Will a taxpayer’s bill of rights help?

MANILA, Philippines — When one talks about the bill of rights, the reason why it sounds so authoritative, even intimidating, is that it is constitutional – and it is the soul of the Constitution itself. Without the right to be secure from unreasonable searches, or detention; or without the freedom of expression, abode, and religion; or without the right to own private property undisturbed, what would the Constitution be for?

There is a Senate bill proposing a law tentatively called the Taxpayer’s Bill of Rights. Off the bat, we know it will not have the same stature as the constitutional bill of rights. We also know that whatever rights are pronounced there, many if not all would have already been covered by existing laws. We would also be quick to say that whatever happens on the ground today will continue to happen on the ground tomorrow.

I need to be candid here. There are folks in the Bureau of Internal Revenue (BIR) who are sensible, even intelligent, and who have a sense of service. We have dealt with them all above board, and for us, above board every single time. But I refer to those days when a taxpayer gets asked by the examiner, “open books or close books exam?” Or when the examiners ignore explanations, turn a blind eye on legitimate defenses in a protest letter, or issue these plump, over-bloated tax assessments. Today, taxpayers still ask what really changed from the same old same old?

The fact is, we still need to try, and not give up trying. So the Senate’s Taxpayer’s Bill of Rights must be given a fair chance, and must not be crafted in haste. After all, we have been in this situation since the beginning of tax law. Allow me to cite some of the rights, a number of which are captured in the bill, that can be promulgated or proclaimed that would make a whale of a difference:

1. The right to recover litigation costs

There is a basic reason why it is tough for the taxpayer to charge the government for litigation costs for senseless cases. It comes from the principle that the government is not estopped from, or bound by, the mistake of its agents. Also, the government, in the exercise of its functions as such, cannot be sued without its consent.

If the BIR wants to be “difficult”, one of the most powerful ways they can compel settlement is to push bloated assessments, ignore legal basis, and just dare the taxpayers to go to court. It is effective because going to court to protest a final assessment means that the taxpayer will need to shell out about one percent filing fee based on the amount of the assessment appealed. Again, this is regardless of whether the assessment has legal basis or not. This filing fee, plus lawyers fees, is something to ponder.

So the taxpayer computes the filing fee and costs and if he is not acting on principle, it could quite be practical for him to cave in if the assessment, baseless as it may be, runs in the hundreds of millions. This is also the same reason why they say that our tax system is anti-poor because if you do not have the money to go to court, it will be cheaper to “settle”, thus the vicious cycle every year.

You cannot get a reprieve from the Court of Tax Appeals (CTA) on filing fees because for one, the justices don’t know whether the assessment is good or bad. Also, filing fees make the CTA sustainable.

The Senate bill as drafted contains the right to recover litigation costs. I would say that even if it is just the filing fees for unwarranted cases that are managed, that will already change behavior.  Imagine if the filing fees for unwarranted cases are recoverable from the BIR, by law, then examiners would have second thoughts before daring the taxpayers to go to court. 

The other thing is if the taxpayer is an SME, the Court can allow taxpayers to post a bond for the fee, and decide on the filing fees upon making a summary judgment on the technical issue of prescription or existence of prima facie evidence of fraud, for instance.

Yes, allegations of fraud is the favorite pastime of some examiners who have slept on their jobs and allowed the case to prescribe. They get wary of being faulted and try to correct a wrong with another wrong. When you ask them for their prima facie evidence of fraud, they would say that it’s a secret, or that they cannot disclose. Sounds familiar? 

Next Sunday, I start with the rest of the earth-shaking taxpayer rights by discussing one right that is constitutionally part of the bill of rights of any individual: the right to be informed of the BIR’s prima facie evidence of fraud.

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 Alexander Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the chairman of Integrity Initiative Inc., a non-profit organization that promotes common ethical and acceptable integrity standards. Email your comments and questions to [email protected]. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.