In less than two months, I will tie the knot with my girlfriend of eleven years.
Looking back, I went through failure, heartache, and disappointment but, at the same time experienced milestones and achievements that made me who I am today. Being with someone I cherish made me a better version of myself. As American author Helen Keller put it, “the best and most beautiful things in the world cannot be seen or even touched — they must be felt with the heart.” It is better to have someone to rely on.
As I reflect on my personal experiences, I could not help but remember a similar roller coaster ride in assisting clients on tax audits conducted by the Bureau of Internal Revenue (BIR). The ups and downs were mainly because of the exclusion then, and inclusion now, of the Notice for Informal Conference (NIC) in the BIR assessment process.
Prior to the issuance of Revenue Regulations (RR) No. 18-2013, the NIC was part of the due process requirement in the issuance of deficiency tax assessments. The NIC stage then afforded the taxpayer an opportunity to present his side of the case before the BIR issued a Preliminary Assessment Notice (PAN), if warranted.
With the issuance of RR No. 18-2013, the NIC was removed from the BIR assessment process. Thus, taxpayers received their first formal letter correspondence from the BIR about the latter’s findings at the PAN stage. When the NIC was removed, the PANs received by the taxpayers mostly contained staggeringly huge amounts of tax findings — hundreds of millions and even billions. The worst part was that the amounts per PAN would most likely be copied to FAN and there was little time to discuss and clarify the BIR’s numerous alleged findings. This made taxpayers anxious and stressed, as the huge amount of tax findings are not what they expected to see. With little time to discuss, taxpayers felt even more crushed about what was happening with the tax audits, as if they were abandoned by the Philippines’ tax policies and regulations as they were prevented an early opportunity to present their factual and legal defenses on the alleged findings of the BIR. This scenario indeed resulted in heartache and disappointment.
Five years after the issuance of RR No. 18-2013, the BIR issued RR No. 7-2018, which reinstated the NIC as part of the BIR assessment due process. The taxpayer is now given 30 days to respond at the NIC stage, giving taxpayers time to evaluate the BIR findings at an early stage and to prepare themselves for a discussion with the Bureau.
Being part of the due process, the issuance of the NIC must be strictly observed. In recent news reports, certain tax cases against a celebrity and a sports personality were decided against the BIR, because of the latter’s noncompliance with the issuance of the NIC. Thus, the taxpayers’ right to an NIC was respected.
With the return of the NIC, taxpayers are provided an early opportunity to present the factual and legal defenses on the findings of the BIR. Some findings can already be explained or easily be threshed out, such as the non-withholding of taxes on purchases of goods or services, timing differences in the recognition of sales or purchases, the differences between revenue per tax returns vs. per books, the nature of alleged suspicious transactions, etc. The related discussions and clarifications can already be provided at the NIC stage rather than at later stages of the BIR assessment process.
The revival of the NIC definitely gave more time for the BIR to further understand the accounting records and processes of the taxpayer in relation to the BIR’s initial findings. The NIC also reduces the unnecessary time and resources on the part of the taxpayer and on the part of the government, and even possibly avoids unwarranted litigation costs. On the part of the government, deficiency taxes could be collected more efficiently. Less stress on the taxpayer was also a valuable impact of the NIC, reducing the surprise from huge tax findings in the PAN stage as before. This situation, hopefully, will improve the taxpayer’s trust in the BIR assessment process.
As I look back, after one year and a half of reinstatement, the NIC, without doubt, supports the taxpayer in making sure that a tax assessment is resolved with the BIR in the shortest possible time. This would certainly allow taxpayers to concentrate on their core business rather than worry about the BIR looking over their shoulder. The removal of the NIC for some years appeared to have an adverse effect on the results of the BIR assessment process on the taxpayers’ lives. I consider this the dip in the roller coaster ride. The good thing was that the NIC did return and, based on the observation of many, more and more BIR assessment cases are now being immediately resolved at the NIC stage in the interest of both taxpayers and the government.
Just like a roller coaster ride, as well as the ups and downs of life, bringing back the NIC stage is a climb up the tax assessment experience of many taxpayers.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Ed Warren L. Balauag is a manager of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.