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The right to be (actually) heard

Last night, I had a heated discussion with my friend, which turned in part on open-mindedness to my arguments. Even though I laid out my case, it fell on deaf ears. I believed that the altercation could have been settled if only my friend was willing to listen to my explanations.

Sounds familiar? I know most of us have experienced this predicament with our friends or family. A simple discussion can easily escalate to a full-blown argument due to a party’s refusal to listen.

The importance of actually being heard holds true even for taxpayers particularly during the assessment process. While taxes are the lifeblood of the State, the urgency of paying taxes is still subject to the constitutional right of taxpayers to due process. Taxation, however awesome this power may be, must be exercised reasonably and in accordance with the prescribed procedure. The basic tenet of due process requires that taxpayers be given an opportunity to be heard.

I was browsing through my previous articles for this column and I came across an old article from 2017 on due process in the preliminary assessment notice (PAN) stage of the tax examination process. In the article, I emphasized that the right of the taxpayer to respond to the PAN is an essential part of the due process requirements. Moreover, taxpayers are given a 15-day period within which to submit to the BIR a reply to the PAN. Procedural due process is not satisfied by mere issuance of the PAN, without giving the taxpayer an opportunity to be heard. Failure to observe the 15-day period given to the taxpayer to submit a reply renders the assessment void, as held in a catena of cases decided by the Court of Tax Appeals (CTA).

In that article, I mentioned that although taxpayers are given a reasonable opportunity to be heard, this right is defeated if taxpayers are merely given such an opportunity, but are not actually heard.

In a recent CTA case promulgated on Jan. 5, 2021 (Dizon Farms vs CIR), the taxpayer was given ample time to submit a Reply to PAN within the 15-day reglementary period. Two days after the submission of the Reply to PAN, the Final Assessment Notice (FAN) was issued by the BIR, which contained the very same issues and amount of deficiency taxes stated in the PAN, except for the computation of interest and the addition of a compromise penalty.

The taxpayer raised the issue of due process claiming that the BIR did not even consider any explanations raised by the former in its Reply.

The CTA, in deciding the case, stressed “that the right of the taxpayer to answer the PAN carries with it the correlative duty on the part of the BIR to consider the response thereto and the issuance of the FAN without even hearing the side of the taxpayer is anathema to the cardinal principles of due process. The opportunity to be heard would be wasted if the reply or protest to assessments submitted to the BIR is not taken into consideration. It is an empty and meaningless exercise if the same is not even considered by the BIR.” The Court further emphasized that the BIR must give the reason for rejecting the taxpayer’s explanations, and must give the particular facts upon which their conclusions are based, and those facts must appear on record. As such, the issuance of FAN without consideration and evaluation of the defenses indicated in the Reply to PAN, violates the taxpayer’s right to due process and renders the deficiency tax assessments null and void.

Although the case is still at the CTA level, it can be gleaned that the right of the taxpayer to provide explanations and reconciliations on the BIR findings does not end upon submission of the Reply to PAN. The BIR must evaluate and consider the explanations and/or give reasons for rejecting the taxpayer’s explanations. The right to be heard must not be taken literally, but must be enjoyed pursuant to the rationale behind such right, as the assessment would demand paying off deficiency taxes which could be cumbersome for the taxpayers. The mere giving of 15 days for the taxpayer to reply to PAN would be futile if it is not thoroughly read and considered by the BIR examiner. The taxpayers’ efforts in retrieving documents dating from years back and preparing the Reply would be in vain if the BIR thoroughly disregards such a Reply without reason.

Based on this decision, the BIR may consider revisiting and assessing its internal policy whether the current number of days for the reports to be prepared is sufficient to provide ample opportunity for the examiners to read and evaluate the taxpayer’s explanations and arguments. Time and again, some taxpayers feel that the arguments and explanations stated in the Reply were totally disregarded by the examiner just because it ran counter to the deficiency tax assessment made by the examiner.

Looking back to last night, my friend and I could have totally avoided the argument. Most, if not all, the issues we had, could have been settled if we were both willing to listen to each other. It is important to start every discussion with an open mind, allowing the other person to state his reasons. More important, however, is actually hearing and considering the explanations offered.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.


Flourence Kathrine S. Enriquez is a manager of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

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