As a democratic nation, every Filipino is entitled to due process as enshrined in Section 1, Article III of the 1987 Philippine Constitution.
When a motorist is pulled over by an enforcer for a traffic violation, he has the right to clarify or dispute the alleged violation. In a criminal case, a suspect is presumed innocent, unless proven guilty beyond reasonable doubt.
There is also due process in tax assessments.
Taxation is the lifeblood of the government as it funds the needs of its citizenry in terms of public infrastructure, education, law and order, and food security. The Bureau of Internal Revenue (BIR), the government’s main tax agency, was assigned a P1.8 trillion tax collection target this year. Based on news reports, the BIR’s total revenue take for the first nine months amounted to P1.3 trillion, up by 10.8% from the same period last year. This means that the BIR needs to collect P500 billion taxes during the remaining three months of the year to meet its target. This is a tall order considering that the “ber” months are also normally the “lean” months.
To meet this gargantuan task, one can expect the BIR to pursue a more aggressive approach in collecting taxes. But in carrying out its mandate, the BIR must respect the rights of taxpayers, such as in faithfully observing the taxpayer’s right to substantive and procedural due process during a tax investigation.
An assessment is formalized through the issuance of the formal assessment notice (FAN), which must be protested within 30 days from its receipt. Otherwise, the FAN shall become final and executory. The BIR can then enforce collection by issuing a warrant of distraint/garnishment.
However, for an assessment to be valid, the corresponding assessment notice must be properly served and received by the taxpayer. This is in accordance with Section 228 of the National Internal Revenue Code, which provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. The assessment regulations (i.e., Revenue Regulations No. 12-99) explicitly require “the written details on the nature, factual and legal bases of the deficiency tax assessments.”
In a July 24, 2017 case docketed as CTA EB Case No. 1444, the Court of Tax Appeals (CTA) struck down a deficiency tax assessment on the basis that the taxpayer did not receive the assessment notice. In the said case, the taxpayer did not get the assessment notice since it was addressed and delivered to the taxpayer’s old address. Under existing jurisprudence, in case of denial of receipt of the assessment notice by the taxpayer, the BIR has the burden to prove that such assessment was indeed received by the taxpayer. In this case, the court noted that the BIR failed to prove that the taxpayer had received the assessment notice.
Citing a Supreme Court decision, the CTA stated that if the BIR was already aware of the new location of the taxpayer, even in the absence of any formal application for change of address, it cannot simply pretend lack of knowledge of the change of address and is bound to send any issuance/notice to the taxpayer’s new location. Without receipt of the assessment notice, the Court ruled that the taxpayer was deprived of due process as required under Section 228 of the Tax Code. Consequently, the assessment is deemed null and void.
Finally, the CTA declared the issued Warrant of Garnishment as illegal, on the strength of the Supreme Court ruling, that “a void assessment bears no valid fruit.”
The CTA decision, in this case, reminds us of the importance of due process, particularly in the proper service of an assessment notice. Compliance with the requirements of Section 228 of the Tax Code is not merely a matter of formality; it is a mandatory substantive requirement. The precepts of due process dictates that every taxpayer must be accorded the opportunity to produce evidence on its behalf based on the factual and legal grounds indicated on the assessment notice.
However, to invoke the right to due process, the taxpayer is also expected to come forward with clean hands. It is incumbent on the taxpayer to inform the BIR of the change in its address so that the assessment notice can be served accordingly. Failure to inform or update such information would mean that the data on the BIR’s official record is presumed to be correct. Relying on the taxpayer’s representation, the BIR’s mailing of notice based on the address on record would then be considered regular and binding on the taxpayer.
In this case, if the taxpayer had failed to properly notify the BIR of its change of address, the assessment notice, which is presumed to be properly served, would not likely be protested on time. Accordingly, the related deficiency tax assessment will be deemed final and executory. In other words, even assuming for the sake of argument that the deficiency assessment lacks merit, the taxpayer has no choice but to pay because of its failure to timely protest the related assessment notice.
The taxpayer’s mailing address is really not a simple data entry in the BIR’s record. Along with the declaration is the taxpayer’s duty to be transparent and forthright when transacting with the government and its agencies. Similarly, tax officials cannot conveniently send notices to a wrong address despite having been advised of its change. In both instances, the message is loud and clear — tax transactions must be dealt with following the rules of equity, and not deception. In a democratic mandate, the right to due process requires mutual respect for the norms of fair play.
Our Civil Code provides that “Ignorance of the law excuses no one from compliance therewith.” So let’s know our tax laws and regulations (or at least be properly counseled), so we can exercise our taxpayer rights, which includes the right to due process (and of course, not lose a case due to a mere technicality).
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Carlos Hilario H. Mateo is a director at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
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