Soriano vs.

Secretary of Finance:

Issue: Assails the validity of the Revenue Regulations of the BIR on the newly enacted
law RA 9504 (Minimum Wage Earners).
Effectivity of Law: July 6, 2008
Salient Feature of the Law:

 It increased the basic personal exemption from ₱20,000 for a single individual,
₱25,000 for the head of the family, and ₱32,000 for a married individual to
P50,000 for each individual.
 It increased the additional exemption for each dependent not exceeding four
from ₱8,000 to ₱25,000
 It granted MWEs exemption from payment of income tax on their minimum
wage, holiday pay, overtime pay, night shift differential pay and hazard pay.
ISSUES:
1. How much is to be deducted as personal and additional Exemption?

BIR Petitioners
1. Tax Payers should claim only a 1. Full deductions of the Personal
proportionate share (prorated and additional exemptions and
application) of the exemption (in not proportionate share. (Relying
this case only ½ of Personal on the Umali vs. Estanislao case)
Exemption and ½ of the
Additional Exemption) since the
law took effect only on July 6,
2008. (Relying on the Pansacola
vs CIR case)

2. Whether or not MWE who receives other benefits in excess of the statutory limit
of ₱30,000 is no longer entitled to the exemption provided by R.A. 9504, is
consistent with the law.?

RULING:
1. There is, of course, nothing to prevent Congress from again adopting a policy that
prorates the effectivity of basic personal and additional exemptions. This policy,
however, must be explicitly provided for by law - to amend the prevailing law,
which provides for full-year treatment. As already pointed out, R.A. 9504 is totally
silent on the matter. This silence cannot be presumed by the BIR as providing for
a half-year application of the new exemption levels. Such presumption is unjust,
as incomes do not remain the same from month to month, especially for the
MWEs.
 Therefore, there is no legal basis for the BIR to reintroduce the prorating of the
new personal and additional exemptions. In so doing, respondents overstepped
the bounds of their rule-making power. It is an established rule that
administrative regulations are valid only when these are consistent with the law.
Respondents cannot amend, by mere regulation, the laws they administer. To do
so would violate the principle of non-delegability of legislative powers.

The prorated application of the new set of personal and additional exemptions for
the year 2008, which was introduced by respondents, cannot even be justified
under the exception to the canon of non-delegability; that is, when Congress
makes a delegation to the executive branch. The delegation would fail the two
accepted tests for a valid delegation of legislative power; the completeness test
and the sufficient standard test. The first test requires the law to be complete in
all its terms and conditions, such that the only thing the delegate will have to do
is to enforce it. The sufficient standard test requires adequate guidelines or
limitations in the law that map out the boundaries of the delegate's authority and
canalize the delegation.

In this case, respondents went beyond enforcement of the law, given the absence
of a provision in R.A. 9504 mandating the prorated application of the new
amounts of personal and additional exemptions for 2008. Further, even
assuming that the law intended a prorated application, there are no parameters
set forth in R.A. 9504 that would delimit the legislative power surrendered by
Congress to the delegate. In contrast, Section 23(d) of the 1939 Tax Code
authorized not only the prorating of the exemptions in case of change of status
of the taxpayer, but also authorized the Secretary of Finance to prescribe the
corresponding rules and regulations.
2. NO.

Nowhere in the above provisions of R.A. 9504 would one find the qualifications
prescribed by the assailed provisions of RR 10-2008. The provisions of the law
are clear and precise; they leave no room for interpretation - they do not provide
or require any other qualification as to who are MWEs.

To be exempt, one must be an MWE, a term that is clearly defined. Section 22(HH)
says he/she must be one who is paid the statutory minimum wage if he/she
works in the private sector, or not more than the statutory minimum wage in the
non-agricultural sector where he/she is assigned, if he/she is a government
employee. Thus, one is either an MWE or he/she is not. Simply put, MWE is the
status acquired upon passing the litmus test - whether one receives wages not
exceeding the prescribed minimum wage.
In sum, the proper interpretation of R.A. 9504 is that it imposes taxes only
on the taxable income received in excess of the minimum wage, but the
MWEs will not lose their exemption as such. Workers who receive the
statutory minimum wage their basic pay remain MWEs. The receipt of any
other income during the year does not disqualify them as MWEs. They
remain MWEs, entitled to exemption as such, but the taxable income they
receive other than as MWEs may be subjected to appropriate taxes.