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Restraining the enforcement of tax collection

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By: Mark Anthony Tamayo on December 24, 2020

Taxes are the lifeblood of the government and should, as an inflexible policy, be collected promptly and without hindrance or delay (see Commissioner of Internal Revenue vs Standard Insurance Co., GR 219340) in order not to disrupt the operations of the government.

To further bolster this principle, Section 218 of the Tax Code, as amended, provides a non-interference policy with respect to collection of taxes by stating that “[n]o court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the Tax Code.” Courts have cited this provision as basis for refusing injunctive relief when no grounds for such relief were shown.

Corollary to this, Section 11 of Republic Act (RA) 1125, as amended by RA 9282, embodies the rule that an appeal to the Court of Tax Appeals (CTA) from the decision of the Commissioner of Internal Revenue (CIR) will not suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of the taxpayer’s tax liability.

Thus, a general rule, injunctive relief is not available as a remedy to assail the collection of a tax.

As an exception to the “no injunction rule,” Section 11 of RA 1125, as amended, provides and empowers the CTA to suspend the collection of a tax if based on its opinion, the collection thereof may jeopardize the interest of the government and/or the taxpayer.

If there are grounds to suspend the collection, the CTA may, at any stage of the proceeding, suspend the collection and require the taxpayer to either deposit the amount claimed, or file a surety bond for not more than double the amount.

Procedurally, therefore, it is imperative for the CTA to conduct a preliminary hearing and receive evidence not only to ascertain whether there are grounds to suspend the collection of a deficiency assessment, but also to determine, pendente lite, whether the requirement of providing the required security could be reduced or totally dispensed with.

The bond requirement, as a condition precedent to the suspension of the collection, presupposes that the processes by which the collection sought to be made by means thereof are carried out in accordance with the law (See Collector of Internal Revenue vs Reyes and CTA, GR L-8685). Consequently, what is suspended is the act of collecting.

Conversely, the bond requirement should not apply when the processes are in plain (and obviously in) violation of the law that they have to be suspended for jeopardizing the interests of taxpayer.

Thus, illegal (or erroneous) assessment or collection or levy of taxes resulting to substantial injury or violation of substantive (or procedural) rights are grounds for equitable interference. These are questions of facts that calls for the reception of evidence beyond mere allegations. It requires the CTA to properly determine the existence of such grounds(see Spouses Pacquiao vs CTA and CIR, GR 213394). Absent of any abuse or improvident exercise of authority, these findings of facts shall not be disturbed on appeal by the Supreme Court. (see Sea-Land Service Inc. vs Court of Appeals, GR 122605; Reyes vs CIR, GR L-24020-21; Paseo Realty and Development Corp. vs Court of Appeals, GR 1199286)

If after preliminary determination, it was found that that prescription has set in or, the assessment and collection processes employed by the CIR in exacting their tax liabilities are not sanctioned by law or were in patent violation of their constitutional right to due process, the CTA has the clear authority not only to suspend the collection of the tax, but also to dispense with the requirement of depositing a cash or filing of a surety bond. (Collector of Internal Revenue vs Avelino, GR L-9202; Collector of Internal Revenue vs Reyes and CTA, GR L-8685; Collector of Internal Revenue vs Zulueta, GR L-8840). What is actually being suspended is the use of illegal methods or means to effect collection of the alleged deficiency taxes. To require a bond under these situations would be illogical and improper.

According to the Supreme Court, the purpose of the above rule is not only to prevent jeopardizing the interest of the taxpayer, but more importantly, to prevent the absurd situation wherein the courts would declare “that the collection by the summary methods of distraint and levy was violative of law, and then, in the same breath require the taxpayer to deposit or file a bond as a prerequisite for the issuance of a writ of injunction.”

In a nutshell

The enforcement of the collection of taxes must be exercised reasonably and in accordance with the prescribed procedure so that the real purpose of taxation – the promotion of the common good – maybe achieved.

In the conduct of its preliminary hearing, the Supreme Court, in the case of Tridharma Marketing Corp. vs CTA and CIR (GR 215950) and CIR vs Metro Superama (GR 18537),  said that the CTA must balance the scale between the inherent power of the state to tax and its right to prosecute perceived transgressors of the law, on one side; and the taxpayers’ constitutional rights of due process of law and the equal protection of the laws, on the other. In case of doubt, such scale should favor the taxpayer, for a citizen’s right to due process and equal protection of the law is amply protected by the Bill of Rights under the Constitution.

The no injunction rule is not meant to apply in any case of wrongful collection of a tax.

On behalf of MTF, we wish everyone a season of great joy, love and blessings.

Mark Anthony P. Tamayo is a CPA-lawyer and a partner of Mata-Perez, Tamayo & Francisco (MTF) Counsel. He is a recipient of the 2016 Asia Tax Practice Leader award, and is consistently voted as one of the recognized indirect tax leaders in the Philippines by the International Tax Review.

The content of this article is not a substitute for professional advice where the specific circumstances warrant. If you have any question or comment, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.

Restraining the enforcement of tax collection

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