The government has embraced the slogan “Tuwid na Daan” to manifest its core program of transparency and its fight against corruption in government. Various government agencies have done their part through programs intended to reflect a “Tuwid na Daan” approach to governance.
The Bureau of Internal Revenue (BIR), for its part, has been taking an aggressive approach to achieve its target collection of at least P1 trillion, focusing more on large taxpayers, which represent 60% of the BIR’s total revenue. In pursuit thereof, the BIR embarked on several programs to accelerate collection of taxes and discourage tax evasion through its controversial “shame campaign.”
One way to accelerate collection is to fast-track tax assessments and audits as provided under Revenue Regulations No. (RR) 18-2013, which effectively removed the informal conference between the BIR and the taxpayer. RR 18-2013 also requires the taxpayer to file a reply to the preliminary assessment notice (PAN) within 15 days from receipt thereof to avoid being in default or considered to have failed to reply within the prescribed period. Likewise, the BIR case officer must issue the final assessment notice (FAN) within 15 days from filing of the reply to the PAN.
In the real world, settling tax assessments requires reconciling, reviewing and exhausting all pertinent documents subject of the tax assessment as well as several meetings between the BIR and the taxpayer to explain and discuss the details of each assessed amount. This process generally takes months and even years before it is administratively settled and sometimes, the three-year prescriptive period to assess kicks in to the detriment of the BIR.
At the start of a tax assessment, the taxpayer will receive a BIR letter of authority (LOA) with an attached request letter to submit required documents, stating the names of the BIR case officers who will directly evaluate the taxpayer’s documents.
In the context of RR 18-2013, let us suppose the taxpayer has already complied with the documentary requirements set forth by the LOA on or before the deadline set by the BIR. Under such a scenario, no further correspondence between the BIR and the taxpayer will ensue, until the issuance of the PAN.
Several taxpayers get the shock of their lives when they receive the PAN/FAN assessing them millions or billions of pesos in alleged tax deficiencies. What is excruciating is the fact that it is incumbent upon the taxpayer to prove otherwise the allegations of the BIR within a limited period of time.
Further, there are instances where assessments are merely based on alleged discrepancies in numbers from one report to another -- i.e., third party information against taxpayer’s income tax return -- without considering the nature of the transactions and the nature of the business of the taxpayer or the industry practice.
The requirement on the part of the BIR to state the “factual and legal basis” of the assessment is easily complied with by simply stating the applicable provision in the Tax Code. On the part of the taxpayer, mere statement of the applicable provision of the Tax Code is insufficient. One must explain the nature of the transaction with supporting documents.
Most of the time, the documents to be submitted in reply to the PAN or protesting the FAN are also the documents that are supposedly already in possession of the BIR since the BIR has the power “to obtain on a regular basis from any person or government agency any information” in relation to the assessment under Section 5 of the Tax Code.
Furthermore, in several instances, the FAN is a mere restatement of the PAN. This, in effect, defeats the purpose of the PAN. The taxpayer will only know t he response of the BIR in its reply to the PAN and protest to the FAN upon the issuance of the final decision on disputed assessment (FDDA) months later.
However, it must be emphasized that the FDDA is the final denial of the administrative protest. No further discussion to cancel certain amounts in the assessment will be allowed thereafter. The taxpayer’s next available remedy is to file an appeal before the Court of Tax Appeals (CTA). Should the taxpayer fail to appeal before the CTA, the FDDA will become final and executory, and will now be subject for collection.
Pending the settlement of the assessment administratively or before the CTA, the interest, surcharges and penalties of the alleged deficiencies are running against the taxpayer, which, after four years, may be equal to the amount of the alleged deficiency tax. On the other hand, the BIR has more time to evaluate tax assessments and can even delay the running of prescription to assess through a valid waiver, without any interest, surcharges and penalties running against the BIR. To be fair to the taxpayer, who in good faith, complied with all the requirements of the BIR, perhaps it is time that interests, surcharges and penalties should also run against the BIR for any delays, which include periods when cases are pending before the Courts.
From a business perspective, tax assessments are akin to additional expenses that may result in actual losses and sometimes, closure of business. Expenses may include costs of tax professional services, legal fees, compensation of employees and other related expenses. In fact, some taxpayers have had to hire additional employees just to focus on tax assessments.
Even if the taxpayer wins the case against the BIR before the Courts, or even if its application for compromise or abatement have been granted by the BIR, the expenses for these procedures have already accrued.
In a news article, the Commissioner of the BIR was quoted as saying that the agency’s program for 2015 is to instill patriotism among Filipinos, and that paying the correct taxes is part of nation-building and uplifting the lives of our countrymen.
What is missing from such a statement is the importance of investment in the Philippines, which I believe, works hand in hand with paying the correct taxes in pursuit of nation-building and uplifting the lives of the Filipinos.
Not only do businesses and foreign investors contribute to the stability of our economy, they also provide job opportunities for our countrymen. It is through these businesses that the workers they employ obtain the means to provide for their families and send their children to schools.
So why kill (or unduly burden) the goose that lays the golden egg while walking the tuwid na daan?
In this regard, an efficient and effective procedure for assessments should be implemented, including opening the door again for discussions between case officers and taxpayers but should also be given a specific period, say six months, to reach FDDA. With the new database system that the BIR is implementing focusing on the progress of all assessments nationwide, internal review can be easily performed by the Commissioner.
On the other hand, taxpayers should keep appropriate accounts and tax records for at least 10 years, as required by BIR regulations. Further, effective tax planning with review of tax compliance is always a good idea.
source: Punongbayan & Araullo
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