REYNALDO V. UMALI, PETITIONER, VS. HON. JESUS P. ESTANISLAO, SECRETARY OF FINANCE, AND HON. JOSE U. ONG, COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.

These consolidated cases
are petitions for mandamus and prohibition, premised upon the following
undisputed facts:

Congress enacted Rep. Act 7167, entitled “AN ACT ADJUSTING
THE BASIC PERSONAL AND ADDITIONAL EXEMPTIONS ALLOWABLE TO INDIVIDUALS FOR
INCOME TAX PURPOSES TO THE POVERTY THRESHOLD LEVEL, AMENDING FOR THE PURPOSE
SECTION 29, PARAGRAPH (L), ITEMS (1) AND (2) (A) OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES.” It provides as follows:

“SECTION (1). The
first paragraph of item (1), paragraph (1) of Section 29 of the National
Internal Revenue Code, as amended, is hereby further amended to read as
follows:

(1) Personal Exemptions
allowable to individuals – (1) Basic personal exemption as follows:

‘For single individual or married individual judicially decreed as
legally separated with no qualified dependents P9,000

For head of a family …………………….. P12,000

For married
individual……………………… …
P18,000

Provided, That husband and wife electing to
compute their income tax separately shall be entitled to a personal exemption
of P9,000 each.’

SEC. 2. The first paragraph
of item (2) (A), paragraph (1) of Section 29 of the same Code, as amended, is
hereby further amended to read as follows:

‘(2) Additional exemption.

(A) Taxpayers with
dependents. – A married individual or a head of family shall be allowed an
additional exemption of Five Thousand Pesos (P5,000) for each dependent: Provided, That the total number of
dependents for which additional exemptions may be claimed shall not exceed four
dependents: Provided, further, That an
additional exemption of One Thousand Pesos (1,000) shall be allowed for each
child who otherwise qualified as dependent prior to January 1, 1980: Provided, finally, That the additional
exemption for dependents shall be claimed by only one of the spouses in case of
married individuals electing to compute their income tax liabilities
separately.’

SEC. 3. This act shall take
effect upon its approval.

Approved.”^[1]

The said act was signed and approved by the President on 19
December 1991 and published on 14 January 1992 in “Malaya” a
newspaper of general circulation.

On 26 December 1992, respondents promulgated Revenue Regulations
No. 1-92, the pertinent portions of which read as follows:

“SEC. 1. SCOPE –
Pursuant to Sections 245 and 72 of the National Internal Revenue Code in
relation to Republic Act No. 7167, these Regulations are hereby promulgated
prescribing the collection at source of income tax on compensation income paid
on or after January 1, 1992 under the Revised Withholding Tax Tables (ANNEX
“A”) which take into account the increase of personal and additional
exemptions.

x          x          x          x          x

SEC. 3. Section 8 of Revenue
Regulations No. 6-82 as amended by Revenue Regulations No. 1-86 is hereby
further amended to read as follows:

‘Section 8. – Right to claim the following exemptions.’ x x x

Each employee shall be allowed to claim the following amount of
exemption with respect to compensation paid on or after January 1, 1992.

x          x          x          x          x

SEC. 5. EFFECTIVITY. –
These regulations shall take effect on compensation income from January 1,
1992.”

On 27 February 1992, the petitioner in G.R. No. 104037, a
taxpayer and a resident of Gitnang Bayan Bongabong, Oriental Mindoro, filed a
petition for mandamus for himself and in behalf of all individual
Filipino taxpayers, to COMPEL the respondents to implement Rep. Act 7167 with
respect to taxable income of individual taxpayers earned or received on or
after 1 January 1991 or as of taxable year ending 31 December 1991.

On 28 February 1992, the petitioners in G.R. No. 104069 likewise
filed a petition for mandamus and prohibition on their behalf as well as
for those other individual taxpayers who might be similarly situated, to compel
the Commissioner of Internal Revenue to implement the mandate of Rep. Act 7167
adjusting the personal and additional exemptions allowable to individuals for
income tax purposes in regard to income earned or received in 1991, and to
enjoin the respondents from implementing Revenue Regulations No.1-92.

In the Court’s resolution of 10 March 1992, these two (2) cases
were consolidated. Respondents were
required to comment on the petitions, which they did within the prescribed
period.

The principal issues to be resolved in these cases are: (1) whether or not Rep. Act 7167 took effect
upon its approval by the President on 19 December 1991, or on 30 January 1992,
i.e., after fifteen (15) days following its publication on 14 January 1992 in
the “Malaya” a newspaper of general circulation; and (2) assuming
that Rep. Act 7167 took effect on 30 January 1992, whether or not the said law
nonetheless covers or applies to compensation income earned or received during
calendar year 1991.

In resolving the first issue, it will be recalled that the Court
in its resolution in Caltex (Phils.), Inc. vs. The Commissioner of Internal
Revenue, G.R. No. 97282, 26 June1991 — which is on all fours with this
case as to the first issue — held:

“The central issue presented in the instant petition is the
effectivity of R.A 6965 entitled ‘An Act Revising The Form of Taxation on
Petroleum Products from Ad Valorem to Specific, Amending For the Purpose
Section 145 of the National Internal Revenue Code, As amended by Republic Act
Numbered Sixty Seven Hundred Sixty Seven.’

Section 3 of R.A. 6965 contains the effectivity clause which
provides, ‘This Act shall take effect upon its approval’

R.A. 6965 was approved on September 19, 1990. It was published in the Philippine Journal,
a news­paper of general circulation in the Philippines, on September 20,
1990. Pursuant to the Act, an
implementing regulation was issued by the Commissioner of Internal Revenue,
Revenue Memorandum Circular 85-90, stating that R.A. 6965 took effect on
October 5, 1990. Petitioner took
exception thereof and argued that the law took effect on September 20, 1990
instead.

Pertinent is Article 2 of the Civil Code (as amended by Executive
Order No. 200) which provides:

‘Article. 2. Laws shall
take effect after fifteen days following the comple­tion of their publication
either in the official Gazette or in a newspaper of general circulation in the
Philippines, unless it is otherwise provided. x x x’

In the case of Tanada vs. Tuvera (L-63915, December 29, 1986, 146
SCRA 446, 452) we construed Article 2 of the Civil Code and laid down the rule:

‘x x x: the) clause ‘unless it is otherwise provided’
refers to the date of effectivity and not to the requirement of publication
itself, which cannot in any event be omitted. This clause does not mean that the legislator may make the law effective
immediately upon approval, or on any other date without its previous
publication.’

‘Publication is indispensable in every case, but the legislature
may in its discretion provide that the usual fifteen-day period shall be
shortened or extended. x x x’

Inasmuch as R.A. 6965 has no specific date for its effectivity and
neither can it become effective upon its approval notwithstanding its express
statement, following Article 2 of the Civil Code and the doctrine enunciated in
Tanada, supra, R.A. 6965 took effect fifteen days after September 20, 1990, or
specifically, on October 5,1990.”

Accordingly, the Court rules that Rep. Act 7167 took effect on 30
January 1992, which is after fifteen (15) days following its publication on 14
January 1992 in the “Malaya.”

Coming now to the second issue, the Court is of the considered
view that Rep. Act 7167 should cover or extend to compensation income earned or
received during calendar year 1991.

Sec. 29, par. (L), Item No. 4 of the National Internal Revenue
Code, as amended, provides:

“Upon the recommendation of the Secretary of Finance, the
President shall automatically adjust not more often than once every three years,
the personal and additional exemptions taking into account, among others, the
movement in consumer price indices, levels of minimum wages, and bare
subsistence levels.”

As the personal and additional exemptions of individual taxpayers
were last adjusted in 1986, the President, upon the
recommendation of the Secretary of Finance, could have adjusted the personal
and additional exemptions in 1989 by increasing the same even
without any legislation providing for such adjustment. But the President did not.

However, House Bill 28970, which was subsequently enacted by
Congress as Rep. Act 7167, was introduced in the House of Representatives in
1989 although its passage was delayed and it did not become effective
law until 30 January 1992. A perusal,
however, of the sponsorship remarks of Congressman Hernando B. Perez, Chairman
of the House Committee on Ways and Means, on House Bill 28970, provides an
indication of the intent of Congress in enacting Rep. Act 7167. The pertinent legislative journal contains
the following.

“At the outset, Mr.
Perez explained that the Bill Provides for increased personal additional
exemptions to individuals in view of the higher standard of living.

“The Bill, he stated, limits the amount of income of
individuals subject to income tax to enable them to spend for basic necessities
and have more disposable income.

x x x                 x x x                    x x x

“Mr. Perez added that inflation has raised the basic
necessities and that it had been three years since the last exemption adjustment
in 1986.

x x x                 x x x                    x x x

“Subsequently, Mr. Perez stressed the necessity of passing the
measure to mitigate the effects of the current inflation and of the
implementation of the salary standardization law. Stating that it is imperative for the government to take measures
to ease the burden of the individual income tax filers, Mr. Perez then cited
specific examples of how the measure can help assuage the burden to the
taxpayers.

“He then reiterated that the increase in the prices of
commodities has eroded the purchasing power of the peso despite the recent
salary increases and emphasized that the Bill will serve to compensate the
adverse effects of inflation on the taxpayers. x x x.” (Journal of the House of Representatives, May 23, 1990, pp.
32-33).

It will also be observed that Rep. Act 7167 speaks of the
adjustments that it provides for, as adjustments “to the poverty
threshold level“. Certainly, “the poverty threshold
level” is the poverty threshold level at the time Rep. Act 7167 was
enacted by Congress, not poverty threshold levels in futuro, at
which time there may be need of further adjustments in personal
exemptions. Moreover, the Court can not
lose sight of the fact that these personal and additional exemptions are fixed
amounts to which an individual taxpayer is entitled, as a means to
cushion the devastating effects of high prices and a depreciated purchasing
power of the currency. In the end, it
is the lower-income and the middle-income groups of taxpayers (not the
high-income taxpayers) who stand to benefit most from the increase of personal
and additional exemptions provided for by Rep. Act 7167. To that extent, the act is a social
legislation intended to alleviate in part the present economic plight of the
lower income taxpayers. It is intended
to remedy the inadequacy of the heretofore existing personal and additional
exemptions for individual taxpayers.

And then, Rep. Act 7167 says that the increased personal
exemptions that it provides for shall be available thenceforth, that is, after
Rep. Act 7167 shall have become effective. In other words, these exemptions are available upon the filing of
personal income tax returns which is, under the National Internal Revenue Code,
done not later than the 15th day of April after the end of a calendar
year. Thus, under Rep. Act 7167, which
became effective, as aforestated, on 30 January 1992, the increased exemptions
are literally available on or before 15 April 1992 (though not before 30
January 1992). But these increased
exemptions can be available on 15 April 1992 only in respect of compensation
income earned or received during the calendar year 1991.

The personal exemptions as increased by Rep. Act 7167 cannot be
regarded as available in respect of compensation income received during the 1990
calendar year; the tax due in respect of said income had already accrued, and
been presumably paid, by 15 April 1991 and by 15 July 1991, at which time Rep.
Act 7167 had not been enacted. To make
Rep. Act 7167 refer back to income received during 1990 would require language
explicitly retroactive in purport and effect, language that would have to
authorize the payment of refunds of taxes paid on 15 April 1991 and 15 July
1991: such language is simply not found
in Rep. Act 7167.

The personal exemptions as increased by Rep. Act 7167 cannot be
regarded as available only in respect of compensation income received
during 1992, as the implementing Revenue Regulations No. 1-92 purport to
provide. Revenue Regulations No. 1-92
would in effect postpone the availability of the increased exemptions to 1
January-15 April 1993, and thus literally defer the effectivity of Rep. Act
7167 to 1 January 1993. Thus, the
implementing regulations collide frontally with Section 3 of Rep. Act 7167
which states that the statute “shall take effect upon its approval.” The
objective of the Secretary of Finance and the Commissioner of Internal Revenue
in postponing through Revenue Regulations No. 1-92 the legal effectivity of
Rep. Act 7167 is, of course, entirely understandable — to defer to 1993
the reduction of governmental tax revenues which irresistibly follows from the
application of Rep. Act 7167. But the
law-making authority has spoken and the Court can not refuse to apply the
law-maker’s words. Whether or not the
government can afford the drop in tax revenues resulting from such increased
exemptions was for Congress (not this Court) to decide.

WHEREFORE, Sections 1, 3 and 5 of Revenue Regulations No.
1-92 which provide that the regulations shall take effect on compensation
income earned or received from 1 January 1992 are hereby SET ASIDE. They should take effect on compensation
income earned or received from 1 January 1991.

Since this decision promulgated after 15 April 1992, the
individual taxpayers entitled to the increased exemptions on compensation
income earned during calendar year 1991 who may have filed their income tax
returns on or before 15 April 1992 (later extended to 24 April 1992) without
the benefit of such increased exemptions, are entitled to the corresponding tax
refunds and/or credits, and respondents are ordered to effect such refunds
and/or credits. No costs.

SO ORDERED.

Narvasa, C.J., Gutierrez, Jr., Feliciano, Bidin, Griño-Aquino,
Medialdea, Regalado, Davide, Jr., Romero, Nocon, and
Bellosillo, JJ., concur.

Cruz, J., see concurrence.

Paras, J., see dissenting and
concurring opinion.

^[1]
Before the enactment of Rep. Act 7167, Executive Order No. 37 approved by the
President on 31 July 1986, provided for the following personal and additional
exemptions for individual taxpapers:

(1) Personal exemptions allowable
to individuals. – (1) Basic personal exemption. – For the purpose of
determining the tax provided in Section 21(a) of this Title, there shall be
allowed a basic personal exemption as follows:

For single individual or married
individual judicially decreed as legally separated with no qualified dependents
            –          P 6,000

For head of a family                                –          P 7,500

For married individual                              –          P12,000

Provided, That husband and wife
electing to compute their income tax separately shall be entitled to a personal
exemption of P6,000 each.

For purposes of this paragraph, the
term ‘Head of Family’ means an unmarried or legally separated man or woman with
one or both parents, or with one or more brothers or sisters, or with one or
more legitimate, recognized natural or legally adopted children living with and
dependent upon him for their chief support, where such brothers or sisters or
children are not more than twenty-one (21) years of age, unmarried and not
gainfully employed or where such children, brothers or sisters, regardless of
age are incapable of self-support because of mental or physical defect.

(2) Additional exemption

(A) Taxpayers
with dependents. – A married indivi­dual or a head of family shall be allowed
an additional exemption of Three thousand pesos (P3,000) for each
dependent: Provided, That the total
number of dependents for which additional exemptions may be claimed shall not
exceed four dependents: Provided,
further, That an additional exemption of One thousand pesos (P1,000) shall be
allowed for each child who otherwise qualified as dependent prior to January 1,
1980: and Provided, finally, That the
additional exemption for dependents shall be claimed by only one of the spouses
in the case of married individuals electing to compute their income tax
liabilities separately.

In case of legally separated
spouses, additional exemptions may be claimed only by the spouse who was
awarded custody of the child or children: Provided, That the total amount of additional exemptions that may be
claimed by both shall not exceed the maximum additional exemptions herein
allowed:

For purposes of this paragraph, a
dependent means a legitimate, recognized natural or legally adopted child
chiefly dependent upon and living with the taxpayer if such dependent is not
more than twenty-one (21) years of age, unmarried and not gainfully employed or
if such dependent, regardless of age, is incapable of self-support because of
mental or physical defect.

200

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200

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