The power to cancel and abate tax liabilities
By: Atty. Euney Marie J. Mata-Perez on August 13, 2026
THE Commissioner of Internal Revenue (CIR) has the power to cancel and abate tax liabilities. Such powers are pursuant to express powers granted to the official under the law.
Section 204(B) of the National Internal Revenue Code (Tax Code) expressly provides that the CIR may abate or cancel tax liabilities when the tax or any portion thereof appears to be unjustly or excessively assessed, or the administration and collection costs involved do not justify the collection of the amount due.
The Supreme Court has recognized that the power to abate or cancel a tax liability is purely discretionary on the part of the CIR given that it is “a power or right conferred upon them by law of acting officially, under certain circumstances, according to the dictates of their own judgments and consciences, uncontrolled by the judgments or consciences of others.” Thus, the exercise of this power cannot be interfered upon by the courts, unless there is abuse of discretion.
However, the exercise of such power is subject to the limitations set by the Tax Code and its implementing regulations. It should be noted that the Tax Code provides that the CIR can exercise his power to abate (1) when taxes are unjustly or excessively assessed; or (2) or the administration and collection costs involved do not justify the collection of the amount due.
Jurisprudence has ruled that a tax is “unjustly” assessed when, compared to other taxpayers assessed, the concerned taxpayer was not treated in the same manner in the tax assessment as the other taxpayers.
On the other hand, a tax is considered “excessively” assessed when the assessment is over and above the tax imposition made under the law.
Penalties and surcharges (but not interest) can also be abated. Thus, a system error of the electronic filing and payment system (eFPS) has been previously held as a circumstance outside the control of the taxpayer and would warrant an abatement.
However, the Supreme Court has also ruled that the failure of the taxpayer to file an income tax return due to the unavailability of the eFPS is not a sufficient ground for the abatement of the surcharge, since the taxpayer could have resorted to manual filing.
Recently, the BIR issued Revenue Regulations (RR) 04-2026 to set the policies, guidelines and procedures for the availing of a one-time abatement of taxes and/or penalties for micro taxpayers.
Under this program, qualified micro taxpayers with delinquent or assessed basic tax or penalties of not more than eighty thousand pesos (P80,000) per taxable year may avail of the one-time abatement of taxes and/or penalties, until Dec. 31, 2026. The abatement is to settle any delinquent account/s or assessment/s, whether preliminary or final, disputed or not, open case penalties and compromise penalties, including those of micro taxpayers who have ceased business operations, as of Dec. 31, 2025.
Availing shall be done through the filing of an application with the Revenue District Office (RDO) and the payment of an abatement fee of five thousand pesos (P5,000). A Certificate of Availment shall be issued by the concerned RDO within five working days from the receipt of the proof of payment of the prescribed abatement fee.
After availment, an Authority to Cancel Assessment (ATCA) for cases covered by Final Assessment Notice, Formal Letter of Demand or Final Decision on Disputed Assessment, which have become final and executory, shall be issued per taxable year.
Also, lifting orders of any issued warrant of distraint and/or levy, warrants of garnishment, notice of tax lien, notice of tax levy and notice of encumbrance shall be prepared and issued based on the approved ATCA, provided the tax liabilities covered by these warrants and notices are included in the taxpayer’s availing of the one-time abatement.
The one-time abatement under RR 04-2026 is a welcome development which will enable micro taxpayers to settle their outstanding tax liabilities and any filing deficiencies. It is a good exercise of the CIR’s power to abate taxes under the Tax Code.
Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer and has been ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal and is the Vice Chair of the Tax Committee of the Management Association of the Philippines. 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 info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.
The article was published at the More to Follow Column at The Manila Times on August 13, 2026. Please see this link.