(BDB Law’s “Tax Law For Business” appears in the opinion section of BusinessMirror every

Thursday. BDB Law is an affiliate of Punongbayan & Araullo (P&A).

Under protest

True to its promise, local-government taxation has sustained the continued

development and progress of local government units (LGUs). As a beacon of
urbanization, the collection of taxes ensures a steady supply of funds for LGUs,
aside from their respective internal-revenue allotments, to subsidize their daily
operations and finance whatever projects they aspire to accomplish.
In the exercise of such delegated power, it has been the recurring practice of
local government agencies to compel taxpayers to pay “under protest” whatever
tax liabilities they may have computed, in cases where a deficiency exists
between the amounts of taxes being paid by a particular taxpayer and the
computation by such authorities of the supposed tax liability. Refusal to pay will
lead to serious consequences, such as failure to secure the necessary business
permits and clearances.
Is this practice proper? Is it mandated under the law, or merely based on whim?
What if the taxpayer refuses to pay the tax computed by these agencies for being
excessive or without basis? Will it be valid for these agencies to refuse the
payment of the taxpayer by reasoning out that what the latter is paying is not the
correct tax liability?
The Supreme Court has ruled that a city treasurer may not be compelled to
accept as full compliance a tax payment that, in his reasoning and assessment,
is deficient and incorrect, since such act is a discretionary function or one which,
by its nature, requires the exercise of judgment (Romulo D. San Juan v. Ricardo
L. Castro, G.R. 174617, December 27, 2007).
However, what were resolved in the above-mentioned case are the underlying
issues concerning the payment of real-property taxes only.
Section 195 of the Local Government Code of 1991, Republic Act (RA) 7160, to
which the honorable court referred to in the case, merely provides for the
procedure that a taxpayer must comply with in protesting a notice of assessment
issued by a particular LGU after the corresponding tax examination/investigation
has been conducted. The aforesaid provision neither contains “payment under
protest” nor does it empower the local treasurer to refuse payment being made
by the taxpayer. Besides, Section 195 of RA 7160 specifically refers to a situation
where: 1) the taxes, fees or charges have already been paid by a certain
taxpayer; 2) the local treasurer or his authorized representative finds that the
correct taxes, fees or charges have not been paid; and 3) upon discovery of such
failure, the local treasurer or his authorized representative issues a notice of
assessment stating the nature of the tax, fee, charge, the amount of deficiency,
the surcharges, interests and penalties.
Furthermore, Section 194, which, by the way, together with Sections 195 and
196, comprise Chapter 6 of Book 2, Title 1 of RA 7160, entitled “Taxpayer’s
Remedies,” is explicit that, “….Local taxes, fees, or charges shall be assessed
within five [5] years from the date they became due...xxx…x.”
The phrase “payment under protest” can be found only under Section 252 of RA
7160, which provides that: “… No protest shall be entertained unless the
taxpayer first pays the tax. There shall be annotated on the tax receipts the
words “paid under protest.” The protest in writing must be filed within thirty [30]
days from payment of the tax to the provincial, city treasurer or municipal
treasurer,…xxx…xxx..., who shall decide the protest within sixty [60] days.”
It is glaring that the procedure required and set under the aforementioned
provision forms part of Title 2, Chapter 6 of RA 7160, which is aptly entitled
“Collection of Real Property Tax.”
Section 25 of Commonwealth Act 470 (Assessment Law) and Section 62 of
Presidential Decree 464 (Real Property Tax Code) also offer similar provisions in
accordance with the lifeblood doctrine. However, these laws, likewise, pertain
only to payment of real-property taxes.
On the other hand, Section 52 of the Internal Revenue Law of 1904 (Act 1189)
states: “No suit shall be maintained in any court for the recovery of any internal-
revenue tax alleged to be excessive or collected without authority or of any sum
alleged to be excessive, unless protest against such tax was made at the time of
the payment thereof ….xxx ………... xxxx ……….... xxxx ………. Xxx ……. Xxx
……. xxx…….And provided further, That no courts shall have authority to grant
an injunction restraining the collection of any taxes imposed by virtue of the
provisions of this Act, but the remedy of the taxpayer who claims that he is
unjustly assessed or taxed shall be by payment under protest of the sum
claimed, from him by the Collector of Internal Revenue…..xxx.”
Nonetheless, significant is the fact that, essentially, the right of LGUs to collect
taxes emanates from RA 7160. Hence, LGUs may not find refuge in Act 1189.
In view of the foregoing, the remaining option for LGUs that remain steadfast in
their resolve to require taxpayers to “pay under protest,” in cases involving
payment of taxes other than real- property taxes, is to find legal support from
their respective charters and/or local revenue codes or tax ordinances.
Otherwise, these LGUs are all inviting the filing of suits against them.