Giving taxpayers their due

“TAXES ARE the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.” -- Justice Isagani Cruz, Commissioner of Internal Revenue v. Algue

The collection of taxes is an imperious need. The actions of the Bureau of Internal Revenue (BIR) in recent years seem to take this tenet to heart. Its most recent regulation on the due process requirements in the issuance of a deficiency tax assessment (Revenue Regulation/“RR” 18-13) is no exception.

This new issuance shortens the BIR’s deficiency tax assessment process by introducing two changes. First, the BIR will no longer conduct informal conferences before issuing a Preliminary Assessment Notice (PAN). Second, the BIR will now issue a Final Assessment Notice (FAN) within 15 days from receiving the taxpayer’s reply to the PAN. These seemingly procedural changes are not benign. They erode our rights as taxpayers.

Before RR 18-13, several communications with the taxpayer were required before a PAN could be issued. First, the revenue officer who made the audit was required to discuss his findings of deficiency taxes with the taxpayer and to ask him if he agreed or not. Second, if the taxpayer disagreed, he would be informed in writing of the discrepancies in his tax payments. Third, the taxpayer would be invited to an informal conference to give him an opportunity to present his side. The Supreme Court and the Court of Tax Appeals recognized these steps as guarantees of due process that must be strictly complied with. And they did guarantee due process, at least until RR 18-13.

Now, with the new rule, the taxpayer’s first opportunity to be heard will be when he replies to the PAN. This reply is based on Section 228 of our tax code. It states that the PAN must require the taxpayer to reply. It is only when the taxpayer does not reply that a FAN is issued as a matter of due course. Unfortunately, the new rule may render illusory this statutory remedy.

This is because RR 18-13 seems to imply that the BIR will issue a FAN as a matter of due course within 15 days from receiving the taxpayer’s reply to the PAN. Even if we are to give the BIR the benefit of the doubt, 15 days will not be enough time to evaluate the correctness of the assessment in complicated tax cases -- especially when one no longer has the benefit of an informal conference to thresh out issues that can be easily resolved. Not to mention that the BIR will be handling several tax assessments within those 15 days. Under RR 18-13, it is only when the taxpayer files his protest of the FAN that the BIR will be in a position to seriously consider his objections to the assessment with the attention he deserves.

Perhaps to temper the effects of these two changes, RR 18-13 finally institutionalized the long-standing option of elevating a protest to the BIR Commissioner from an adverse decision of her duly authorized representative. There is now an official added layer of administrative review before recourse to the courts. But this too may be illusory, as there are instances when the Commissioner herself issues a FAN in lieu of her authorized representatives. In that case, the taxpayer will suffer the adverse effects of RR 18-13 without the benefit of the additional layer of administrative review.

Truly, taxes are an imperious need and are indispensable. Nevertheless, democratic societies must impose taxes reasonably and in accordance with the prescribed procedure. No person should be deprived of his property without due process of law. In an administrative process where the BIR is the judge, jury, and executioner, can it not give the taxpayer every opportunity to be heard? After all, isn’t that the essence of due process?

(The author is an Associate of the Angara Abello Concepcion Regala & Cruz Law Offices. He can be contacted at 830-000 and rjredoble@accralaw.com. The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes only and not offered as and does not constitute legal advice or legal opinion).

source:  Businessworld