Tax assessments, opportunity to protest

The opportunity of being able to file a protest against any tax assessment is an indication that the taxpayer is given his constitutionally mandated right to due process

Published in Daily Tribune on September 23, 2021
by: Juan Romulo R. Taleon

The truism that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance has, time and again, been inculcated in the minds of students of any finance or legal course. But while it may be considered as the government’s lifeblood, the policy of the state is that such collection should be made in accordance with law, as any arbitrariness will negate the very reason for government itself.

In this regard, the opportunity of being able to file a protest against any tax assessment is an indication that the taxpayer is given his constitutionally mandated right to due process, which is a cornerstone of our democratic society. This is nowhere more evident than when on 5 May 2021, the Supreme Court denied the argument of the Bureau of Internal Revenue (BIR) in CIR v. Yumex Philippines (Yumex Case) when it held that the taxpayer was denied due process even though such defense was not expressly raised at the earlier stages of the case.

The Court further held that the issue of the validity of the tax assessment against respondent also necessarily requires the determination of whether the said assessment was issued in accordance with the requirements of due process. In ruling for the respondent, the Supreme Court referred to Sec. 228 of the National Internal Revenue Code, which mandates the BIR to inform the taxpayer in writing of the law and the facts on which the assessment is based. Otherwise, the assessment is void.

Following this, the BIR issued Revenue Regulations 12-99, Sec. 3 of which discusses the procedure in the issuance of a deficiency tax assessment. Based on the said provision, the taxpayer has 15 days from receipt of a Preliminary Assessment Notice (PAN) to file a reply. Only after receiving the taxpayer’s response, or in case the taxpayer defaults, can the BIR issue the Final Letter of Demand/Final Assessment Notice (FLD/FAN). Based on the Yumex Case, the BIR issued a PAN and FAN on separate dates. Both were, however, served upon and received by the taxpayer on the same date. The Court held that, under these circumstances, the taxpayer was not given the opportunity to respond to the PAN because the taxpayer received the FAN simultaneously with the PAN.

With the present pandemic ravaging and delaying the services of government agencies, mailing of notices of tax assessments could result in delays, which may lead to the taxpayer receiving both the PAN and FAN at the same time. Clearly, simultaneous service of a PAN and FAN upon a taxpayer effectively deprives the taxpayer of the crucial opportunity of questioning the PAN within the period prescribed by law, which violates the taxpayer’s right to due process.

As the Supreme Court declared in CIR v. Algue, “in balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution. Thus, while ‘taxes are the lifeblood of the government,’ the power to tax has its limits, despite all its plenitude.”