The presumption of regularity afforded to the revenue examiners in the assessment of taxes and the vested power of the Bureau of Internal Revenue (BIR) to unilaterally determine any deficiency tax make the playing field in the Philippine Tax System unevenly matched.
In the recently concluded Grant Thornton International tax academy held here in Makati City, I had the chance to glimpse the prevailing tax systems of some Asia-Pacific countries, namely: Australia, Malaysia, China, Indonesia, Japan, Singapore, Thailand, and India. During the conference, I discovered that the indirect tax systems in these countries are closely similar to ours.
Initially, I thought there is nothing much to discuss as we follow the same tax principles, e.g., destination principle, consumption tax, self-assessment. However, as the conference continued, I was upset to learn that the Philippines has a high value-added tax (VAT) rate compared with the other Asian countries whose VAT rates only range between 0%- 10%.
I was also surprised to discover that claims for tax refund in Singapore are as simple as presenting the sales invoice to the tax authorities. If the refund is found valid, the tax refund shall be immediately paid to the taxpayer, without the need of waiting for prior appropriation from their government.
In the Philippines, the taxpayer shall be subject to prior audit upon application for a tax refund. If based on the documents presented he is found entitled to a refund, he will have to wait for the appropriation made by the Congress before he is issued his cash refund. This can take years before a taxpayer can see a single centavo of his refund.
In Malaysia and Indonesia, if the issuance of a refund is delayed, their tax authorities are held liable for interest. In the Philippines, the BIR is never charged interest for failure to refund taxes promptly.
But what struck me most is Indonesia’s rule on resolving protests on deficiency tax assessment. Here in the Philippines, the inaction of the Commissioner of Internal Revenue on the protest within the prescribed period is deemed a denial of the protest. In Indonesia, the reverse is true. The inaction of their Commissioner is surprisingly, deemed approval to the taxpayer’s protest. This is probably a rule that we should adopt in the Philippines.
Taking into consideration the foregoing, maybe it is about time that our present tax laws are revisited in their entirety. The decades-old income tax brackets, the procedures on tax refunds, and rules on tax deficiency assessments should be crafted in a manner that would not only consider the target tax collections but which would put the Philippines at par with its Asia-Pacific neighbors in protecting taxpayers’ rights.
It cannot be denied that our tax laws and regulations are favorably tilted toward the tax authorities. Since time immemorial, we have adopted the view that taxes, being the lifeblood of the government, are important to a functioning and orderly society.
As a matter of fact, the BIR has been vested with ample powers in making tax assessments. To ensure that taxpayers are paying the correct taxes, tax assessments are also accorded by law with the presumption of regularity.
On top of the above presumption, the BIR has the power to adjudicate disputes on its own tax assessment. This is bereft of any independence as the examiner who issues the assessment is the same examiner who will validate and assess the reconciliation and factual and legal bases of the taxpayer in asserting that the assessment is not valid or incorrect.
While it may be true that the court acts as the final arbiter of tax disputes, the high filing fees and other legal costs nonetheless, makes tax appeal virtually impossible especially for ordinary taxpayers.
Thus, I strongly urge Congress to pass neutral tax laws to level the playing field between the taxpayers and the tax authorities. This is most important now that revenue examiners have become more aggressive in issuing deficiency assessments to meet their increasing target revenue collections. In fact, it is not uncommon now to see taxpayers receiving tax deficiency assessments which are even higher than their net worth.
It is high-time to improve the safeguards of taxpayers’ rights from the possible abuse of power by the revenue examiners.
The adoption of Indonesia’s timeframe in the issuance of a decision by the Commissioner, in which claims for tax refunds and protest of deficiency tax assessment not acted upon will be deemed approved, is a good measure to protect the taxpayers and to promote efficiency in the administration of tax laws.
After all, taxpayers should not be left waiting in vain for the resolution of their protests and must therefore be freed from unnecessary troubles and anxieties of tax assessments.
Now, to reduce questions on independence and preclude doubts of partiality and pre-conceived bias by the BIR in the adjudication of tax cases, an independent administrative agency may be established by the Congress. Such an agency will take over the determination of the validity of a taxpayer’s protest and the validity on claims for tax refunds instead of having the BIR acting as the prosecutor and adjudicator all at the same time.
Adjudicators should not only be independent, but must likewise give the appearance of independence. While taxes are the lifeblood of a nation, taxpayers’ rights are important and must always be protected.
Henesty Z. Salvador is an associate with the Tax Advisory and Compliance division of P&A Grant Thornton.