Tax Articles

Due process in collection of taxes

By Atty Rodel C. Unciano

Under the Tax Code, one great power that the Commissioner may exercise in the administration of taxes is the remedy for the collection of internal revenue taxes, fees, or charges resulting from delinquency. Under this provision, the Commissioner may enforce collection of taxes by way of distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property, and by levy upon real property and interest in or rights to real property.

As the law is worded, this remedy may be resorted to by the Commissioner for the collection of delinquent taxes. Under Revenue Regulations No. 04-19, delinquent account has been defined as pertaining to a tax due from a taxpayer arising from the audit of the Bureau of Internal Revenue (BIR) which had been issued Assessment Notices that have become final and executory due to the following instances:

1. Failure to pay the tax due on the prescribed due date provided in the Final Assessment Notice (FAN)/Formal Letter of Demand (FLD) and for which no valid Protest, whether a request for reconsideration or reinvestigation, has been filed within thirty (30) days from receipt thereof;

2. Failure to file an appeal to the Court of Tax Appeals (CTA) or an administrative appeal before the Commissioner of Internal Revenue (CIR) within thirty (30) days from receipt of the decision denying the request for reinvestigation or reconsideration; or

3. 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 Final Decision on Disputed Assessment (FDDA).

Thus, the Commissioner’s power to exercise summary remedy in the collection of tax including his right to issue warrants of distraint and/or levy applies only to taxes that have become delinquent. This power cannot therefore be exercised when an assessment remains disputed or when an assessment is pending judicial review since the tax assessment under review is not yet final and executory.

I am aware of recent cases where the BIR has been very aggressive in collecting taxes even in assessment cases that have not yet become final, executory and demandable. While the government is in dire need of revenue to defray its expenses, the tax collector’s power in the collection of taxes must be exercised with caution and within the bounds of the law, otherwise, the collection effort of the government will be a failure, resulting to the failure of the country’s economy as a whole.

Of course, the taxpayer is not left without option in contesting unlawful collection cases. As a rule, injunction is not available to restrain the collection of tax pursuant to Section 218 of the Tax Code. However, Section 11 of Republic Act (RA) 1125 as amended by RA 9282 allows the suspension of collection of taxes if in the Court’s opinion, the collection may jeopardize the interest of the government and/or the taxpayer.

But this taxpayer’s remedy against unwarranted collection cases is not as swift as it is necessary. Under the Rules of the CTA, the aggrieved taxpayer has to file a motion for suspension of collection of tax before the CTA. The motion shall be verified and shall state clearly and distinctly the facts and the grounds relied upon in support of the motion. Affidavits and other documentary evidence in support thereof shall be attached thereto. The motion shall likewise be set for hearing.

So, it is a lengthy process before the tax court can finally determine if indeed, the Commissioner’s collection effort may jeopardize the interest of the government and/or the taxpayer. And by the time the Court issues the suspension order, if warranted, the taxpayer may have already ceased business operations for not being able to meet its operational requirements.

Further, under the current rules of the CTA and subject to certain exception, the Court may grant the motion for suspension of collection of tax if the movant shall deposit with the Court an amount in cash equal to the value of the property or goods under dispute or filing with the Court of an acceptable surety bond in an amount not more than double the disputed amount. So, while the Court may find that the Commissioner’s collection effort may jeopardize the interest of the taxpayer and should be suspended, the suspension order cannot proceed without the required taxpayer’s cash deposit or bond. So, if the taxpayer has no sufficient resources to post a bond, the taxpayer has no choice but to close business operations, hurting the country’s economy.

Taxpayer’s right to due process cannot be set aside in the administration and collection of taxes. No less than the Constitution guarantees this right. And as the High Court declared in an old case, the power of taxation should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kills the "hen that lays the golden egg."