Tax Articles

Hostage of Business Permit

By Atty. Irwin C. Nidea Jr.

IT appears that some cities are more powerful in enforcing their tax collection measures compared to the national government. The Bureau of Internal Revenue (BIR) usually goes through the rigors of issuing tax assessment notices and in resolving protests on the same before collection proceedings are initiated.

January is when payment of local business tax is due. It is also the time when some cities flex their power to collect pending or protested local business tax assessments. They threaten not to issue business permit if a taxpayer will not pay a local business tax assessment, even if it is still under protest.

If a taxpayer questions the collection proceedings of the BIR, the taxpayer will not be asked to close shop. It remains a going concern. But if the local government will not issue a business permit, the taxpayer cannot operate in that city or municipality. The business is lost.

To support this kind of enforcement, some cities have issued an ordinance that requires a taxpayer to pay the local business tax before protest thereon shall be entertained. In other words, they require taxpayers to pay any local tax assessment first, under protest. These cities cite Section 252(a) of the Local Government Code, which falls under “Chapter VI Collection of Real Property Tax” in “Title II Real Property Taxation.” If payment is not made, taxpayers are deemed delinquent. Hence, issuance of business permit is withheld. But this is clearly misplaced. The requirement of payment under protest on real-property tax must not be applied to local business tax assessments.

The only requirement in a local business tax assessment is the filing of a protest in writing within 60 days from receipt of the notice of assessment—there is no requirement to pay under protest.

There is nothing in the Local Government Code that requires a taxpayer to pay the tax assessed before the local treasurer may act on the taxpayer’s protest. In various cases, the Court of Tax Appeals has held that “payment under protest” is not required in protest against local business tax assessment. It is only required in real-property tax assessments.

Even the Supreme Court in the case of City of Manila v. Cosmos Bottling Corp. GR 196681, June 27, 2018, has held that when a taxpayer is assessed a deficiency local tax, fee or charge, he may protest it under Section 195 of the Local Government Code even without making payment of such assessed tax, fee or charge. The reason is that local government taxation, save in the case of real property tax, does not expressly require “payment under protest” as a procedure prior to instituting the appropriate proceeding in court. The SC ruled that the success of a judicial action questioning the validity or correctness of the assessment is not necessarily hinged on the previous payment of the tax under protest.

But despite this Supreme Court pronouncement, some cities stand firm in enforcing their respective ordinances. They argue that until the same is declared null and void by the courts, the same remains valid. So, taxpayers are in a quandary—should they pursue their protest against a local tax assessment without paying, and risk being closed down, or should they give in and pay under protest. Taxpayers should stand firm against this “ultra vires” ordinances. The SC is clear that local governments have no authority to impose such rule. If local governments insist, taxpayers have remedies available for them in court.

The problem with these judicial remedies though is that it is reactive rather than preemptive. When the taxpayer goes to court, the local government has already closed down the business operation of the taxpayer.

Businesses may be held hostage by cities who require payment of local business tax assessments under protest. They need their business permits to continue their operations. It is a predicament that asks for ransom. Hopefully, it will not be a breeding ground of corruption.