Tax Articles

Suspension of BIR’s Right to Assess Amid COVID-19 Pandemic

By Atty. Irwin C. Nidea Jr.

Our tax authority is given a period of three (3) years within which to examine and determine whether a taxpayer has paid the correct amount of taxes. Should the taxpayer be found to have filed a false or fraudulent return, the applicable prescriptive period shall be ten (10) years, counted from the discovery of the false or fraudulent return. The BIR is also given a period of five (5) years from its issuance of the assessment notice to collect the assessed amounts. These are the statute of limitations – ordinarily referred to as prescriptive periods - that protect taxpayers from a tax examination and collection which, if not limited, could last forever.

In response to the Covid-19 pandemic, the Department of Finance issued Revenue Regulations Nos. 7-2020 and 10-2020 and clarified by Revenue Memorandum Circular Nos. 34-2020 and 39-2020. Included in these issuances is the suspension of the prescriptive periods. The running of these periods is suspended starting March 16, 2020 until the lifting of the state of national emergency and for 60 days thereafter.

What does this mean? Does the Commissioner have the power to do this?

Based on the Tax Code, the running of the Statute of Limitations on the making of assessment and the beginning of distraint or levy a proceeding in court for collection shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter.

The operative word is “prohibited.” Is the Commissioner prohibited from conducting an examination? Of course, he is! That seems to be the first impression because we are amid a pandemic and state of national emergency.

But when you step back and think about it, this statute of limitations is sacred. It cannot just be assumed that we must surrender it because of this pandemic. The Commissioner’s basis in saying that he is prohibited from conducting tax audit must be clearly established. The declaration of state of national emergency does not automatically mean that the Commissioner is prohibited from exercising his mandate. It must be cast in stone or in a law, like the Bayanihan To Heal As One Act.

When you read the Bayanihan Act, you will realize that it has no provision that categorically states that the Commissioner is prohibited from doing his job. The President was not given the power to make such declaration. Thus, all revenue issuances by the Commissioner saying that he is prohibited from conducting an audit appears to have no basis.

Section 4(Z) of the law gives the President the power to move statutory deadlines and timelines for the filing and submission of any document, the payment of taxes, fees and other charges required by law, and grant any benefit, in order to ease the burden on individuals under community quarantine.

It is important to note that the power to extend deadlines is limited to the “filing and submission of any document”, which the Commissioner exercised by moving the deadlines for filing replies to Notice for Informal Conference, Preliminary Assessment Notice, Final Assessment Notice and Final Decision on Disputed Assessment. It does not include the unilateral power to move the prescriptive period of tax assessment and tax collection. It cannot also be considered as a grant of benefit that will ease the burden of taxpayers under community quarantine. In fact, it will create more nightmares and sleepless nights for taxpayers.

Again, the declaration of state of national emergency does not automatically mean that the Commissioner is prohibited from conducting an audit. In fact, he must be working to look for tax collections that will finance the social amelioration fund and other endeavors to uplift the plight of every Filipino. The Bayanihan Act did not provide for an excuse that the Commissioner can use as basis to declare the suspension of the limited time that is given to him by law to assess and collect.

The reckoning period when the suspension of the statute of limitations will be lifted is also unreasonable. The revenue issuances say that it will be lifted not from the end of the community quarantine but from the expiration of the state of national emergency. So, even if the enhanced community quarantine is lifted on May 15, 2020, the statute of limitations will not run again, until August 24, 2020, which as of now, will be the end of the state of national emergency plus 60 days thereafter. Even if there is basis for the suspension of the prescriptive periods for assessment and collection, the BIR will not be considered to be barred from conducting examination during the whole stretch of the national emergency. To do so would amount to an undue extension of the statute of limitations.

We may be in an unprecedented crisis. But this does not mean that the Commissioner’s suspension of statute of limitations must be taken lightly. When we hurdle this pandemic, taxpayers’ rights must remain unscathed.