Tax Exemption vs. Tax Amnesty
By: Atty. Keanu P. Castañeda on November 9,2023
Tax exemption and tax amnesty are two important concepts in Philippine taxation law, but they are often confused. It is important to understand the difference between the two.
Tax Exemption is the condonation of a tax liability conferred upon to persons or entities belonging to a specific category, which may be express, implied, or contractual, in relation to a tax that persons or entities generally within the same jurisdiction or taxing district are compelled to pay. Tax Exemption is an immunity or privilege and freedom from a charge or burden to which others are subjected. It is generally prospective in application (Philippine Long Distance Telephone Co. v. City of Bacolod, G.R. No. 149179, July 15, 2005).
Meanwhile, a tax amnesty is a general pardon or the intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of violating a tax law. It is immunity from all criminal and civil obligations arising from non-payment of taxes. It partakes of an absolute waiver by the government of its right to collect what is due and to give tax evaders who wish to relent a chance to start with a clean slate. Its application is retroactive (Asia International Auctioneers, Inc. v. Commissioner of Internal Revenue, G.R. No. 179115, September 26, 2012).
Similarly, tax exemption and tax amnesty are never favored or presumed in law, and must be construed strictly against the taxpayer and liberally in favor of the taxing authority. Likewise, taxpayers are required to fully comply with the requirements of the law and must be able to justify their claim or right.
On the other hand, some key distinctions between tax exemption and tax amnesty are the following. For eligibility, tax exemption usually applies to specific individuals or entities; on the other hand, tax amnesty applies to all taxpayers. Another is that, tax exemption involves wide range of taxes; while tax amnesty covers specific types. Furthermore, tax exemption may be granted for an indefinite period; while tax amnesty is passed for a limited period of time.
An example of a tax exemption is the provision under the 1987 Constitution, which grants tax and duty exemption to all revenues and assets of non-stock, non-profit educational institutions provided that the revenues and assets are used actually, directly, and exclusively for educational purpose. Another is the tax exemption granted under Republic Act (“RA”) No. 11534, otherwise known as the “Corporate Recovery and Tax Incentives Act” (“CREATE Law”), which provides tax incentives, such as income tax holiday, to Investment Promotion Agencies.
Moreover, an example of amnesty law in Philippines is the Tax Amnesty Act of 2018 (RA 11213), which gave estates of decedents the opportunity to settle their tax obligations without having to pay the penalties and interest accumulated for failure to pay on time. RA 11213 was further amended by RA No. 11953, which extends the period of availment of the estate tax amnesty until June 14, 2025.
Tax exemptions and tax amnesties can have a significant impact and may benefit taxpayers. While tax exemptions can reduce a taxpayer’s tax liability, tax amnesties can give taxpayers a second chance to settle their unpaid tax liabilities without penalty or interest.
The government employs these two means to ease the burden of taxation, promote economic growth, and generate additional revenue. Tax exemptions are used by the government to promote certain activities or to provide social assistance. On the other hand, tax amnesties are used by the government to generate additional revenue and to encourage taxpayers to comply with their tax obligations.
Tax exemption and tax amnesty are two important concepts in Philippine taxation law. Taxpayers should understand the distinction between the two to determine whether they are eligible for either program.
Keanu P. Castañeda is a CPA-Lawyer and an associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at firstname.lastname@example.org or visit MTF website at www.mtfcounsel.com.