Business Mirror

Atty. Irwin Nidea Jr. discusses the interplay between the power of the Commissioner of Internal Revenue to issue collection orders and the ability of the Court of Tax Appeals to intercept the ripples created by premature tax collection...

Ripples of Premature Tax Collection

By Atty. Irwin C. Nidea Jr.

The law creating the Court of Tax Appeals (“CTA”) provides that no appeal taken to the CTA from the decision of the Commissioner of Internal Revenue (“CIR”) shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however, That when in the opinion of the CTA the collection by the CIR may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.

There are three important items that must be considered here: 1. No appeal taken to the CTA from the decision of the CIR shall suspend the payment of tax; 2. Only the CTA can stop the CIR from enforcing collection at any stage of the proceedings before the court; 3. What will be satisfied by the payment of tax is a liability as provided by existing law.

In the first item, it would appear that the CIR has an immense power that nobody can stop. If the taxpayer’s protest is denied and the CIR issues a Final Decision on Disputed Assessment (“FDDA”), the amount of tax liability as found in the FDDA is already demandable. Even an appeal to the CTA cannot stop the CIR from enforcing collection.

This power, however, is tamed by the second item. The CTA can order the suspension of the payment of tax. It is only at the CTA where taxpayers can seek redress. The Metropolitan Trial Court, Regional Trial Court and even the Court of Appeals are not blessed with this power. To avail of this remedy, taxpayers must file a motion for suspension of collection tax before the CTA. A hearing is usually set to hear the motion where taxpayers must convince the court that irreparable damage looms if the BIR is allowed to collect. In the event that the CTA orders the suspension of tax, it can also order the taxpayer to pay a bond that is not more than double the amount of the alleged tax due. But the bond may be waived if certain conditions are met.

Unfortunately, the interplay between these first two items, which are supposed to check and balance the rights of the government and the taxpayers, tilt in favor of the former. I observe that recently, the CIR is not exercising restraint in enforcing collection. Even if an assessment is still disputed or appealed at the CTA and there is already a pending motion for suspension of collection of tax, warrants of garnishment are still being issued and worse, banks are ordered to transfer the money to the national treasury. When this happens, the motion for suspension of collection of tax becomes moot. The CTA may no longer act on it and rule that there is nothing more to suspend.

Taxpayers are in a race against time and sometimes they feel helpless. They can only pray that the CTA will act on their motion for suspension of collection of tax with the same haste and eagerness as the BIR’s efforts to collect. The CTA has the power to suspend the collection of tax anytime, as provided by its rules. Unlike the rules of court, the CTA rules do not mandate that a hearing be conducted for the court to rule for or against the taxpayer. The CTA may be convinced that a suspension order is warranted, by just examining the pleadings. I believe that it can also issue a temporary suspension order while it conducts hearings on the motion. If collection is premature, the more reason that it can unilaterally wield its immense power.

The CTA need not use its power to suspend if the CIR recognizes the limitations of its power. The third item as provided above provides that what should be satisfied by the payment of tax is a liability as provided by existing law. The Tax Code provides that it is only upon failure of the person to pay the delinquent tax or delinquent revenue within the period prescribed by the Bureau of Internal Revenue (“BIR”) that a warrant of distraint of personal property may be issued. Delinquent tax is what is being referred to as the liability as provided by law.

A delinquent account as a tax due from a taxpayer arising from the audit of the BIR which had been issued Assessment Notices that have become final and executory due to the following instances: a. Failure to pay the tax due on the prescribed due date provided in the FAN/FLD and for which no valid Protest, whether a request for reconsideration or reinvestigation, has been filed within thirty (30) days from receipt thereof; b. Failure to file an appeal to the CTA or an administrative appeal before the CIR within thirty (30) days from receipt of the decision denying the request for reinvestigation or reconsideration; or c. Failure to file an appeal to the CTA within thirty (30) days from receipt of the Decision of the CIR denying the taxpayer's administrative appeal to the FDDA.

In the Central Luzon Drug case, the CTA En Banc reminded the CIR that the civil remedies for collection of taxes should not be used at will but only when the taxes sought to be collected have already become delinquent. The Court said that while it appreciates the passion by which the CIR is performing his mandated duty to collect the necessary funds for the operation of the government, the CIR is given a stern warning not to repeat the present grievous action lest the government appear to be abusive of its power rather than protective of the interests of its people.

No less than the Supreme Court in the recent LRT case has ruled that a warrant of distraint and levy is premature and consequently void if the taxpayer filed a protest to the assessment that remains unresolved. In other words, the assessment is still disputed. The SC ruled that only delinquent tax may be collected by the BIR.

I hope that the BIR will not abuse its power and exercise restraint. It must realize that behind the prematurely collected hundreds of millions or even billions of pesos are employees that have been terminated, families that are left with no source of living and micro economic shocks that will create ripples - and possible accountability.