Philippines Amnesty Act 2007

It must be a jubilee year. In Christian theology the Jubilee is a special year for the remission of sins and universal pardon through plenary indulgence. Forgiveness of all sins di culpa e di pena is granted only to the truly penitent-the ones who make a confession of their sins make the required a pilgrimage to a specified holy place. By analogy, the government of the Philippines is granting its own version of a plenary indulgence through R. A. 9480 only eternal damnation is not at hand, it's "just" tax.

In a bold but not unprecedented move to lure wayward taxpayers out of the woodworks and to boost revenue, Philippine lawmakers passed Republic Act 9480 "The Tax Amnesty Act of 2007" which essentially grants taxpayers a reprieve for all unpaid internal revenue taxes i.e. those imposed by the National Government for the taxable year 2005 and prior years upon payment of a special amnesty tax.

Upon payment of an amnesty tax the law promises that the taxpayer shall be immune from the payment of taxes, as well as additions thereto, and the appurtenant civil, criminal or administrative penalties under the National Internal Revenue Code of 1997, as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.

The amnesty is remarkable for three major reasons:

1. The amnesty was legislated by the Congress of the Philippines;
2. The coverage of the amnesty is very comprehensive in terms of taxpayer eligibility and taxes covered; and
3. The law provides a moratorium on all future amnesty including administrative amnesty granted by the Bureau of Internal Revenue (BIR)

It's a basic premise of constitutional law that Congress cannot pass irrepealable laws, so the moratorium will obviously last only until the next amnesty grant by Congress. This legislation however, makes it clear that any amnesty may only be by Congressional grant putting an end to the voluntary assessment and abatement programs by the BIR.

The moratorium clearly recognizes the Philippine BIR's penchant for amnesty programs with sometimes questionable legal basis. If one can argue that amnesty partakes of the nature of a tax exemption, which arguably it does, then BIR has no authority to grant a general amnesty since under Article VI Section 28 (4) of the 1987 Constitution no law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress. The line is drawn under Section 204 of the Code which allows BIR, through the Commissioner to compromise taxes upon certain conditions: 1) when reasonable doubt as to the validity of the claim against the taxpayer exists; or 2) the financial position of the taxpayer demonstrates a clear inability to pay an assessed tax. In the same manner, BIR is also allowed to cancel a tax liability 1) when the tax or any portion thereof appears to be unjustly or excessively assessed; or 2) the administration and collection costs involved do not justify the collection of the amount due.

We can quibble about constitutional issues and violation of the separation of powers all day but why should any taxpayer public complain about amnesty? When unthreatened by collection enforcement measures, the shrewd businessman will normally lay low from the taxman and await the next opportunity to make good on his sins. Amnesty will come around again in the Philippines, won't it? Or it will this one last time.

The saying goes however, beware of Greeks bearing gifts. Amnesty programs usually require some form of disclosure return and authorize a carte blanche review of the books. They also usually do not involve all types of taxes and can lead to assessment, which is precisely the opposite objective to be achieved, at least from the taxpayer viewpoint.

On paper Republic Act 9480 measures up pretty well. It requires the submission of a SALN or statement of assets and liabilities and an amnesty return. The SALN is the basis for determining the amount of taxes to be paid which in no case is higher than 5% net worth (based on the SALN). Revenue has one year to determine the veracity of the SALN but in general, the implementing regulations provide that the SALN is presumed correct unless:

1. the amount of the declared net worth is understated to the extent of thirty percent (30%) or more as may be established in proceedings initiated within one (1)-year following the date of filing of the Tax Amnesty Return and the SALN, by, or at the instance of parties other than the BIR or its agents, as when any person, entity or government agency informs the BIR, with sufficient evidence, that the amount of the declared networth is understated to the extent of thi!ty percent 30 % or more; or

2. When findings of or admission in congressional hearings or proceedings in administrative agencies of the government, and in courts, prove that there is at least thirty percent (30%) under-declaration.

The willful understatement in the SALN is subject to the penalties of perjury under the Revised Penal Code and constitutes prima facie evidence of fraud and constitutes a ground upon which attachment for such property may be issued in favor of the BIR to answer for the satisfaction of any judgment against the erring declarant who will likewise be subject to a tax fraud investigation.
In terms of process the amnesty is relatively simple. The implementing rules require interested taxpayers to secure a notice of availment and a tax amnesty return from the BIR and prepare their SALNs as of December 31, 2005. Then they have to pay the amnesty tax at accredited banks or collection agents, and secure a notice of payment. Once all forms are ready, they must be submitted to the relevant revenue district officer and only then can the above described immunity be effective.
Excluded from coverage are withholding agents with respect to their withholding tax liabilities, taxpayers with cases involving ill-gotten wealth or unexplained wealth, taxpayers with cases involving money laundering, pending criminal cases filed in court for felonies of frauds, illegal exactions and transactions, and malversation of public funds and property under Chapters III and IV of Title VII. of the Revised Penal Code, taxpayers facing pending tax evasion and other criminal offenses under the tax code, and tax cases subject of final and executory judgment by the courts. This means that those with pending assessments whether currently being processed administratively or in the courts are eligible for amnesty so long as they do not involve fraud or criminal offenses. This is the bulk of pending assessments with the BIR.

For those who are eligible, the bottom line is whether the amnesty, in numbers makes financial sense. Immunity for 2005 and prior years presents a huge benefit.
Taxpayers in the Philippines can avail of the amnesty until March 5, 2008. The BIR of the Philippines began accepting applications on Wednesday, September 5, 2007. Without going into policy perspectives, R.A. 9840 provides huge benefits, at least from a taxpayer perspective or it's the closest thing to eternal salvation that government can give.