A fate worse than debt

Written by Susan M. Aquino, on 3 September 2009 (BusinessWorld)

I wonder if there was ever a time when simple tax refunds were granted as a matter of course by the Bureau of Internal Revenue, or BIR, and that taxpayers were assured that taxes paid erroneously or excessively were to be returned to them in due time with minimum fuss and without having to wait for years to get what was truly theirs in the first place.

The prevailing reality is that the majority of claimants have to wait for years and even decades to secure a response from the BIR on their claims for tax refund. A worse fate may even await them as the claims may be denied due to prescription (filed out of time) or on the basis of insufficient evidence as if tax refunds, like the commission of a crime, must be proved beyond reasonable doubt.

While it is true that claims for refund are construed strictly against the taxpayer and thus cannot be based on mere inferences, the fact remains that mere preponderance of evidence is sufficient to justify their grant.

I believe that inaction on the part of the BIR on claims, even after complete supporting documents have been submitted, is one of the main reasons for the seeming endless delays in returning what is due to the taxpayers. At times, claimants are even compelled to institute court actions just to quell the two year prescriptive period to refund notwithstanding the prohibitive court fees and the length of time it would take to wait for a court decision.

The long, tedious and arduous process of claiming for refund has placed taxpayers at a great disadvantage. Several claims for tax refund filed with the BIR were simply placed in oblivion for various reasons, effectively resulting to the government being unjustly enriched at the expense of the taxpayers.

At no other time is it more common than it is now that the term, solutio indebiti, is used by petitioners in court actions for tax refunds. Petitions for Review on tax refunds filed with the Court of Tax Appeals (CTA) are always peppered with arguments invoking the doctrine of solutio indebiti or "unjust enrichment" on the part of the government to drive home the point that the government has the obligation to return overpaid taxes as long as proper documents have been submitted to the tax authorities to prove such claims.

The term, solutio indebiti, is embodied in Article 2154 of the New Civil Code and is but a simple expression of a norm of ethical conduct that "if something is received when there is no right to demand it, and was unduly delivered through mistake, the obligation to return it arises."

The term has often been described by the Supreme Court as a basic postulate that "no one should unjustly enrich himself at the expense of another." The Supreme Court has further ruled that the government is not exempted from the application of this principle and that unreasonable delay in granting tax refunds constitutes unjust enrichment. (G.R. No. 167274-75 promulgated on July 21, 2008; G.R. No. 172129 promulgated on Sept. 12, 2008).

The Philippine Tax Code and implementing rules and regulations contain provisions that are intended to expedite the processing of administrative claims for refund.

For instance, in refunds of creditable input tax on zero-rated or effectively zero-rated sales, the Tax Code gives the tax authorities 120 days from submission of complete documents to refund or issue tax credit certificates (TCC) to the claimants.

This is further implemented by Revenue Memorandum Circular (RMC) No. 29-2009 dated April 16, 2009 which mandates revenue officers to evaluate and approve claims for refund and issue the corresponding TCCs where complete supporting documents have already been submitted within the 120 days period. Said RMC further grants the taxpayers the right to file an administrative case for gross negligence and inefficiency against revenue tax officers who fail to act on the refund as prescribed by law.

Furthermore, RMC 49-03 dated Aug. 13, 2003 also provides for the simultaneous processing of administrative claims for refund even after a Petition for Review has been filed with the CTA. If the CTA decides on the case ahead of the BIR, the latter shall cease from processing the claim. Conversely, if the BIR approves the claim ahead of the CTA, the judicial claim may be withdrawn upon motion to be filed with the CTA. This rule effectively gives the taxpayers simultaneous remedies, but with the courts upholding a favorable decision on the administrative claim should this come earlier.

The foregoing provisions of law and regulations on tax refunds complements the doctrine of exhaustion of administrative remedies and ensures the early approval of claims which are adequately supported by substantial and relevant documents.

Unfortunately, strict implementation and enforcement of said laws had been wanting.

Accordingly, the rules prescribed for processing claims for refunds should be followed faithfully in the interest of due process.

The call to act on legitimate claims for tax refund springs from the principle of reciprocity which was eloquently expressed by the Supreme Court in this manner: "If the State expects its taxpayers to observe fairness and honesty in paying their taxes, it must hold itself against the same standard in refunding excess payments of such taxes. It should not unjustly enrich itself at the expense of the taxpayers."