Taxpayers’ Remedies for Local Taxation

Unlike national taxes, which are under the jurisdiction of the Bureau of Internal Revenue (BIR), local taxes are levied and assessed by local government units (LGUs) such as cities, municipalities and provinces. As regards national taxes, the general governing law is the National Internal Revenue Code (NIRC) as amended by R.A. No. 10963, known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law. However, when it comes to local business taxes, the general governing law is the Local Government Code (LGC) and the respective tax ordinances of each LGU.

In this article, I will present the remedies taxpayers may avail of in any city, municipality or province as far as local business taxes are concerned as provided by the LGC.

SECTION 194. Periods of Assessment and Collection.— (a) Local taxes, fees, or charges shall be assessed within five(5) years from the date they become due. No action for the collection of such taxes, fees, or charges, whether administrative or judicial, shall be instituted after the expiration of such period: Provided, That taxes, fees, or charges which have accrued before the effectivity of this Code may be assessed within a period of three (3) years from the date they become due.

(b) In case of fraud or intent to evade the payment of taxes, fees or charges, the same may be assessed within ten (10) years from discovery of the fraud or intent to evade payment.

(c) Local taxes, fees, or charges may be collected within five (5) years from the date of assessment by administrative or judicial action. No such action shall be instituted after the expiration of the said period: Provided, however, That, taxes, fees or charges assessed before the effectivity of this Code may be collected within a period of three (3) years from the date of assessment.

(d) The running of the periods of prescription provided in the preceding paragraphs shall be suspended for the time during which:

1) The treasurer is legally prevented from making the assessment or collection;

2The taxpayer requests for a reinvestigation and executes a waiver in writing before the expiration of the period within which to assess or collect; and

3) The taxpayer is out of the country or otherwise cannot be located.

Generally, local taxes, fees and charges must be assessed within 5 years from the date they become due. However, the rule admits of two exceptions in that (1) if the taxes, fees or charges accrued before the effectivity of the LGC, they may be assessed within 3 years from the date they became due and (2) in case of fraud or intent to evade the payment of taxes, fees or charges, the assessment may be made within the allowable period of 10 years from the discovery of the fraud.

For purposes of this Section, it should be remembered that under Section 166 of the LGC, all local taxes, fees and charges accrue on the first day of January of each year unless otherwise provided for in the LGC and except in the case of new taxes, fees or charges, or changes in the rates thereof, which accrue on the first day of the quarter next following the effectivity of the ordinance imposing such new levies or rates.

As to collection of the local taxes, fees or charges, note that the required waiver in paragraph (d)(2) must not only be in writing but must also be executed before the expiration of the period within which to assess or collect.

SECTION 195. Protest of Assessment.—When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partly the assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty-day period prescribe herein within which to appeal with the court of competent jurisdiction; otherwise, the assessment becomes conclusive and unappealable.

An assessment fixes and determines the tax liability of a taxpayer. It is a notice to the effect that the amount therein stated is due as tax and demand for payment thereof (Manila Electric Company v. Barlis; G.R. No. 114231; June 29, 2004). The notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer of the legal basis of the tax. Section 195 of the LGC does not go as far as to expressly require that the notice of assessment specifically cite the provision of the ordinance involved but it does require that it states the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties (Yamane v. BA Lepanto Condominium Corporation; G.R. No. 154993; October 25, 2005).

Indeed, Section 195 does not specify the grounds with which a protest may be made. Nevertheless, the law requires that in case of non-payment of correct taxes, fee, and charges, the notice of assessment given to the taxpayer must state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties therefor. Hence, the fundamental ground upon which a protest may lie is that the assessment may not have factual basis, that it is contrary to the facts or that the taxpayer is not liable to pay the tax being exempted from it or not covered by it.

It should be emphasized that the filing of a protest with the local treasurer is a condition precedent before resort to the courts can be had. Popularly known as the doctrine of exhaustion of administrative remedies, the rule is that where the law provides for the remedies against the action of an administrative board, body or officer, relief to courts can be sought only after exhausting all remedies provided. The reason rests upon the presumption that the administrative body, if given the chance to correct its mistake or error, may amend its decision on a given matter and decide it properly. Therefore, where a remedy is available within the administrative machinery, this should be resorted to before resort can be made to the courts, not only to give the administrative agency the opportunity to decide the matter correctly, but also to prevent unnecessary and premature resort to the courts (Lopez v. City of Manila; G.R. No. 127139; June 29, 2004).

The court of competent jurisdiction referred to in Section 195 is the Regional Trial Court which exercises original jurisdiction in the issuance of writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction which may be enforced in any part of their respective regions.

Specifically, certiorari is a special civil action against a tribunal, board, or officer exercising judicial or quasi-judicial function which is alleged in a verified petition filed by an aggrieved party to have acted without jurisdiction or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board, or officer, and granting such incidental reliefs as law and justice may require (Section 1, Rule 65, 1997 Rules of Civil Procedure).

It should be pointed out that the jurisdiction exercised by the Regional Trial Court in deciding an appeal taken from a denial of a protest by the local treasurer is original in character as distinguished from an exercise of the court’s appellate jurisdiction. This should be emphasized despite the language of Section 195 which states that the remedy of the taxpayer whose protest is denied is to “appeal with the court of competent jurisdiction.”

Original jurisdiction is the power of the court to take judicial cognizance of a case instituted for judicial action for the first time under conditions provided by law. On the other hand, appellate jurisdiction is the authority of a court higher in rank to re-examine the final order or judgment of a lower court which tried the case now elevated for judicial review. With these definitions in mind, reviews taken by the RTC over denials of protests by the local treasurer would fall within the court’s original jurisdiction. Moreover, labeling these reviews as an exercise of appellate jurisdiction is inappropriate because the denial of the protest is not a judgment or order of a lower court, but of a local government official.

With the enactment of R.A. 9282 expanding the jurisdiction of the Court of Tax Appeals (CTA), the law has made it clear that the CTA now exercises exclusive appellate jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction (Section 7(a)(3), R.A. No. 9282).

SECTION 196. Claim for Refund or Tax Credit.—No case or proceeding shall be maintained in any court for the recovery of any tax, fee or charge erroneously or illegally collected until a written claim for refund or credit has been filed with the local treasurer. No case or proceeding shall be entertained in any court after the expiration of two (2) years from the date the taxpayer is entitled to a refund or credit.

The doctrine of supervening cause applies to refunds of local taxes. In view of the language of Section 196, it would seem that the two-year period may be suspended by a supervening cause. An example of a supervening cause is the subsequent exemption of the taxpayer from which date the taxpayer is entitled to a refund or credit. Contrast this to the words of Section 229 of the NIRC wherein the two-year period cannot be suspended by any supervening cause, to wit:

In any case, no suit or proceeding shall be filed after the expiration of the two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.”

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