On Feb. 14, the President signed into law Republic Act No. 11213 or the Tax Amnesty Act of 2019 (RA 11213). The law provides for estate tax amnesty and tax amnesty on delinquencies. In this article, we will zoom in on the tax amnesty on delinquencies.
The grant of a tax amnesty on delinquencies (TAD) is a novelty. Under the previous tax amnesty law (RA 9480), tax cases that are the subject of final and executory judgments by the courts were specifically excluded from the coverage. Perhaps aware of the delinquencies pending in the books of the Bureau of Internal Revenue (BIR) and the resources needed to actually collect on these delinquent accounts, the proponents of this law deemed it prudent to grant an amnesty for delinquent taxpayers. This will not only give the taxpayers a chance for a fresh start, but will also help clear the dockets of the BIR so that they can focus their attention on more pressing cases.
While the law became effective on March 2, its implementation still required the issuance of the implementing rules and regulations to guide taxpayers and implementing agencies alike. On April 5, Secretary of Finance Carlos G. Dominguez III, upon the recommendation of BIR Commissioner Caesar R. Dulay, issued Revenue Regulations (RR) No. 4-2019 providing the guidelines on the processing of tax amnesty applications on tax delinquencies. The regulations took effect on April 24.
The RR provides a huge relief for taxpayers and practitioners as it clarified some of the seemingly ambiguous provisions of the law, primarily the coverage of the TAD. Due to the term used, taxpayers may have gotten the impression that only delinquent accounts (as defined in prior BIR regulations and issuances) are covered by the law.
RR No. 4-2019 addresses these issues and clarifies that there are only four instances when the TAD may be availed of:
1. Tax assessments that have become final and executory at the BIR level;
2. Tax assessments that have become final and executory at the judicial level;
3. Pending criminal cases filed with the DoJ/Prosecutor’s Office or the courts for tax evasion and other criminal offenses under Chapter II of Title X and Section 275 of the Tax Code; and
4. Withholding agents who withheld taxes but failed to remit the same to the BIR.
Evidently, only the first two instances require a final and executory assessment. Moreover, only those that have become delinquent on or before April 24 may avail of the TAD under these instances.
Another cause of uncertainty was the inclusion of the withholding taxes in the TAD. In RA 9480, withholding agents with respect to their withholding tax liabilities were specifically excluded. During the deliberations of the law, several stakeholders proposed the inclusion of withholding tax liabilities since it was seen as a prevalent issue in practice. Non-withholding or non-remittance of the required withholding taxes often occurs due to ignorance or the unsophisticated accounting systems used by taxpayers, but without any real intention to evade payment.
It was argued that since the amnesty aims to give taxpayers a fresh start, it would not make sense to exclude withholding taxes in the coverage. A distinction was made between withholding taxes that were not withheld at all and withholding taxes that were withheld but not remitted to the BIR. The former are covered by the General Tax Amnesty and the latter are covered by the TAD and subject to a higher rate of 100% of the basic tax.
The understanding then was that the withholding taxes withheld, but not remitted to the BIR, would be covered by the TAD even though the same are not technically and necessarily delinquent yet. This is now reflected in the regulations, which state that a tax amnesty rate of 100% shall apply in all cases of non-remittance of withholding taxes, even if the same shall fall under any of the other instances covered by the TAD.
Moreover, the regulations state that for withholding agents who withheld taxes but failed to remit the same to the BIR, delinquent or not, and with or without Final Assessment Notice/Final Decision on Disputed Assessment, the Preliminary Assessment Notice/Notice for Informal Conference (PAN/NIC) or equivalent document will be sufficient. Clearly, this gives closure to the question of whether it is necessary that taxpayers are the subject of a final and executory assessment.
Finally, the regulations also provide an expanded definition of the tax base, i.e., the basic tax assessed. The law merely provides that the tax base for all the instances covered by the TAD would be the basic tax assessed. However, due to the different natures of the instances covered by TAD, there arose some confusion as to what constituted the basic tax assessed. This is particularly relevant in cases where the delinquent taxes have been the subject of an application for compromise settlement, which requires the payment of the compromise offer. The regulations clarified that the basic tax assessed would be the tax due on the Assessment Notice, net of any basic taxes paid prior to the effectivity of the regulations. This means that any payments previously made, such as the compromise offer or the partial payments, must be deducted from the tax due in the assessment to get to the amnesty tax base.
With the issuance of the regulations, taxpayers can now take advantage of a rare opportunity that could potentially provide substantial savings, not just for interest, penalties and surcharges, but also for basic taxes. All they need to do is follow the steps provided in RR No. 4-2019, and then rest easy knowing that they not only have a fresh start as taxpayers, but that they have also contributed to the country’s long-term growth by properly paying the taxes which are the lifeblood of national development.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Mae Grace June C. Nillama is a Tax Director of SGV & Co.