Second of Four Parts
MANY PUBLIC officials like to say that accepting a government post is like taking a vow of poverty, given the supposedly paltry pay in government service.
What officials neglect to say, however, is that aside from their basic pay, many of them receive all sorts of allowances, bonuses, and other benefits that can jack up their income by as much as 300 percent.
This seems to be the case with the justices of the Supreme Court, all of whom are receiving millions of pesos more in allowances and other monetary perks on top of their basic annual pay.
But the justices may be enjoying another privilege not accorded other public officials. Says one Cabinet member who declines to be named: “Taxes and allowances are rather skewed in favor of the courts, the justices. It’s a double-standard system in their favor.”
“If we are to apply to the court the same rules on taxation that are being observed in other government agencies,” he adds, “we might collect more taxes and support more reforms in the court.”
He hints that other public officials have not exactly been pleased with the arrangement and in fact covet the same privilege. Many officials have been grumbling about the 30-percent tax on their bonuses and allowances, says the Cabinet member, and now, “officials in some government agencies have invoked that practice – the withholding tax is not even applied to the allowances of the justices.”
This runs contrary to the National Internal Revenue Code of the Philippines (The Tax Reform Act of 1997 or Republic Act No. 8424), which requires the withholding agent/payor “who is either an individual or non-individual required to deduct and withhold taxes on both the “compensation paid to employees” and “income payments subject to final withholding taxes.”
The Code clarifies that “compensation” refers to “any remuneration received for services performed by an employee from his employer under an employee-employer relationship.”
It also states that “gross income” includes, but is not limited to the following: Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar item; gross income derived from the conduct of trade or business or the exercise of profession; gains derived from dealings in property; interest; rents; royalties; dividends; annuities; prizes and winnings; pensions; partner's distributive share from the net income of the general professional partnerships.
According to some Supreme Court justices, though, they have been paying appropriate taxes, including those on their allowances.
Did they pay taxes?
With the exception of newly appointed Associate Justice Mario Victor F. Leonen, all sitting justices of the Supreme Court were asked by PCIJ if they paid the taxes due on their allowances and other monetary benefits, among other things.
Of the seven who replied to PCIJ’s queries, only five addressed the question on their allowances and the taxes due on these. Two also suggested that PCIJ address such queries to the Supreme Court’s payroll office. All five, however, apparently assumed that the high court’s finance office had done “substituted filing” of their tax returns through what have been called ‘alpha lists.’
Associate Justice Teresita Leonardo-de Castro, who was the sole magistrate to reply with a list of the kinds of allowances and bonuses she receives aside from her basic pay, said, “Taxes are withheld and paid for the taxable income.”
Associate Justice Presbitero C. Velasco Jr., whose allowances, bonuses, and other benefits reach more than P3.5 million according to the Commission on Audit (COA), also wrote in his reply to PCIJ, “Taxes on allowances and compensation are withheld at source as prescribed by law.”
Ask SC finance
Associate Justice Diosdado M. Peralta, whose declared income was the only one among the justices that overshot the figure COA said he earned in 2011, echoed this, saying, “Taxes were withheld from our income. Moreover, the B.I.R. ITRs (Bureau of Internal Revenue income tax returns) bear that we even paid additional taxes aside from those withheld. This only shows that income from other sources was taxed.”
Associate Justice Martin Villarama Jr., who visited the PCIJ office to deliver his reply letter, meanwhile wrote, “I stand by my declaration of P2,992,298.02 annual salary as Associate Justice of the Supreme Court for the year 2011.”
“However,” he said, “I would not know with specificity the breakdown for salary, allowances, etc. and the taxes I have paid for these. You may consult the Chief Accountant and/or other appropriate Supreme Court officials regarding this matter.”
Finally, Associate Justice Mariano del Castillo, who was abroad at the time but emailed through a staff his reply, wrote: “As a government employee taxed on pure compensation income, my employer, the Supreme Court, withholds all required taxes on my income.”
“This issue,” Del Castillo said, “should therefore be more properly addressed to the administrative authorities of the Supreme Court as the withholding agent of taxes due on our income.”
Taxed, not taxed
A tax lawyer interviewed by the PCIJ says that under BIR regulations, “substituted filing” must comply with three conditions: the filer has only one employer as his only source of income; the amount withheld is correct; and if not correct, the taxpayer must file his or her own income tax return.
For public officials, the tax lawyer says that “there’s only one provision: that allowances should be only 50 percent equivalent of your basic salary to be exempted from tax. Anything beyond that is not exempted.”xx`
As for bonuses, P30,000 is the maximum amount that could be exempted from tax per person, and beyond that, taxes kick in, the lawyer says.
Fringe benefits, meanwhile, must also be taxed and the question only is whether the employer or the employee will carry the cost.
The taxpayer, according to the tax lawyer, must declare the composite amount of all that he or she had received as compensation. “You have to add everything, and if the proper withholding tax was not deducted, you have to pay.”
As for extraordinary and miscellaneous expenses or EME and other discretionary funds that the COA report showed had been set aside for the justices, the full amount must be liquidated and supported by receipts, the lawyer says. “It should not be included as personal compensation because it is intended for office use,” says the expert. “If it’s not liquidated, then that’s malversation.”
One problem facing the justices of the Supreme Court is that while they seem to assume the Court’s financial office had transmitted the necessary taxes to the BIR, documents submitted by the high court’s finance personnel to the Senate during the impeachment trial of Corona indicate otherwise.
In fact, the documents point to the probability that over the years, the appropriate taxes on the justices’ allowances and other compensation may not have been withheld and remitted to the BIR.
PCIJ secured from the Senate copies of these documents that had been marked in exhibit for both the defense and prosecution panels.
Corona’s defense lawyers had summoned the court’s payroll officer, Araceli C. Bayuga, to testify at the impeachment trial in March 2012, apparently to show proof that in part because of his salaries and fat allowances, Corona could well afford to purchase expensive real estate properties.
Yet instead of proving that Corona had the financial wherewithal to acquire a massive, pricey estate, the documents only called attention to the apparent tax liabilities that Corona had incurred because of the court’s failure to remit the appropriate taxes on his fat allowances and bonuses.
Cash and checks
A high court employee since 1973, Bayuga said that she is the custodian of all monies, cash items, and official receipts of the court.
Too, she said that she “signs and encashes checks of cash advances for salaries, allowances, and other benefits of the court employees, including the honorable justices”; “supervises the counting and distribution of salaries, allowances, and other emoluments” of the court employees and justices; and signs and submits to the BIR the annual return of income tax withheld on compensation and the alphabetical list of court employees and officials “from whom taxes are withheld.”
Her report on Corona’s compensation while he was in the Supreme Court and the taxes paid on these on his behalf could therefore only be reflective of how similar matters were handled for the other justices.
In the yearend report or alphabetical list (alpha list) of gross compensation received by the high court’s employees that she submitted to the BIR for the year 2005, Bayuga listed the “taxable” salaries and other (emoluments)” of Corona at only P466,347, and his “taxable” total “bonus/benefits,” P15,425.
Allowed, not allowed
The high court’s alpha list for 2005 Bayuga gave the Senate showed that Corona was not taxed, as revenue rules allow, for the following: P30,000 in bonus/benefits, P18,753 contributions to the GSIS (Government Service Insurance System), Philhealth (Philippine Health Corp.) and HDMF (Home Development Mutual Fund), and P32,000 in personal exemption.
After these exemptions and lawful deductions, Bayuga’s alpha list showed that the high court remitted only P109,931.60 in taxes withheld from Corona for 2005.
Saying she prepared the alpha list herself, Bayuga certified that Corona’s taxable “gross compensation income” for the year was only P466,347.00, and P15,425 in “bonus/benefits.”
Bayuga’s report to the Senate was signed and authorized by Corazon G. Ferrer-Flores, deputy clerk of court and chief of the Fiscal Management and Budget Office of the Supreme Court.
Two months earlier on Jan. 25, 2012, BIR Commissioner Kim Jacinto-Henares had testified before the Senate impeachment.
In 2002 and 2003, Henares said the high court did not submit alpha lists to the BIR, and neither did Corona file an income tax return. Corona still did not file his return in 2004 and 2005.
From 2006 to 2010, Henares, reading from BIR documents, disclosed that the Supreme Court has been withholding only small sums of taxes and reporting only small sums of gross compensation income, on Corona’s behalf:
- In 2006, Corona’s withholding tax was only P109,706.60, based on reported “gross compensation” of only P465,597.
- In 2007, withholding tax of P117,399.31, reported gross income of only P488,156.57.
- In 2008, withholding tax of P154,057.75, gross income of only P621,528.62.
- In 2009, withholding tax of P155,556.20, gross income of only P621,528.62.
- In 2010, withholding tax of P176,577.32, on gross income of only P657,755.57.
True, full details
Yet in another document dated March 8, 2012 that she also furnished the Senate, Bayuga reported on all the salaries, emoluments, and allowances that Corona had received from April 9, 2002 to Dec. 31, 2011. In this, Bayuga revealed a more complete story.
She certified to the Senate that Corona had received four times more money, or P1,841,943.79 in 2005, with salaries, emoluments, allowances, fringe benefits, bonuses, etc. all thrown in.
In the same report to the Senate, Bayuga listed Corona as having received in 2005 “salaries” of only P485,100.00 – or almost the same amount she reported to the BIR was Corona’s taxable “gross compensation income” for the year.
But then again, Bayuga testified that on top of these “salaries,” Corona also received in 2005 a slew of allowances, bonuses, fringe benefits, etc. amounting to P1.36 million, which was apparently not taxed.
This bigger balance of Corona’s income was not disclosed in Bayuga’s alpha list to the BIR for 2005.
Undisclosed, not taxed
Bayuga’s report to the Senate revealed an apparent pattern of the high court’s payroll personnel to underdeclare Corona’s gross income, and as a consequence, let him pay much smaller withholding tax.
She informed the Senate that in 2011, Corona’s total salaries and allowances had further risen to twice more, or P3,678,435.70.
Last Aug. 30, three months after he was fired and barred from holding public office again on a 20-3 vote of the senators sitting as impeachment court, Corona found himself facing the taxman.
The BIR filed a P120.5-million tax evasion case against Corona, inclusive of surcharges and interests. BIR said Corona failed to file income tax returns or supplied inaccurate tax information in 2003, 2005, 2007, 2008, and 2010, in violation of revenue regulations.
After assessing the value of his peso bank accounts and property titles against his declared net worth in his SALNs from 2002 to 2009, BIR found that Corona had also “under-reported assets, under-declared assets, and unreported cash.”
Section 254 of the National Internal Revenue Code of 1997 penalizes avoidance of payment of tax liabilities, while Section 255 penalizes failure to file income tax returns and provide correct and accurate tax information.
Corona had thrice requested more time to prepare his counter-affidavit to the 323-page BIR complaint. When he finally filed it on Oct. 15 through lawyer Anacleto Diaz, who is also a lawyer of former President Gloria Macapagal-Arroyo, Corona said the case was proof positive of his continuing “political persecution” by the Aquino administration.
The Department of Justice has summoned Corona to personally attend a hearing on the case on Dec. 18, and respond to the BIR’s 34-page rejoinder to his motion to quash the case. – PCIJ, December 2012