutionality is in issue.

On June 16, 1954, Republic Act No. 1125 created the Court of Tax
Appeals not as another superior administrative agency as was its
predecessor — the former Board of Tax Appeals — but as a part of the
judicial system with exclusive jurisdiction to act on appeals from:

(1) Decisions of the Collector of Internal Revenue in cases

involving disputed assessments, refunds of internal revenue
 taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under the National Internal
Revenue Code or other law or part of law administered by
the Bureau of Internal Revenue;

(2) Decisions of the Commissioner of Customs in cases

involving liability for customs duties, fees or other money
charges; seizure, detention or release of property affected
fines, forfeitures or other penalties imposed in relation
thereto; or other matters arising under the Customs Law or
other law or part of law administered by the Bureau of
Customs; and

(3) Decisions of provincial or city Boards of Assessment

Appeals in cases involving the assessment and taxation of
real property or other matters arising under the Assessment
Law, including rules and regulations relative thereto.

Republic Act No. 1125 transferred to the Court of Tax Appeals

jurisdiction over all matters involving assessments that were previously
cognizable by the Regional Trial Courts (then courts of first instance).

In 2004, Republic Act No. 9282 was enacted. It expanded the

jurisdiction of the Court of Tax Appeals and elevated its rank to the level
of a collegiate court with special jurisdiction. Section 1 specifically
provides that the Court of Tax Appeals is of the same level as the Court
of Appeals and possesses "all the inherent powers of a Court of Justice."

Section 7, as amended, grants the Court of Tax Appeals the exclusive

jurisdiction to resolve all tax-related issues:

Section 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as

herein provided:

1) Decisions of the Commissioner of Internal

Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation
thereto, or other matters arising under the
National Internal Revenue Code or other laws
administered by the Bureau of Internal
Revenue;

2) Inaction by the Commissioner of Internal

Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation
thereto, or other matters arising under the
 National Internal Revenue Code or other laws
administered by the Bureau of Internal
Revenue, where the National Internal
Revenue Code provides a specific period of
action, in which case the inaction shall be
deemed a denial;

3) Decisions, orders or resolutions of the

Regional Trial Courts in local tax cases
originally decided or resolved by them in the
exercise of their original or appellate
jurisdiction;

4) Decisions of the Commissioner of Customs in

cases involving liability for customs duties,
fees or other money charges, seizure,
detention or release of property affected, fines,
forfeitures or other penalties in relation
thereto, or other matters arising under the
Customs Law or other laws administered by
the Bureau of Customs;

5) Decisions of the Central Board of Assessment

Appeals in the exercise of its appellate
jurisdiction over cases involving the
assessment and taxation of real property
originally decided by the provincial or city
board of assessment appeals;

6) Decisions of the Secretary of Finance on

customs cases elevated to him automatically
for review from decisions of the
Commissioner of Customs which are adverse
to the Government under Section 2315 of the
Tariff and Customs Code;

7) Decisions of the Secretary of Trade and

Industry, in the case of nonagricultural
product, commodity or article, and the
Secretary of Agriculture in the case of
agricultural product, commodity or article,
involving dumping and countervailing duties
under Section 301 and 302, respectively, of
the Tariff and Customs Code, and safeguard
measures under Republic Act No. 8800,
where either party may appeal the decision to
impose or not to impose said duties.

The Court of Tax Appeals has undoubted jurisdiction to pass

upon the constitutionality or validity of a tax law or regulation when
 raised by the taxpayer as a defense in disputing or contesting an
assessment or claiming a refund. It is only in the lawful exercise of its
power to pass upon all matters brought before it, as sanctioned by
Section 7 of Republic Act No. 1125, as amended.

This Court, however, declares that the Court of Tax Appeals may
likewise take cognizance of cases directly challenging the
constitutionality or validity of a tax law or regulation or
administrative issuance (revenue orders, revenue memorandum
circulars, rulings).

Section 7 of Republic Act No. 1125, as amended, is explicit that,

except for local taxes, appeals from the decisions of quasi-judicial
agencies (Commissioner of Internal Revenue, Commissioner of Customs,
Secretary of Finance, Central Board of Assessment Appeals, Secretary of
Trade and Industry) on tax-related problems must be
brought exclusively to the Court of Tax Appeals.

In other words, within the judicial system, the law intends the Court of
Tax Appeals to have exclusive jurisdiction to resolve all tax problems.
Petitions for writs of certiorari against the acts and omissions of the said
quasi-judicial agencies should, thus, be filed before the Court of Tax
Appeals.

Republic Act No. 9282, a special and later law than Batas Pambansa
Blg. 129 provides an exception to the original jurisdiction of the Regional
Trial Courts over actions questioning the constitutionality or validity of
tax laws or regulations. Except for local tax cases, actions directly
challenging the constitutionality or validity of a tax law or regulation or
administrative issuance may be filed directly before the Court of Tax
Appeals.

Furthermore, with respect to administrative issuances (revenue

orders, revenue memorandum circulars, or rulings), these are issued
by the Commissioner under its power to make rulings or opinions in
connection with the implementation of the provisions of internal
revenue laws. Tax rulings, on the other hand, are official positions of
the Bureau on inquiries of taxpayers who request clarification on
certain provisions of the National Internal Revenue Code, other tax
laws, or their implementing regulations. Hence, the determination of
the validity of these issuances clearly falls within the exclusive
appellate jurisdiction of the Court of Tax Appeals under Section 7(1)
of Republic Act No. 1125, as amended, subject to prior review by the
Secretary of Finance, as required under Republic Act No. 8424. 55

A direct invocation of this Court's jurisdiction should only be allowed when there
are special, important and compelling reasons clearly and specifically spelled out in
the petition.56
 Nevertheless, despite the procedural infirmities of the petitions that warrant their
outright dismissal, the Court deems it prudent, if not crucial, to take cognizance of,
and accordingly act on, the petitions as they assail the validity of the actions of the
CIR that affect thousands of employees in the different government agencies and
instrumentalities. The Court, following recent jurisprudence, avails itself of its
judicial prerogative in order not to delay the disposition of the case at hand and to
promote the vital interest of justice. As the Court held in Bloomberry Resorts and
Hotels, Inc. v. Bureau of Internal Revenue:57

From the foregoing jurisprudential pronouncements, it would appear

that in questioning the validity of the subject revenue memorandum
circular, petitioner should not have resorted directly before this Court
considering that it appears to have failed to comply with the doctrine of
exhaustion of administrative remedies and the rule on hierarchy of courts,
a clear indication that the case was not yet ripe for judicial remedy.
Notably, however, in addition to the justifiable grounds relied upon by
petitioner for its immediate recourse (i.e., pure question of law, patently
illegal act by the BIR, national interest, and prevention of multiplicity of
suits), we intend to avail of our jurisdictional prerogative in order not to
further delay the disposition of the issues at hand, and also to promote the
vital interest of substantial justice. To add, in recent years, this Court
has consistently acted on direct actions assailing the validity of
various revenue regulations, revenue memorandum circulars, and
the likes, issued by the CIR. The position we now take is more in accord
with latest jurisprudence. x x x 58

II.

Substantive

The petitions assert that the CIR's issuance of RMO No. 23-2014, particularly
Sections III, IV, VI and VII thereof, is tainted with grave abuse of discretion. "By
grave abuse of discretion is meant, such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction." 59 It is an evasion of a positive duty
or a virtual refusal to perform a duty enjoined by law or to act in contemplation of law
as when the judgment rendered is not based on law and evidence but on caprice, whim
and despotism.60

As earlier stated, Section 4 of the NIRC of 1997, as amended, grants the CIR the
power to issue rulings or opinions interpreting the provisions of the NIRC or other tax
laws. However, the CIR cannot, in the exercise of such power, issue administrative
rulings or circulars inconsistent with the law sought to be applied. Indeed,
administrative issuances must not override, supplant or modify the law, but must
remain consistent with the law they intend to carry out. 61 The courts will not
countenance administrative issuances that override, instead of remaining consistent
and in harmony with the law they seek to apply and implement. 62 Thus, in Philippine
Bank of Communications v. Commissioner of Internal Revenue, 63 the Court upheld the
nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal
Revenue because it was contrary to the express provision of Section 230 of the NIRC
of 1977.
 Also, in Banco de Oro v. Republic,64 the Court nullified BIR Ruling Nos. 370-
2011 and DA 378-2011 because they completely disregarded the 20 or more-lender
rule added by Congress in the NIRC of 1997, as amended, and created a distinction
for government debt instruments as against those issued by private corporations when
there was none in the law.65

Conversely, if the assailed administrative rule conforms with the law sought to be
implemented, the validity of said issuance must be upheld. Thus, in The Philippine
American Life and General Insurance Co. v. Secretary of Finance, 66 the Court
declared valid Section 7 (c.2.2) of RR No. 06-08 and RMC No. 25-11, because they
merely echoed Section 100 of the NIRC that the amount by which the fair market
value of the property exceeded the value of the consideration shall be deemed a gift;
thus, subject to donor's tax.67

In this case, the Court finds the petitions partly meritorious only insofar as Section
VI of the assailed RMO is concerned. On the other hand, the Court upholds the
validity of Sections III, IV and VII thereof as these are in fealty to the provisions of
the NIRC of 1997, as amended, and its implementing rules.

Sections III and IV of RMO No.

23-2014 are valid.

Compensation income is the income of the individual taxpayer arising from

services rendered pursuant to an employer-employee relationship.68 Under the NIRC
of 1997, as amended, every form of compensation for services, whether paid in cash
or in kind, is generally subject to income tax and consequently to withholding
tax.69 The name designated to the compensation income received by an employee is
immaterial.70 Thus, salaries, wages, emoluments and honoraria, allowances,
commissions, fees, (including director's fees, if the director is, at the same time, an
employee of the employer/corporation), bonuses, fringe benefits (except those subject
to the fringe benefits tax under Section 33 of the Tax Code), pensions, retirement pay,
and other income of a similar nature, constitute compensation income 71 that are
taxable and subject to withholding.

The withholding tax system was devised for three primary reasons, namely: (1) to
provide the taxpayer a convenient manner to meet his probable income tax liability; (2)
to ensure the collection of income tax which can otherwise be lost or substantially
reduced through failure to file the corresponding returns; and (3) to improve the
government's cash flow.72 This results in administrative savings, prompt and efficient
collection of taxes, prevention of delinquencies and reduction of governmental effort
to collect taxes through more complicated means and remedies. 73

Section 79(A) of the NIRC of 1997, as amended, states:

SEC. 79. Income Tax Collected at Source. –

(A) Requirement of Withholding - Except in the case of a minimum

wage earner as defined in Section 22(HH) of this Code, every employer
making payment of wages shall deduct and withhold upon such
wages a tax determined in accordance with the rules and regulations
 to be prescribed by the Secretary of Finance, upon recommendation
of the Commissioner.74

In relation to the foregoing, Section 2.78 of RR No. 2-98,75 as amended, issued by

the Secretary of Finance to implement the withholding tax system under the NIRC of
1997, as amended, provides:

SECTION 2.78. Withholding Tax on Compensation. — The

withholding of tax on compensation income is a method of collecting the
income tax at source upon receipt of the income. It applies to all
employed individuals whether citizens or aliens, deriving income
from compensation for services rendered in the Philippines. The
employer is constituted as the withholding agent.76

Section 2.78.3 of RR No. 2-98 further states that the term

employee "covers all employees, including officers and employees, whether elected or
appointed, of the Government of the Philippines, or any political subdivision thereof
or any agency or instrumentality"; while an employer, as Section 2.78.4 of the same
regulation provides, "embraces not only an individual and an organization engaged in
trade or business, but also includes an organization exempt from income tax, such as
charitable and religious organizations, clubs, social organizations and societies, as
well as the Government of the Philippines, including its agencies, instrumentalities,
and political subdivisions."

The law is therefore clear that withholding tax on compensation applies to the
Government of the Philippines, including its agencies, instrumentalities, and political
subdivisions. The Government, as an employer, is constituted as the withholding
agent, mandated to deduct, withhold and remit the corresponding tax on compensation
income paid to all its employees.

However, not all income payments to employees are subject to withholding tax.
The following allowances, bonuses or benefits, excluded by the NIRC of 1997, as
amended, from the employee's compensation income, are exempt from withholding
tax on compensation:

1. Retirement benefits received under RA No. 7641 and those received by

officials and employees of private firms, whether individual or corporate,
under a reasonable private benefit plan maintained by the employer
subject to the requirements provided by the Code [Section 32(B)(6)(a) of
the NIRC of 1997, as amended and Section 2.78.1(B)(1)(a) of RR No. 2-
98;

2. Any amount received by an official or employee or by his heirs from the

employer due to death, sickness or other physical disability or for any
cause beyond the control of the said official or employee, such as
retrenchment, redundancy, or cessation of business [Section 32(B)(6)(b)
of the NIRC of 1997, as amended and Section 2.78.1(B)(1)(b) of RR No.
2-98;
3. Social security benefits, retirement gratuities, pensions and other similar
benefits received by residents or non-resident citizens of the Philippines
or aliens who come to reside permanently in the Philippines from foreign
government agencies and other institutions private or public [Section
32(B)(6)(c) of the NIRC of 1997, as amended and Section 2.78.1(B)(1)(c)
of RR No. 2-98;

4. Payments of benefits due or to become due to any person residing in the

Philippines under the law of the United States administered by the United
States Veterans Administration [Section 32(B)(6)(d) of the NIRC of 1997,
as amended and Section 2.78.1(B)(1)(d) of RR No. 2-98;

5. Payments of benefits made under the Social Security System Act of 1954
as amended [Section 32(B)(6)(e) of the NIRC of 1997, as amended and
Section 2.78.1(B)(1)(e) of RR No. 2-98;

6. Benefits received from the GSIS Act of 1937, as amended, and the
retirement gratuity received by government officials and employees
[Section 32(B)(6)(f) of the NIRC of 1997, as amended and Section
2.78.1(B)(1)(f) of RR No.2- 98;

7. Thirteenth (13th) month pay and other benefits received by officials and
employees of public and private entities not exceeding P82,000.00
[Section 32(B)(7)(e) of the NIRC of 1997, as amended, and Section
2.78.1(8)(11) of RR No. 2-98, as amended by RR No. 03-15;

8. GSIS, SSS, Medicare and Pag-Ibig contributions, and union dues of

individual employees [Section 32(B)(7)(f) of the NIRC of 1997, as
amended and Section 2.78.1(8)(12) of RR No. 2-98;

9. Remuneration paid for agricultural labor [Section 2.78.1 (B)(2) of RR No.

2-98;

10. Remuneration for domestic services [Section 28, RA No. 10361 and
Section 2.78.1 (B)(3) of RR No. 2-98;

11. Remuneration for casual labor not in the course of an employer's trade or
business [Section 2.78.1(8)(4) of RR No. 2-98;

12. Remuneration not more than the statutory minimum wage and the
holiday pay, overtime pay, night shift differential pay and hazard pay
received by Minimum Wage Earners [Section 24(A)(2) of the NIRC of
1997, as amended];

13. Compensation for services by a citizen or resident of the Philippines for

a foreign government or an international organization [Section
2.78.1(8)(5) of RR No. 2-98;

14. Actual, moral, exemplary and nominal damages received by an

employee or his heirs pursuant to a final judgment or compromise
 agreement arising out of or related to an employer-employee relationship
[Section 32(B)(4) of the NIRC of 1997, as amended and Section 2.78.1
(B)(6) of RR No. 2-98;

15. The proceeds of life insurance policies paid to the heirs or beneficiaries
upon the death of the insured, whether in a single sum or otherwise,
provided however, that interest payments agreed under the policy for the
amounts which are held by the insured under such an agreement shall be
included in the gross income [Section 32(B)(1) of the NIRC of 1997, as
amended and Section 2.78.1 (B)(7) of RR No. 2-98;

16. The amount received by the insured, as a return of premium or premiums

paid by him under life insurance, endowment, or annuity contracts either
during the term or at the maturity of the term mentioned in the contract or
upon surrender of the contract [Section 32(8)(2) of the NIRC of 1997, as
amended and Section 2.78.1(B)(8) of RR No. 2-98;

17. Amounts received through Accident or Health Insurance or under

Workmen's Compensation Acts, as compensation for personal injuries or
sickness, plus the amount of any damages received whether by suit or
agreement on account of such injuries or sickness [Section 32(8)(4) of the
NIRC of 1997, as amended and Section 2.78.1(8)(9) of RR No. 2-98;

18. Income of any kind to the extent required by any treaty obligation
binding upon the Government of the Philippines [Section 32(8)(5) of the
NIRC of 1997, as amended and Section 2.78.1(B)(10) of RR No. 2-98;

19. Fringe and De minimis Benefits. [Section 33(C) of the NIRC of 1997, as
amended); and

20. Other income received by employees which are exempt under special
laws (RATA granted to public officers and employees under the General
Appropriations Act and Personnel Economic Relief Allowance granted to
government personnel).

Petitioners assert that RMO No. 23-2014 went beyond the provisions of the NIRC
of 1997, as amended, insofar as Sections III and IV thereof impose new or additional
taxes to allowances, benefits or bonuses granted to government employees. A closer
look at the assailed Sections, however, reveals otherwise.

For reference, Sections III and IV of RMO No. 23-2014 read, as follows:

III. OBLIGATION TO WITHHOLD ON

COMPENSATION PAID TO GOVERNMENT
OFFICIALS AND EMPLOYEES

As an employer, government offices including government-owned

or controlled corporations (such as but not limited to the Bangko
Sentral ng Pilipinas, Metropolitan Waterworks and Sewerage System,
Philippine Deposit Insurance Corporation, Government Service
Insurance System, Social Security System), as well as provincial, city
and municipal governments are constituted as withholding agents for
purposes of the creditable tax required to be withheld from
compensation paid for services of its employees.

Under Section 32(A) of the NIRC of 1997, as amended,

compensation for services, in whatever form paid and no matter how
called, form part of gross income. Compensation income includes,
among others, salaries, fees, wages, emoluments and honoraria,
allowances, commissions (e.g. transportation, representation,
entertainment and the like); fees including director's fees, if the
director is, at the same time, an employee of the employer/corporation;
taxable bonuses and fringe benefits except those which are subject to
the fringe benefits tax under Section 33 of the NIRC; taxable pensions
and retirement pay; and other income of a similar nature.

The foregoing also includes allowances, bonuses, and other benefits

of similar nature received by officials and employees of the
Government of the Republic of the Philippines or any of its branches,
agencies and instrumentalities, its political subdivisions, including
government-owned and/or controlled corporations (herein referred to
as officials and employees in the public sector) which are composed of
(but are not limited to) the following:

A. Allowances, bonuses, honoraria or benefits

received by employees and officials in the
Legislative Branch, such as anniversary bonus,
Special Technical Assistance Allowance,
Efficiency Incentive Benefits, Additional
Food Subsidy, Eight[h] (8th) Salary Range
Level Allowance, Hospitalization Benefits,
Medical Allowance, Clothing Allowance,
Longevity Pay, Food Subsidy, Transition
Allowance, Cost of Living Allowance,
Inflationary Adjustment Assistance, Mid-Year
Economic Assistance, Financial Relief
Assistance, Grocery Allowance, Thirteenth
(13th Month Pay, Cash Gift and Productivity
Incentive Benefit and other allowances,
bonuses and benefits given by the Philippine
Senate and House of Representatives to their
officials and employees, subject to the
exemptions enumerated herein.

B. Allowances, bonuses, honoraria or benefits

received by employees and officials in the
Judicial Branch, such as the Additional
Compensation (ADCOM), Extraordinary and
Miscellaneous Expenses (EME), Monthly
Special Allowance from the Special
 Allowance for the Judiciary, Additional Cost
of Living Allowance from the Judiciary
Development Fund, Productivity Incentive
Benefit, Grocery Allowance, Clothing
Allowance, Emergency Economic Allowance,
Year-End Bonus, Cash Gift, Loyalty Cash
Award (Milestone Bonus), SC Christmas
Allowance, anniversary bonuses and other
allowances, bonuses and benefits given by the
Supreme Court of the Philippines and all
other courts and offices under the Judicial
Branch to their officials and
employees, subject to the exemptions
enumerated herein.

C. Compensation for services in whatever form

paid, including, but not limited to allowances,
bonuses, honoraria or benefits received by
employees and officials in the Constitutional
bodies (Commission on Election,
Commission on Audit, Civil Service
Commission) and the Office of the
Ombudsman, subject to the exemptions
enumerated herein.

D. Allowances, bonuses, honoraria or benefits

received by employees and officials in the
Executive Branch, such as the Productivity
Enhancement Incentive (PEI), Performance-
Based Bonus, anniversary bonus and other
allowances, bonuses and benefits given by the
departments, agencies and other offices under
the Executive Branch to their officials and
employees, subject to the exemptions
enumerated herein.

Any amount paid either as advances or reimbursements for

expenses incurred or reasonably expected to be incurred by the official
and employee in the performance of his/her duties are not
compensation subject to withholding, if the following conditions are
satisfied:

1. The employee was duly authorized to incur

such expenses on behalf of the government;
and

2. Compliance with pertinent laws and

regulations on accounting and liquidation of
advances and reimbursements, including, but
not limited to withholding tax rules. The
 expenses should be duly receipted for and in
the name of the government office concerned.

Other than those pertaining to intelligence funds duly appropriated

and liquidated, any amount not in compliance with the foregoing
requirements shall be considered as part of the gross taxable
compensation income of the taxpayer. Intelligence funds not duly
appropriated and not properly liquidated shall form part of the
compensation of the government officials/personnel concerned, unless
returned.

IV. NON-TAXABLE COMPENSATION INCOME – Subject to

existing laws and issuances, the following income received by the
officials and employees in the public sector are not subject to income
tax and withholding tax on compensation:

A. Thirteenth (13th Month Pay and Other Benefits not

exceeding Thirty Thousand Pesos (P30,000.00) paid or
accrued during the year. Any amount exceeding Thirty
Thousand Pesos (P30,000.00) are taxable compensation.
This includes:

1. Benefits received by officials and

employees of the national and local
government pursuant to Republic Act no.
6686 ("An Act Authorizing Annual Christmas
Bonus to National and Local Government
Officials and Employees Starting CY 1998");

2. Benefits received by employees pursuant to

Presidential Decree No. 851 ("Requiring All
Employers to Pay Their Employees a
13th Month Pay"), as amended by
Memorandum Order No. 28, dated August 13,
1986;

3. Benefits received by officials and

employees not covered by Presidential Decree
No. 851, as amended by Memorandum Order
No. 28, dated August 19, 1986;

4. Other benefits such as Christmas bonus,

productivity incentive bonus, loyalty award,
gift in cash or in kind and other benefits of
similar nature actually received by officials
and employees of government offices,
including the additional compensation
allowance (ACA) granted and paid to all
officials and employees of the National
Government Agencies (NGAs) including state
 universities and colleges (SUCs),
government-owned and/or controlled
corporations (GOCCs), government financial
institutions (GFIs) and Local Government
Units (LGUs).

B. Facilities and privileges of relatively small value or "De

Minimis Benefits" as defined in existing issuances and
conforming to the ceilings prescribed therein;

C. Fringe benefits which are subject to the fringe benefits

tax under Section 33 of the NIRC, as amended;

D. Representation and Transportation Allowance (RATA)

granted to public officers and employees under the
General Appropriations Act;

E. Personnel Economic Relief Allowance (PERA) granted

to government personnel;

F. The monetized value of leave credits paid to

government officials and employees;

G. Mandatory/compulsory GSIS, Medicare and Pag-Ibig

Contributions, provided that, voluntary contributions to
these institutions in excess of the amount considered
mandatory/compulsory are not excludible from the gross
income of the taxpayer and hence, not exempt from
Income Tax and Withholding Tax;

H. Union dues of individual employees;

I. Compensation income of employees in the public sector

with compensation income of not more than the Statutory
Minimum Wage (SMW) in the non-agricultural sector
applicable to the place where he/she is assigned;

J. Holiday pay, overtime pay, night shift differential pay,

and hazard pay received by Minimum Wage Earners
(MWEs);

K. Benefits received from the GSIS Act of 1937, as

amended, and the retirement gratuity/benefits received by
government officials and employees under pertinent
retirement laws;

L. All other benefits given which are not included in the

above enumeration but are exempted from income tax as
well as withholding tax on compensation under existing
laws, as confirmed by BIR.77
 Clearly, Sections III and IV of the assailed RMO do not charge any new or
additional tax. On the contrary, they merely mirror the relevant provisions of the
NIRC of 1997, as amended, and its implementing rules on the withholding tax on
compensation income as discussed above. The assailed Sections simply reinforce the
rule that every form of compensation for personal services received by all employees
arising from employer-employee relationship is deemed subject to income tax and,
consequently, to withholding tax,78 unless specifically exempted or excluded by the
Tax Code; and the duty of the Government, as an employer, to withhold and remit the
correct amount of withholding taxes due thereon.

While Section III enumerates certain allowances which may be subject to

withholding tax, it does not exclude the possibility that these allowances may fall
under the exemptions identified under Section IV – thus, the phrase, "subject to the
exemptions enumerated herein." In other words, Sections III and IV articulate in a
general and broad language the provisions of the NIRC of 1997, as amended, on the
forms of compensation income deemed subject to withholding tax and the allowances,
bonuses and benefits exempted therefrom. Thus, Sections III and IV cannot be said to
have been issued by the CIR with grave abuse of discretion as these are fully in
accordance with the provisions of the NIRC of 1997, as amended, and its
implementing rules.

Furthermore, the Court finds untenable petitioners' contention that the assailed
provisions of RMO No. 23-2014 contravene the equal protection clause, fiscal
autonomy, and the rule on non-diminution of benefits.

The constitutional guarantee of equal protection is not violated by an executive

issuance which was issued to simply reinforce existing taxes applicable to both the
private and public sector. As discussed, the withholding tax system embraces not only
private individuals, organizations and corporations, but also covers organizations
exempt from income tax, including the Government of the Philippines, its agencies,
instrumentalities, and political subdivisions. While the assailed RMO is a directive to
the Government, as a reminder of its obligation as a withholding agent, it did not, in
any manner or form, alter or amend the provisions of the Tax Code, for or against the
Government or its employees.

Moreover, the fiscal autonomy enjoyed by the Judiciary, Ombudsman, and

Constitutional Commissions, as envisioned in the Constitution, does not grant
immunity or exemption from the common burden of paying taxes imposed by law. To
borrow former Chief Justice Corona's words in his Separate Opinion in Francisco, Jr.
v. House of Representatives,79 "fiscal autonomy entails freedom from outside control
and limitations, other than those provided by law. It is the freedom to allocate and
utilize funds granted by law, in accordance with law and pursuant to the wisdom and
dispatch its needs may require from time to time." 80

It bears to emphasize the Court's ruling in Nitafan v. Commissioner of Internal

Revenue81 that the imposition of taxes on salaries of Judges does not result in
diminution of benefits. This applies to all government employees because the intent of
the framers of the Organic Law and of the people adopting it is "that all citizens
should bear their aliquot part of the cost of maintaining the government and
should share the burden of general income taxation equitably."82
Determination of existence of
fringe benefits is a question of
fact.

Petitioners, nonetheless, insist that the allowances, bonuses and benefits

enumerated in Section III of the assailed RMO are, in fact, fringe and de
minimis benefits exempt from withholding tax on compensation. The Court cannot,
however, rule on this issue as it is essentially a question of fact that cannot be
determined in this petition questioning the constitutionality of the RMO.

To be sure, settled is the rule that exemptions from tax are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing authority. 83 One who
claims tax exemption must point to a specific provision of law conferring, in clear and
plain terms, exemption from the common burden84 and prove, through substantial
evidence, that it is, in fact, covered by the exemption so claimed. 85 The determination,
therefore, of the merits of petitioners' claim for tax exemption would necessarily
require the resolution of both legal and factual issues, which this Court, not being a
trier of facts, has no jurisdiction to do; more so, in a petition filed at first instance.

Among the factual issues that need to be resolved, at the first instance, is the nature
of the fringe benefits granted to employees. The NIRC of 1997, as amended, does not
impose income tax, and consequently a withholding tax, on payments to employees
which are either (a) required by the nature of, or necessary to, the business of the
employer; or (b) for the convenience or advantage of the employer. 86 This, however,
requires proper documentation. Without any documentary proof that the payment
ultimately redounded to the benefit of the employer, the same shall be considered as a
taxable benefit to the employee, and hence subject to withholding taxes. 87

Another factual issue that needs to be confirmed is the recipient of the alleged
fringe benefit. Fringe benefits furnished or granted, in cash or in kind, by an employer
to its managerial or supervisory employees, are not considered part of compensation
income; thus, exempt from withholding tax on compensation. 88 Instead, these fringe
benefits are subject to a fringe benefit tax equivalent to 32% of the grossed-up
monetary value of the benefit, which the employer is legally required to pay. 89 On the
other hand, fringe benefits given to rank and file employees, while exempt from
fringe benefit tax,90 form part of compensation income taxable under the regular
income tax rates provided in Section 24(A)(2) of the NIRC, of 1997, as
amended;91 and consequently, subject to withholding tax on compensation.

Furthermore, fringe benefits of relatively small value furnished by the employer to

his employees (both managerial/supervisory and rank and file) as a means of
promoting health, goodwill, contentment, or efficiency, otherwise known as de
minimis benefits, that are exempt from both income tax on compensation and fringe
benefit tax; hence, not subject to withholding tax, 92 are limited and exclusive only to
those enumerated under RR No. 3-98, as amended.93 All other benefits given by the
employer which are not included in the said list, although of relatively small value,
shall not be considered as de minimis benefits; hence, shall be subject to income tax as
well as withholding tax on compensation income, for rank and file employees, or
fringe benefits tax for managerial and supervisory employees, as the case may be. 94
 Based on the foregoing, it is clear that to completely determine the merits of
petitioners' claimed exemption from withholding tax on compensation, under Section
33 of the NIRC of 1997, there is a need to confirm several factual issues. As such,
petitioners cannot but first resort to the proper courts and administrative agencies
which are better equipped for said task.

All told, the Court finds Sections III and IV of the assailed RMO valid. The NIRC
of 1997, as amended, is clear that all forms of compensation income received by the
employee from his employer are presumed taxable and subject to withholding taxes.
The Government of the Philippines, its agencies, instrumentalities, and political
subdivisions, as an employer, is required by law to withhold and remit to the BIR the
appropriate taxes due thereon. Any claims of exemption from withholding taxes by an
employee, as in the case of petitioners, must be brought and resolved in the
appropriate administrative and judicial proceeding, with the employee having the
burden to prove the factual and legal bases thereof.

Section VII of RMO No. 23-

2014 is valid; Section VI
contravenes, in part, the
provisions of the NIRC of 1997,
as amended, and its
implementing rules.

Petitioners claim that RMO No. 23-2014 is ultra vires insofar as Sections VI and
VII thereof define new offenses and prescribe penalties therefor, particularly upon
government officials.

The NIRC of 1997, as amended, clearly provides the offenses and penalties
relevant to the obligation of the withholding agent to deduct, withhold and remit the
correct amount of withholding taxes on compensation income, to wit:

TITLE X
Statutory Offenses and Penalties

CHAPTER I
Additions to the Tax

SEC. 247. General Provisions. –

(a) The additions to the tax or deficiency tax prescribed in this Chapter
shall apply to all taxes, fees and charges imposed in this Code. The
amount so added to the tax shall be collected at the same time, in the
same manner and as part of the tax.

(b) If the withholding agent is the Government or any of its agencies,

political subdivisions or instrumentalities, or a government owned or -
controlled corporation, the employee thereof responsible for the
withholding and remittance of the tax shall be personally liable for the
additions to the tax prescribed herein.
 (c) The term "person", as used in this Chapter, includes an officer or
employee of a corporation who as such officer, employee or member is
under a duty to perform the act in respect of which the violation occurs.

SEC. 248. Civil Penalties. — x x x95

SEC. 249. Interest. – x x x96

xxxx

SEC. 251. Failure of a Withholding Agent to Collect and Remit Tax. –

Any person required to withhold, account for, and remit any tax imposed
by this Code or who willfully fails to withhold such tax, or account for
and remit such tax, or aids or abets in any manner to evade any such tax
or the payment thereof, shall, in addition to other penalties provided for
under this Chapter, be liable upon conviction to a penalty equal to the
total amount of the tax not withheld, or not accounted for and remitted. 97

SEC. 252. Failure of a Withholding Agent to Refund Excess

Withholding Tax. – Any employer/withholding agent who fails or refuses
to refund excess withholding tax shall, in addition to the penalties
provided in this Title, be liable to a penalty equal to the total amount of
refunds which was not refunded to the employee resulting from any
excess of the amount withheld over the tax actually due on their return.

CHAPTER II
Crimes, Other Offenses and Forfeitures

xxxx

SEC. 255. Failure to File Return, Supply Correct and Accurate

Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes
Withheld on Compensation. – Any person required under this Code or by
rules and regulations promulgated thereunder to pay any tax, make a
return, keep any record, or supply correct and accurate information, who
willfully fails to pay such tax, make such return, keep such record, or
supply such correct and accurate information, or withhold or remit taxes
withheld, or refund excess taxes withheld on compensation, at the time or
times required by law or rules and regulations shall, in addition to other
penalties provided by law, upon conviction thereof, be punished by a fine
of not less than Ten thousand pesos (P10,000) and suffer imprisonment of
not less than one (l) year but not more than ten (10) years.

CHAPTER III
Penalties Imposed on Public Officers

xxxx

SEC. 272. Violation of Withholding Tax Provision. – Every officer or

employee of the Government of the Republic of the Philippines or any of
 its agencies and instrumentalities, its political subdivisions, as well as
government-owned or -controlled corporations, including the Bangko
Sentral ng Pilipinas (BSP), who, under the provisions of this Code or
rules and regulations promulgated thereunder, is charged with the duty to
deduct and withhold any internal revenue tax and to remit the same in
accordance with the provisions of this Code and other laws is guilty of
any offense hereinbelow specified shall, upon conviction for each act or
omission be punished by a fine of not less than Five thousand pesos
(P5,000) but not more than Fifty thousand pesos (P50,000) or suffer
imprisonment of not less than six (6) months and one day (1) but not
more than two (2) years, or both:

(a) Failing or causing the failure to deduct and withhold

any internal revenue tax under any of the withholding tax
laws and implementing rules and regulations;

(b) Failing or causing the failure to remit taxes deducted

and withheld within the time prescribed by law, and
implementing rules and regulations; and

(c) Failing or causing the failure to file return or statement

within the time prescribed, o rendering or furnishing a false
or fraudulent return or statement required under the
withholding tax laws and rules and regulations.98

Based on the foregoing, and similar to Sections III and IV of the assailed RMO,
the Court finds that Section VII thereof was issued in accordance with the provisions
of the NIRC of 1997, as amended, and RR No. 2-98. For easy reference, Section VII
of RMO No. 23-2014 states:

VII. PENALTY PROVISION

In case of non-compliance with their obligation as withholding

agents, the abovementioned persons shall be liable for the following
sanctions:

A. Failure to Collect and Remit Taxes (Section 251, NIRC)

"Any person required to withhold, account

for, and remit any tax imposed by this Code
or who willfully fails to withhold such tax, or
account for and remit such tax, or aids or
abets in any manner to evade any such tax or
the payment thereof, shall, in addition to other
penalties provided for under this Chapter, be
liable upon conviction to a penalty equal to
the total amount of the tax not withheld, or
not accounted for and remitted."
B. Failure to File Return, Supply Correct and Accurate
Information, Pay Tax Withhold and Remit Tax and
Refund Excess Taxes Withheld on Compensation (Section
255, NIRC)

"Any person required under this Code or

by rules and regulations promulgated
thereunder to pay any tax make a return, keep
any record, or supply correct the accurate
information, who willfully fails to pay such
tax, make such return, keep such record, or
supply correct and accurate information, or
withhold or remit taxes withheld, or refund
excess taxes withheld on compensation, at the
time or times required by law or rules and
regulations shall, in addition to other penalties
provided by law, upon conviction thereof, be
punished by a fine of not less than Ten
thousand pesos (P10,000) and suffer
imprisonment of not less than one (1) year but
not more than ten (10) years.

Any person who attempts to make it

appear for any reason that he or another has in
fact filed a return or statement, or actually
files a return or statement and subsequently
withdraws the same return or statement after
securing the official receiving seal or stamp of
receipt of internal revenue office wherein the
same was actually filed shall, upon conviction
therefor, be punished by a fine of not less than
Ten thousand pesos (P10,000) but not more
than Twenty thousand pesos (P20,000) and
suffer imprisonment of not less than one (1)
year but not more than three (3) years."

C. Violation of Withholding Tax Provisions (Section 272,

NIRC)

"Every officer or employee of the

Government of the Republic of the
Philippines or any of its agencies and
instrumentalities, its political subdivisions, as
well as government-owned or controlled
corporations, including the Bangko Sentral ng
Pilipinas (BSP), who is charged with the duty
to deduct and withhold any internal revenue
tax and to remit the same is guilty of any
offense herein below specified shall, upon
conviction for each act or omission be
 punished by a fine of not less than Five
thousand pesos (P5,000) but not more than
Fifty thousand pesos (P50,000) or suffer
imprisonment of not less than six (6) months
and one (1) day but not more than two (2)
years, or both:

1. Failing or causing the failure to

deduct and withhold any
internal revenue tax under any
of the withholding tax laws
and implementing rules and
regulations; or

2. Failing or causing the failure to

remit taxes deducted and
withheld within the time
prescribed by law, and
implementing rules and
regulations; or

3. Failing or causing the failure to

file return or statement within
the time prescribed, or
rendering or furnishing a false
or fraudulent return or
statement required under the
withholding tax laws and rules
and regulations."

All revenue officials and employees concerned shall take measures

to ensure the full enforcement of the provisions of this Order and in
case of any violation thereof, shall commence the appropriate legal
action against the erring withholding agent.

Verily, tested against the provisions of the NIRC of 1997, as amended, Section VII
of RMO No. 23-2014 does not define a crime and prescribe a penalty therefor.
Section VII simply mirrors the relevant provisions of the NIRC of 1997, as amended,
on the penalties for the failure of the withholding agent to withhold and remit the
correct amount of taxes, as implemented by RR No. 2-98.

However, with respect to Section VI of the assailed RMO, the Court finds that the
CIR overstepped the boundaries of its authority to interpret existing provisions of the
NIRC of 1997, as amended.

Section VI of RMO No. 23-2014 reads:

VI. PERSONS RESPONSIBLE FOR WITHHOLDING

 The following officials are duty bound to deduct, withhold and remit
taxes:

a) For Office of the Provincial Government-province- the Chief Accountant,

Provincial Treasurer and the Governor;

b) For Office of the City Government-cities- the Chief Accountant, City

Treasurer and the City Mayor;

c) For Office of the Municipal Government-municipalities- the Chief

Accountant, Municipal Treasurer and the Mayor;

d) Office of the Barangay-Barangay Treasurer and Barangay Captain

e) For NGAs, GOCCs and other Government Offices, the Chief Accountant
and the Head of Office or the Official holding the highest position (such
as the President, Chief Executive Officer, Governor, General Manager).

To recall, the Government of the Philippines, or any political subdivision or

agency thereof, or any GOCC, as an employer, is constituted by law as the
withholding agent, mandated to deduct, withhold and remit the correct amount of
taxes on the compensation income received by its employees. In relation thereto,
Section 82 of the NIRC of 1997, as amended, states that the return of the amount
deducted and withheld upon any wage paid to government employees shall be made
by the officer or employee having control of the payments or by any officer or
employee duly designated for such purpose.99 Consequently, RR No. 2-98
identifies the Provincial Treasurer in provinces, the City Treasurer in cities, the
Municipal Treasurer in municipalities, Barangay Treasurer in barangays, Treasurers
of government-owned or -controlled corporations (GOCCs), and the Chief
Accountant or any person holding similar position and performing similar function in
national government offices, as persons required to deduct and withhold the
appropriate taxes on the income payments made by the government. 100

However, nowhere in the NIRC of 1997, as amended, or in RR No. 2-98, as

amended, would one find the Provincial Governor, Mayor, Barangay Captain and the
Head of Government Office or the "Official holding the highest position (such as the
President, Chief Executive Officer, Governor, General Manager)" in an Agency or
GOCC as one of the officials required to deduct, withhold and remit the correct
amount of withholding taxes. The CIR, in imposing upon these officials the obligation
not found in law nor in the implementing rules, did not merely issue an interpretative
rule designed to provide guidelines to the law which it is in charge of enforcing; but
instead, supplanted details thereon — a power duly vested by law only to respondent
Secretary of Finance under Section 244 of the NIRC of 1997, as amended.

Moreover, respondents' allusion to previous issuances of the Secretary of Finance

designating the Governor in provinces, the City Mayor in cities, the Municipal Mayor
in municipalities, the Barangay Captain in barangays, and the Head of Office (official
holding the highest position) in departments, bureaus, agencies, instrumentalities,
government-owned or -controlled corporations, and other government offices, as
officers required to deduct and withhold,101 is bereft of legal basis. Since the 1977
NIRC and Executive Order No. 651, which allegedly breathed life to these issuances,
have already been repealed with the enactment of the NIRC of 1997, as amended, and
RR No. 2-98, these previous issuances of the Secretary of Finance have ceased to
have the force and effect of law.1âшphi1

Accordingly, the Court finds that the CIR gravely abused its discretion in issuing
Section VI of RMO No. 23-2014 insofar as it includes the Governor, City Mayor,
Municipal Mayor, Barangay Captain, and Heads of Office in agencies, GOCCs, and
other government offices, as persons required to withhold and remit withholding taxes,
as they are not among those officials designated by the 1997 NIRC, as amended, and
its implementing rules.

Petition for Mandamus is moot

and academic.

As regards the prayer for the issuance of a writ of mandamus to compel

respondents to increase the P30,000.00 non-taxable income ceiling, the same has
already been rendered moot and academic due to the enactment of RA No. 10653. 102

The Court takes judicial notice of RA No. 10653, which was signed into law on
February 12, 2015, which increased the income tax exemption for 13th month pay and
other benefits, under Section 32(B)(7)(e) of the NIRC of 1997, as amended, from
P30,000.00 to P82,000.00.103 Said law also states that every three (3) years after the
effectivity of said Act, the President of the Philippines shall adjust the amount stated
therein to its present value using the Consumer Price Index, as published by the
National Statistics Office.104

Recently, RA No. 10963,105 otherwise known as the "Tax Reform for Acceleration
and Inclusion (TRAIN)" Act, further increased the income tax exemption for
13th month pay and other benefits to P90,000.00.106

A case is considered moot and academic if it ceases to present a justiciable

controversy by virtue of supervening events, so that an adjudication of the case or a
declaration on the issue would be of no practical value or use. Courts generally
decline jurisdiction over such case or dismiss it on the ground of mootness. 107

With the enactment of RA Nos. 10653 and 10963, which not only increased the tax
exemption ceiling for 13th month pay and other benefits, as petitioners prayed, but
also conferred upon the President the power to adjust said amount, a supervening
event has transpired that rendered the resolution of the issue on
whether mandamus lies against respondents, of no practical value. Accordingly, the
petition for mandamus should be dismissed for being moot and academic.

As a final point, the Court cannot turn a blind eye to the adverse effects of this
Decision on ordinary government employees, including petitioners herein, who relied
in good faith on the belief that the appropriate taxes on all the income they receive
from their respective employers are withheld and paid. Nor does the Court ignore the
situation of the relevant officers of the different departments of government that had
believed, in good faith, that there was no need to withhold the taxes due on the
compensation received by said ordinary government employees. Thus, as a measure
of equity and compassionate social justice, the Court deems it proper to clarify and
declare, pro hac vice, that its ruling on the validity of Sections III and IV of the
assailed RMO is to be given only prospective effect.108

WHEREFORE, premises considered, the Petitions and Petitions-in

Interventions are PARTIALLY GRANTED. Section VI of Revenue
Memorandum Order No. 23-2014 is DECLARED null and void insofar
as it names the Governor, City Mayor, Municipal Mayor, Barangay
Captain, and Heads of Office in government agencies, government-
owned or -controlled corporations, and other government offices, as
persons required to withhold and remit withholding taxes.

Sections III, IV and VII of RMO No. 23-2014 are DECLARED valid
inasmuch as they merely mirror the provisions of the National Internal
Revenue Code of 1997, as amended. However, the Court cannot rule on
petitioners' claims of exemption from withholding tax on compensation
income because these involve issues that are essentially factual or
evidentiary in nature, which must be raised in the appropriate
administrative and/or judicial proceeding.

The Court's Decision upholding the validity of Sections III and IV of

the assailed RMO is to be applied only prospectively.

Finally, the Petition for Mandamus in G.R. No. 213446 is

hereby DENIED on the ground of mootness.

SO ORDERED.