Confusing BIR set-up and pronouncements

There seems to be confusion in the Bureau of Internal Revenue (BIR) regarding delineation of functions, arising from the creation of high-level positions (deputy commissioner) not provided for by law.

Under the National Internal Revenue Code (NIRC), the BIR "shall have a chief to be known as Commissioner of Internal Revenue (Commissioner) and four assistants chiefs to be known as Deputy Commissioners."

Under the present set-up, however, the BIR has six Deputy Commissioners (DCIR) (one of them with the title of ‘senior deputy’), or two more than the number created by law (NIRC). The latest creation is the position of DCIR for Special Concerns (whatever that means!). The impression of tax practitioners is that this position is really that of a technical assistant to the Commissioner, but given the rank of a deputy commissioner.

Aside from the issue on the legal propriety of the creation of the said additional positions, the present set-up appears to have resulted in overlapping of functions among the BIR’s Legal Department and the Operations Department, each headed by a Deputy Commissioner, and the DCIR for Special Concerns.

In a news item on Tuesday (April 26), the DCIR for Special Concerns, speaking for the BIR, was quoted (referring to RA 9238) as saying "because we have here a law that became known to everyone on February 14, but it took effect January 1. But we want them to remit the VAT because it does not belong to them, it belongs to the government. They just collect it from their customers."

The statement caught tax practitioners by surprise and many thought there may have been a misquote. It was apparent that the pronouncement had no legal basis, since effective Jan. 1, 2004, by express provision of law, doctors and lawyers are no longer subject to VAT. Hence, any VAT collected by banks, doctors and lawyers should be returned to their clients. It does not belong to the government.

As background, the bill exempting, banks, the doctors and lawyers was neither vetoed nor approved by the President. The bill, however, automatically became law by virtue of a provision in the Constitution which provided the bill enacted by Congress which is neither approved nor vetoed by the President within thirty days from receipt of the bill shall become a law, "as if it had been signed" by the President.

Since the law provides for retroactive effect, there was a gap between the time the bill became law on Feb. 14 and its effectivity on Jan. 1, 2004. In the meantime, since there was no certainty that the bill would become law, the doctors, and lawyers continued to pass on and collect the VAT from their clients. This is of course, an unusual case.

In another news item (April 28) two days after the said BIR pronouncement, the Department of Finance which has oversight function over the BIR, came out with a reaction to its own pronouncement. It appears that the BIR’s draft implementing regulations (which has been long in coming) require the banks, doctors and lawyers to first file an application for change of status (from VAT taxpayer to a non-VAT taxpayer) as a condition for exemption. This means that before such change of status, doctors and lawyers continue to be liable for the VAT. The DOF was thus constrained to issue a statement upholding the unconditional nature of the VAT exemption: "The law is expressly retroactive in effect. Thus to require them to pay VAT [from] Jan. 1, 2004 until they have changed their registration to Non VAT would be contrary to law."

Tax practitioners are concerned over the current overlapping set-up in the BIR involving various layers of review which cause delays in the implementation of tax laws and resolving issues raised by taxpayers. Under the circumstances, it behooves the Commissioner to address the problem which is undermining the coordination among the BIR’s key officials, which also affects the taxpayers.