COURAGE v. CIR 3.

Mandamus does not lie against respondents

FACTS: CIR issued the assailed RMO No. 23-2014, in because the NIRC of 1997, as amended,
furtherance of RMC No. 23-2012 on the "Reiteration does not impose a mandatory duty upon
of the Responsibilities of the Officials and Employees them to increase the tax- exempt ceiling for
of Government Offices for the Withholding of 13th month pay and other benefits.
Applicable Taxes on Certain Income Payments and
the Imposition of Penalties for Non-Compliance ISSUE:
Thereof," in order to clarify and consolidate the W/N RMO No. 23-2014 is ultra vires for subjecting to
responsibilities of the public sector to withhold taxes withholding taxes non-taxable allowances, bonuses
on its transactions as a customer (on its purchases of and benefits received by government employees
goods and services) and as an employer (on
compensation paid to its officials and employees) RULING:
under the NIRC or Tax Code of 1997, as amended,
and other special laws.
Sections III and IV of RMO No. 23-2014 are valid.
Compensation income is the income of the individual
Summary of petitioners and intervenors’ taxpayer arising from services rendered pursuant to
arguments: an employer-employee relationship. Under the NIRC
1. RMO No. 23-2014 is ultra vires insofar as: of 1997, as amended, every form of compensation
i. Sections III and IV of RMO for services, whether paid in cash or in kind, is
No. 23-2014, for generally subject to income tax and consequently to
subjecting to withholding withholding tax. The name designated to the
taxes non-taxable compensation income received by an employee is
allowances, bonuses and immaterial. Thus, salaries, wages, emoluments and
benefits received by honoraria, allowances, commissions, fees, (including
government employees; director's fees, if the director is, at the same time, an
ii. Sections VI and VII, for employee of the employer/ corporation), bonuses,
defining new offenses and fringe benefits (except those subject to the fringe
prescribing penalties benefits tax under Section 33 of the Tax Code),
therefor, particularly upon pensions, retirement pay, and other income of a
government officials; similar nature, constitute compensation income
2. RMO No. 23-2014 violates the equal that are taxable and subject to withholding.
protection clause as it discriminates against
government employees; The withholding tax system was devised for three
3. RMO No. 23-2014 violates fiscal autonomy primary reasons, namely:
enjoyed by government agencies; (1) to provide the taxpayer a convenient manner to
4. The implementation of RMO No. 23-2014 meet his probable income tax liability;
results in diminution of benefits of (2) to ensure the collection of income tax which can
government employees, a violation of otherwise be lost or substantially reduced through
Article 100 of the Labor Code; and failure to file the corresponding returns; and
5. Respondents may be compelled through a (3) to improve the government's cash flow. This
writ of mandamus to increase the tax- results in administrative savings, prompt and
exempt ceiling for 13th month pay and efficient collection of taxes, prevention of
other benefits. delinquencies and reduction of governmental effort
to collect taxes through more complicated means
Respondents: and remedies.
1. The instant consolidated petitions are
barred by the doctrine of hierarchy of The law is therefore clear that withholding tax on
courts; compensation applies to the Government of the
2. The CIR did not abuse its discretion in the Philippines, including its agencies, instrumentalities,
issuance of RMO No. 23-2014 because: and political subdivisions. The Government, as an
a. It was issued pursuant to the CIR's employer, is constituted as the withholding agent,
power to interpret the NIRC of 1997, as mandated to deduct, withhold and remit the
amended, and other tax laws, under corresponding tax on compensation income paid to
Section 4 of the NIRC of 1997, as all its employees.
amended;
a. RMO No. 23-2014 does not However, not all income payments to employees are
discriminate against government subject to withholding tax. The following allowances,
employees. It does not create a new bonuses or benefits, excluded by the NIRC of 1997,
category of taxable income nor make as amended, from the employee's compensation
taxable those which are exempt; income, are exempt from withholding tax on
b. RMO No. 23-2014 does not result in compensation:
diminution of benefits; 1. Retirement benefits received under RA No.
c. The allowances, bonuses or benefits 7641 and those received by officials and
listed under Section III of the assailed employees of private firms, whether
RMO are not fringe benefits; individual or corporate, under a reasonable
d. The fiscal autonomy granted by the private benefit plan maintained by the
Constitution does not include tax employer subject to the requirements
exemption; and provided by the Code [Section 32(B)(6)(a) of
 the NIRC of 1997, as amended and Section 13. Actual, moral, exemplary and nominal
2.78.1(B)(1)(a) of RR No. 2-98]; damages received by an employee or his
2. Any amount received by an official or heirs pursuant to a final judgment or
employee or by his heirs from the employer compromise agreement arising out of or
due to death, sickness or other physical related to an employer-employee
disability or for any cause beyond the relationship [Section 32(B)(4) of the NIRC of
control of the said official or employee, 1997, as amended and Section 2.78.1 (B)(6)
such as retrenchment, redundancy, or of RR No. 2-98];
cessation of business [Section 32(B)(6)(b) of 14. The proceeds of life insurance policies paid
the NIRC of 1997, as amended and Section to the heirs or beneficiaries upon the death
2.78.1(B)(1)(b) of RR No. 2-98]; of the insured, whether in a single sum or
Social security benefits, retirement otherwise, provided however, that interest
gratuities, pensions and other similar payments agreed under the policy for the
benefits received by residents or non- amounts which are held by the insured
resident citizens of the Philippines or aliens under such an agreement shall be included
who come to reside permanently in the in the gross income [Section 32(B)(1) of the
Philippines from foreign government NIRC of 1997, as amended and Section
agencies and other institutions private or 2.78.1 (B)(7) of RR No. 2-98];
public [Section 32(B)(6)(c) of the NIRC of 15. The amount received by the insured, as a
1997, as amended and Section 2.78.1(B)(1) return of premium or premiums paid by him
(c) of RR No. 2-98]; under life insurance, endowment, or
3. Payments of benefits due or to become due annuity contracts either during the term or
to any person residing in the Philippines at the maturity of the term mentioned in
under the law of the United States the contract or upon surrender of the
administered by the United States Veterans contract [Section 32(8)(2) of the NIRC of
Administration [Section 32(B)(6)(d) of the 1997, as amended and Section 2.78.1(B)(8)
NIRC of 1997, as amended and Section of RR No. 2-98];
2.78.1(B)(1)(d) of RR No. 2-98]; 16. Amounts received through Accident or
4. Payments of benefits made under the Social Health Insurance or under Workmen's
Security System Act of 1954 as amended Compensation Acts, as compensation for
[Section 32(B)(6)(e) of the NIRC of 1997, as personal injuries or sickness, plus the
amended and Section 2.78.1(B)(1)(e) of RR amount of any damages received whether
No. 2-98]; by suit or agreement on account of such
5. Benefits received from the GSIS Act of 1937, injuries or sickness [Section 32(8)(4) of the
as amended, and the retirement gratuity NIRC of 1997, as amended and Section
received by government officials and 2.78.1(8)(9) of RR No. 2-98];
employees [Section 32(B)(6)(f) of the NIRC 17. Income of any kind to the extent required
of 1997, as amended and Section 2.78.1(B) by any treaty obligation binding upon the
(1)(f) of RR No.2- 98]; Government of the Philippines [Section
6. Thirteenth (13th) month pay and other 32(8)(5) of the NIRC of 1997, as amended
benefits received by officials and employees and Section 2.78.1(B)(10) of RR No. 2-98];
of public and private entities not exceeding 18. Fringe and De minimis Benefits. [Section
P82,000.00 [Section 32(B)(7)(e) of the NIRC 33(C) of the NIRC of 1997, as amended);
of 1997, as amended, and Section 2.78.1(8) and
(11) of RR No. 2-98, as amended by RR No. 19. Other income received by employees which
03-15]; are exempt under special laws (RATA
7. GSIS, SSS, Medicare and Pag-Ibig granted to public officers and employees
contributions, and union dues of individual under the General Appropriations Act and
employees [Section 32(B)(7)(f) of the NIRC Personnel Economic Relief Allowance
of 1997, as amended and Section 2.78.1(8) granted to government personnel).
(12) of RR No. 2-98];
8. Remuneration paid for agricultural labor
[Section 2.78.1 (B)(2) of RR No. 2-98];  Sections III and IV of RMO No. 23-2014
9. Remuneration for domestic services
[Section 28, RA No. 10361 and Section Clearly, Sections III and IV of the assailed RMO do not
2.78.1 (B)(3) of RR No. 2-98]; charge any new or additional tax. On the contrary, they
10. Remuneration for casual labor not in the merely mirror the relevant provisions of the NIRC of
course of an employer's trade or business 1997, as amended, and its implementing rules on the
[Section 2.78.1(8)(4) of RR No. 2-98]; withholding tax on compensation income. The assailed
11. Remuneration not more than the statutory Sections simply reinforce the rule that every form of
minimum wage and the holiday pay, compensation for personal services received by all
overtime pay, night shift differential pay employees arising from employer- employee
and hazard pay received by Minimum Wage relationship is deemed subject to income tax and,
Earners [Section 24(A)(2) of the NIRC of consequently, to withholding tax, unless specifically
1997, as amended]; exempted or excluded by the Tax Code; and the duty
12. Compensation for services by a citizen or of the Government, as an employer, to withhold and
resident of the Philippines for a foreign remit the correct amount of withholding taxes due
government or an international thereon.
organization [Section 2.78.1(8)(5) of RR No.
2-98];
While Section III enumerates certain allowances which the Governor, City Mayor, Municipal Mayor,
may be subject to withholding tax, it does not exclude Barangay Captain, and Heads of Office in
the possibility that these allowances may fall under the government agencies, government- owned or
exemptions identified under Section IV – thus, the -controlled corporations, and other government
phrase, "subject to the exemptions enumerated offices, as persons required to withhold and remit
herein." In other words, Sections III and IV articulate in withholding taxes.
a general and broad language the provisions of the Sections III, IV and VII of RMO No. 23-2014 are
NIRC of 1997, as amended, on the forms of DECLARED valid inasmuch as they merely mirror the
compensation income deemed subject to withholding provisions of the National Internal Revenue Code of
tax and the allowances, bonuses and benefits 1997, as amended. However, the Court cannot rule
exempted therefrom. Thus, Sections III and IV cannot on petitioners' claims of exemption from
be said to have been issued by the CIR with grave withholding tax on compensation income because
abuse of discretion as these are fully in accordance these involve issues that are essentially factual or
with the provisions of the NIRC of 1997, as amended, evidentiary in nature, which must be raised in the
and its implementing rules. appropriate administrative and/or judicial
proceeding.
 Section VII of RMO No. 23-2014 is valid; The Court's Decision upholding the validity of
Sections III and IV of the assailed RMO is to be
Verily, tested against the provisions of the NIRC of applied only prospectively.
1997, as amended, Section VII of RMO No. 23-2014 Finally, the Petition for Mandamus in G.R. No.
does not define a crime and prescribe a penalty 213446 is hereby DENIED on the ground of
therefor. Section VII simply mirrors the relevant mootness.
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.

 Section VI contravenes, in part, the

provisions of the NIRC of 1997, as
amended, and its implementing rules.

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.

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.

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.

Dispositive Portion:
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