Tax amnesty: forgive and forget… but fulfill by Wilfredo U. Villanueva (September 21, 2009)

The merits of a tax amnesty deserve a second look by both tax authorities and taxpayers.
The famous quote – In this world nothing can be said to be certain, except death and taxes – is attributed to American Statesman Benjamin Franklin.

If he were alive today, Mr. Franklin will most likely be a member of, or adviser to, the C-Suite for he clearly understood the dynamics and necessity of fiscal policy, particularly taxation.

Taxes affect almost all entities and individuals. It is a reality that some people tend to eschew but must inevitably confront.

Serious repercussions await delinquent taxpayers and that is why tax amnesties provide relief and opportunity for them to mend their ways. The essence of tax amnesty is that the government pardons, under certain conditions, the tax violations of erring taxpayers. This is a way to promote and enhance revenue administration and collection.

The last tax amnesty in the Philippines was offered through Republic Act (RA) No. 9480, which lapsed into law on May 24, 2007. This law authorized a tax amnesty covering all national internal revenue taxes for taxable year 2005 and prior years.

However, RA 9480 excluded from its coverage (1) withholding agents with respect to their withholding tax liabilities and (2) tax cases subject to final and executory judgment by the courts, among others.

Taxpayers who availed of the amnesty under RA 9480 and fully complied with all its conditions are entitled to certain immunities and privileges. These include immunity from the payment of taxes and statutory increments, and the related civil, criminal or administrative penalties under the Tax Code for the covered years.

However, it was not smooth sailing for some taxpayers who availed themselves of the amnesty, hoping to enjoy its associated legal benefits. This is especially true for those who were affected, and perhaps, even discouraged to apply when the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 19-2008 which excluded the following from the scope of the amnesty:

• issues and cases which were ruled by any court (even without finality) in favor of the BIR prior to the amnesty availment of the taxpayer;
• cases involving issues ruled with finality by the Supreme Court (SC) prior to the effectivity of RA 9480;
• taxes passed on and collected from customers for remittance to the BIR; and
• delinquent accounts/accounts receivable considered as assets of the BIR/Government, including self-assessed taxes.

These exclusions were not specifically mentioned in RA 9480’s list of disqualified cases.

As expected, the propriety of the BIR’s issuance was challenged. The premise is that administrative rules and regulations must not override, and must remain consistent and in harmony with, the law they seek to implement.

By and large, the Supreme Court (SC) and the Court of Tax Appeals (CTA) have already spoken about the invalidity of some of these exclusions.

In Philippine Banking Corporation vs Commissioner of Internal Revenue, Jan. 30, the SC ruled that excluding issues and cases which were ruled by any court (even without finality) in favor of the BIR prior to amnesty availment of the taxpayer from the amnesty was misplaced.

The High Court held that the concerned taxpayer is qualified for tax amnesty because its case was not yet final and executory when it availed of the tax amnesty.

Although still subject to the SC’s review on appeal, the CTA also decided in Commissioner of Internal Revenue vs Pilmico Foods Corporation, March 31, that the exclusion of delinquent accounts/accounts receivable considered as assets of the BIR/Government, including self-assessed tax from the coverage of RA 9480 does not have the force and effect of law. The Tax Court anchored its conclusion on the fact that RA 9480 does not include such instance as one of the exceptions.

Moreover, even the exclusion of cases involving issues ruled with finality by the SC prior to the effectivity of RA 9480 is questionable, as implied in Metropolitan Bank and Trust Co. vs Commissioner of Internal Revenue, Aug. 4.

In the Metrobank case, the SC upheld the liability for documentary stamp tax (DST) of Metrobank’s special savings account since it is in the nature of a certificate of deposit drawing interest, which conforms to the SC’s decisions in previous similar cases.

Despite the BIR’s objections, the SC still canceled Metrobank’s deficiency DST assessment solely because of its tax amnesty availment.

The ruling of the SC in the Metrobank case cogently affirms what the CTA has been doing in recent months. Although the CTA appeared to have hesitated in earlier cases, it eventually canceled the tax assessments because of the taxpayers’ valid tax amnesty availment.

The BIR can take its cue from this and consider it as a mandate to formally cancel the deficiency tax assessments of concerned taxpayers who have complied with the tax amnesty’s requirements.
More than a year has passed since the tax amnesty program under RA 9480 officially ended. However, stakeholders – Congress, tax authorities, and taxpayers – should take a second look at the results of the program.

The information gathered from a post-implementation analysis of the program will help stakeholders measure its success. The results can also suggest whether it will be wise to continue with RA 9480’s declaration of a moratorium on any further grant of tax amnesty, or if there is substantial merit in offering it again, perhaps not soon, but at an appropriate time in the foreseeable future.

If tax amnesty actually fosters the desired improvement in revenue administration and collection, then making it available can be considered sound policy.

However, an amnesty should be what it is supposed to be: it forgives, forgets, and consequently fulfills its desired end of strengthening tax enforcement, as well as giving erring entities another chance to reform and become more responsible taxpayers.

To be truly effective, the program should really encourage transparency, be very clear on its terms so as not to be susceptible to various interpretations, and implemented in a manner that will avoid unnecessary litigation between the taxpayer and the government.
Wilfredo U. Villanueva is a Tax Principal of SGV & Co.

This article was originally published in the BusinessWorld newspaper. It is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.