Every new year is a new chapter to embrace the graces and challenges life brings, which gives us opportunities to make a significant journey that will hopefully inspire others. Nonetheless, the reality remains that every person manages continuous similar obligations and responsibilities whether in family, education, or business.

For example, all businesses every year should apply for the renewal of their business permit before the Local Government Unit (LGU) on or before Jan. 20. Typically, taxpayers pay immediately. As explained by the Supreme Court in City of Manila vs. Cosmos Bottling Corp., a taxpayer who is engaged in business would be hard-pressed to secure a business permit unless he pays an assessment for business tax and/or regulatory fees. Also, a taxpayer may pay the assessment to avoid further penalties or save his properties from levy and distraint proceedings. However, there are cases where taxpayers choose to exercise their legal right against such an assessment. With this, the question arises as to which remedy under the Local Government Code (LGC) should be availed of by the taxpayer to contest such an assessment. Notably, the LGC provides that the protest of assessment is governed by Section 195, while claims for refund or tax credit are governed by Section 196.

In Jose vs. Tigerway Facilities and Resources, Inc., the Supreme Court comprehensively discussed Section 195 and Section 196 of the LGC, citing the Cosmos Bottling case. Section 195 provides the procedure for contesting an assessment issued by the local treasurer, whereas Section 196 provides the procedure for the recovery of an erroneously paid or illegally collected tax, fee, or charge. Both Sections 195 and 196 mention an administrative remedy that the taxpayer should first exhaust before bringing the appropriate action in court. In Section 195, it is the written protest with the local treasurer that constitutes the administrative remedy, while in Section 196, it is the written claim for refund or credit with the same office. The law does not particularly provide a form for a protest or refund claim to be considered valid; it suffices that the written protest or refund is addressed to the local treasurer expressing in substance its desired relief. The title or denomination used in describing the letter would not ordinarily put control over the content of the letter.

In the Cosmos Bottling case, the Supreme Court enunciated that the application of Section 195 is triggered by an assessment made by the local treasurer or his duly authorized representative for nonpayment of the correct taxes, fees, or charges. Should the taxpayer find the assessment to be erroneous or excessive, he may contest it by filing a written protest before the local treasurer within the reglementary period of 60 days from receipt of the notice; otherwise, the assessment shall become conclusive. The local treasurer has 60 days to decide the protest. In case of denial of the protest or inaction by the local treasurer, the taxpayer may appeal to the court of competent jurisdiction; otherwise, the assessment becomes conclusive and unappealable. On the other hand, Section 196 may be invoked by a taxpayer who claims to have erroneously paid a tax, fee, or charge, or that such had been illegally collected from him. The provision requires the taxpayer to first file a written claim for a refund before bringing a suit in court, which must be initiated within two years from the date of payment. By necessary implication, the administrative remedy of claim for refund with the local treasurer must be initiated also within the two-year prescriptive period but before the judicial action.

In addition, the case emphasized that Section 196 does not expressly mention an assessment made by the local treasurer. This simply means that its applicability does not depend upon the existence of an assessment notice. By consequence, a taxpayer may proceed to the remedy of refund of taxes even without a prior protest against an assessment that was not issued in the first place. This is not to say that an application for a refund can never be precipitated by a previously issued assessment, for it is entirely possible that the taxpayer, who had received a notice of assessment, paid the assessed tax, fee, or charge believing it to be erroneous or illegal. Thus, under such circumstances, the taxpayer may subsequently direct his claim pursuant to Section 196 of the LGC.

Interestingly, in Team Energy Corp. (TMC) v. Municipality of Pagbilao, TMC opines that the Statements of Account (SOAs) for 2019 and 2020 are not “notices of assessment” that would trigger the application of Section 195 of the LGC. For this reason, TMC is not required to comply with the periods prescribed by Section 195, and only the two-year period provided under Section 196 of the LGC should be complied with. In contrast, the Municipality of Pagbilao insists that the subject SoAs issued by the Municipal Treasurer, although denominated as such, are considered Notices of Assessment contemplated under Section 195 of the LGC. The Court of Tax Appeals (CTA) concurred with TMC and has ruled that SoAs are not the “notices of assessment” contemplated under Section 195 of the LGC because the subject SoAs show that the same did not provide notice of the facts and laws from which the billed amounts were based. Moreover, the SoAs were issued not as an assessment of LBT but as a prerequisite for the issuance/renewal of the mayor’s permit. Although the SoAs state the amount and nature of the tax and fees assessed, they do not contain the amount of deficiency, surcharges, interests, and penalties due. The CTA likewise relied on the case of National Power Corp. vs. The Province of Pampanga and Pia Magdalena D. Quibal, wherein the Supreme Court emphasized that the details contained in a notice of assessment should be sufficiently informative to apprise the taxpayer of the legal basis of the tax. Furthermore, the CTA elucidated that it is vital that notice of assessment must have reference to the local tax ordinance because the power of LGU to impose local taxes is exercised through the appropriate ordinance enacted by the Sanggunian, and not by the LGC alone. What determines tax liability is the tax ordinance, the LGC being the enabling law for the local legislative body. Hence, the subject SOAs that only contain a table of taxes with no other details are deficient in carrying out the function of informing the taxpayer of the factual and statutory basis of the tax.

In view of these, the SoAs issued in connection with the application for the issuance/renewal of the mayor’s permit are not considered Notices of Assessment contemplated under Section 195. Thus, taxpayers may file a claim for a refund or tax credit under Section 196 to recover the erroneously paid or illegally collected tax, fee, or charge, if any, within the two-year prescriptive period. With that, taxpayers have the responsibility, not only the National Government and LGU, to be cautious in exercising their legal rights to fully and continuously safeguard their properties against any unlawful deprivation of due process.

Penelope Germaine D. Sernande is a manager from the Tax Advisory & Compliance Practice Area of P&A Grant Thornton. One of the leading audits, tax, advisory, and outsourcing firms in the Philippines, P&A Grant Thornton is composed of 29 Partners and 1,500 staff members.

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