By Zoe Bryce Amac on February 25, 2021.

The power of taxation is one of the inherent powers of the State and is considered an attribute of sovereignty. Its existence is justified by the so-called lifeblood theory. In Commissioner of Internal Revenue (CIR) v. Algue (GR L-28896, 1988) the Supreme Court held that taxes, as the lifeblood of the government, should be collected without unnecessary hindrance. Without taxes, it said, the government would be paralyzed for lack of the motive power to activate and operate it.

The government exercises this power by collecting payments from taxpayers or from tax assessments made after auditing taxpayers’ records.

In Tupaz v. Ulep (GR 127777, Oct. 1, 1999), the Supreme Court held that an assessment should contain not only a computation of tax liabilities, but also a demand for payment within a prescribed period. The ultimate purpose of an assessment is to ascertain the amount each taxpayer has to pay and inform her or her that it is due.

Section 2 of the National Internal Revenue Code, as amended (Tax Code), grants the Bureau of Internal Revenue (BIR) the power and duty to collect and assess all taxes, fees and charges. Also, Section 6 authorizes the CIR or his duly authorized representative to examine the taxpayer’s records and assess the correct amount of taxes. Thus, the commissioner has the power to make tax assessments, which can be delegated to his authorized representatives with the same force and effect as those issued by him.

In CIR v. Northwind Power Development Corporation (CTA [Court of Tax Appeals] EB 2151), the CTA reminded the BIR that it cannot collect an alleged tax liability without a prior assessment. In this case, the BIR partially granted a claim for refund of excess and unapplied input value-added tax (VAT) to Northwind. Afterward, the firm filed a judicial claim on the partial denial of its claim for refund, which it later withdrew. The BIR then filed a counterclaim that sought to deny the refund, pointing out that partially granting the refund was a mistake. In resolving the case, the CTA ruled that if the BIR found that the refund was improper, it should have issued an assessment against Northwind, instead of filing a counterclaim.

The CTA’s pronouncement is consistent with the BIR’s sole power to issue tax assessments. Instead of resolving the validity of the partial refund by the BIR, the CTA respected the bureau’s powers and provided it with the proper remedy. It respected the fundamental doctrine of separation of powers, where each branch of the government cannot encroach upon the powers of the other two.

However, the BIR’s power to assess cannot be exercised arbitrarily. Due process of law must In Medicard Philippines Inc. v. CIR (GR 222743, 2017), the Supreme Court held that, unless authorized by the CIR or his duly authorized representative through a Letter of Authority (LOA), an examination of the taxpayer cannot ordinarily be undertaken.

Section 228 of the Tax Code provides some guidelines to the BIR on making this assessment. It mandates the CIR or his duly authorized representative to notify the taxpayer of the findings. The taxpayer must also be informed in writing of the law and facts on which the assessment is made. Otherwise, it shall be void.

Also, the taxpayer shall be required to respond to the notice. If he doesn’t, the CIR or his duly authorized representative shall issue an assessment based on the findings.

In assailing such findings, the taxpayer can protest the assessment by filing either a request for reconsideration or reinvestigation within 30 days from receiving it. If he opts to file a request for reinvestigation, it shall submit within 60 days from filing the protest all relevant supporting documents. Otherwise, the assessment shall become final.
If the taxpayer is still not satisfied with the administrative remedies, he can resort to available judicial remedies.

The BIR has the power to make tax assessments to generate revenue for the government. But this cannot be exercised without limitations. Tax assessments must be made within the parameters set by law and jurisprudence in order to protect the taxpayers from possible abuses in the exercise of such power.

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