Tax Articles

No Delinquency, No Collection

By Atty. Fulvio D. Dawilan

In the recent past, taxpayers had been inundated with collection remedies pursued by our tax authorities eager to enforce the collection of tax assessments, even if the same are still being contested administratively or judicially. In fact, for some, collections had actually been made through the garnishment of bank accounts, resulting in the deprivation of the use of resources for the concerned taxpayers prior to the assessments becoming final.

This may change following the decision of the Supreme Court in G.R. No. 231238, June 20, 2022, holding that an assessment still pending appeal does not become final, executory and demandable and that any collection remedies pursued are considered void. The Tax Court had followed suit. As a matter of fact, the Tax Court had already issued pronouncements singing the same tune as that of the said Supreme Court decision.

It is now becoming clear that the remedies for the collection of taxes should be pursued by the tax authorities only when the subject taxes have become final and executory. An assessment may only be the subject of collection if it has become delinquent. The governing provisions are Sections 205 and 207 of the Tax Code, both of which refer to delinquency or delinquent tax or delinquent revenue as the ground for the enforcement of civil remedies for the collection of taxes.

And when is an assessment considered delinquent? A number of issuances and even Court decisions had defined or described a delinquent account or delinquency, all of them say similar thing. A tax is considered delinquent when any of the following instances occur: (a) the taxpayer fails to pay the tax due on the prescribed due date provided in the Final Assessment Notice or Formal Letter of Demand, and there has been no protest, whether for reconsideration or reinvestigation, within thirty (30) days from receipt thereof; (b) the taxpayer fails to file an appeal before the Court of Tax Appeals , or an administrative appeal before the Commissioner of Internal Revenue, within thirty (30) days from the receipt of the denial of the request for reconsideration or reinvestigation, and (c) the taxpayer fails to file an appeal with the CTA within thirty (30) days from receipt of the denial of its administrative appeal. (CTA Case No. 10384, August 17, 2022)

It is only among these instances that the taxes involved maybe considered delinquent, and pursued through any of the civil remedies exercisable by the tax authorities. In the absence of any of these instances, there is no delinquent tax to speak of, and the taxes included in the assessment cannot be collected.

Let me reiterate that when a final decision on disputed assessment is elevated to the Commissioner of Internal Revenue (CIR) within the allowed period, it does not become final, executory and demandable. It does not emanate from demandable assessment and there is no delinquent tax yet. Accordingly, the issuance of collection letters, final notice before seizure, warrant of distraint and levy and any enforcement action, pending the appeal before the CIR, are considered void. (G.R. No. 231238, June 20, 2022)

Similarly, when a taxpayer appeals to the CTA the final decision on the protest or the decision on administrative appeal or even in cases where appeal is made due to inaction, the assessment is not enforceable until the appeal is decided with finality. Until then, collection remedies should not be pursued. Any collection efforts initiated should be considered void.

The decisions of the Courts are now clearly swinging towards “delinquency” as basis for enforcing collection of taxes. With this, I hope that our tax authorities would be more discriminating in enforcing collections and run after only those that have clearly become delinquent.
Related to these are the remedies for the returns to taxpayers of properties/assets that had actually been levied/garnished by the tax authorities on assessments that are still being contested. As the right of the tax authority to collect had not repined, and no legal obligation of the taxpayers to pay, these should be returned to the taxpayers. I believe that the usual processes for the refund of taxes should not apply as these were not paid voluntarily by the taxpayers. The same should be refunded with dispatch. Taxpayers had already been unjustly dispossessed of the use of those properties. To further delay the return would result in further deprivation.