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Let's Talk Tax

Letting go of too much discretion

Discretion is a power which makes someone powerful even more powerful.

Administrative bodies like the Bureau of Internal Revenue (BIR) and the Bureau of Customs, were given discretionary powers in order to carry out their tasks to implement laws. The grant of discretion recognizes that the agency has the knowledge, experience and specialization on a particular field to make judgments. Discretionary powers facilitate efficient implementation, upholds the law, curbs the evils the laws seek to avoid and achieves the higher interest of the State, its citizens and those who sojourn its territory, equity. However, discretion is double-edged in that it impacts negatively when it is abused, performed in manifest partiality and favored one’s own interest.


Pursuant to the 1997 Tax Code, the BIR is given executive functions in the collection of taxes and granting of clearance, quasi-judicial functions on interpretation of laws and issuance of rulings, and quasi-legislative functions on formulation of rules and regulation. In all these functions, the BIR enjoys a lot of freedom in exercising discretion.

It is not very novel that we face problems where discretion is misapplied by the BIR. In the case of tax investigations, taxpayers can be confronted with issues which result to absurd interpretation of laws for the sake of collecting taxes. When the BIR and taxpayers agree on the amount of tax deficiency to be paid, the tax payable is sometimes driven by the need to collect taxes rather the dutiful obligation of the taxpayer to pay what it legally owes to the government. 

Refund applications can be denied at the BIR level based on unfounded reasons. Or BIR can choose not to act on a claim of refund. Sad it is to say that the BIR turns a blind eye in these cases. In many situations, the taxpayer has no other choice but to seek remedy to the Courts.

In dealing with gray areas of taxation, the BIR tends to veer towards what is only beneficial to their aim. This is totally understandable because the BIR and the taxpayers’ interests are situated on different sides. Interests which will never go together because if one gains, the other loses.

We are seeing that taxpayers are caught in a situation where taxpayers ask relief from the authorities whose interest is contrary to his own. It is clear that the primary interest of the BIR is to raise revenues. Each officer is given collection goals. These officers are also the ones who investigate and issue assessment. In case the taxpayer protests, they are also the very same officers who decides whether or not the assessment they themselves issued are valid based on the taxpayer’s arguments. 

It is true that discretion in the administrative level is not left unchecked. As BIR always advises in case of disagreement, “you can always go to Court.” However, we know that filing a case in Court is a very tedious and costly process. After all, not all cases of abuse of discretion is worthy of the Court’s attention. 

As our country’s leadership has changed, we are promised of reforms. In the first week of the new Presidents rule, we are slowly realizing these changes. 

The new Commissioner immediately rallied this campaign. As he reviews the issuances under the former administration, we hope that future changes in the system will take into consideration the balancing of the interest of stakeholders.

As the President advocates efficiency, checking on the unbounded freedom of the bureau to exercise discretion in many cases can eliminate delays in processes because of the insufficiency of clear standards which taxpayers ought to follow. The President is also taking serious measures to eradicate corruption across all ranks in government agencies. Reducing discretionary powers can curb unlawful dealings within the bureau’s ranks. 

Our legislators are also part of the game changers in this league. We need tax laws which delimit the exercise of discretion by government agencies. I believe that when the mandate calls for a ministerial act, it must be always be performed as purely ministerial.

It is also important the tax rules are clearly understood by the taxpayers. Tax rules must be crafted in the simplest language an ordinary man of ordinary intelligence understands.

Future legislations or rules must provide clearer standards at the administrative level so that officers will just be left in the implementation of rules. These standards must be formulated to avoid multiple interpretations of the said regulations. 

To avoid the conflict of interest, discretionary powers may be devolved to another agency at the administrative level who has also expertise and skills in the field of taxation and whose interest is impartial on the tax collection. 

We, taxpayers claim for tax reforms. Who does not? But tax reforms should go beyond tax rate cuts. Issues such as complexity of compliance, standard interpretation of tax laws and faster processing of tax cases are equally important also. 

I know that there is no silver bullet to address all tax issues. But, we can start in letting go of too much discretion. If change is really coming, let this be one of them. 

Eliezer P. Ambatali is a senior associate of the Tax Advisory and Compliance division of Punongbayan & Araullo.


As published in Business World, dated 12 July 2016