Collection Process under the National Internal Revenue Code (NIRC) of 1997, as Amended by the TRAIN Law and the Ease of Paying Taxes Act

The collection process under the National Internal Revenue Code (NIRC) of 1997, as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law (R.A. No. 10963) and the Ease of Paying Taxes Act (R.A. No. 11976), is an integral part of tax administration in the Philippines. It involves the steps and remedies available to the Bureau of Internal Revenue (BIR) for enforcing the payment of taxes due. Below is a comprehensive overview of the tax collection process under the NIRC, incorporating the recent amendments by the TRAIN Law and the Ease of Paying Taxes Act.

1. Authority to Collect Taxes

Under the NIRC, the BIR has the authority to assess and collect taxes. This power is exercised by issuing assessments, and if these assessments remain unpaid, the BIR may resort to collection remedies provided by the NIRC. The amendments under the TRAIN Law and the Ease of Paying Taxes Act further clarify and streamline the processes by which the BIR can enforce collections.

2. Collection Remedies Available to the BIR

The BIR has two primary collection remedies when taxpayers fail to voluntarily pay their assessed tax liabilities:

Civil Remedies: These include distraint of personal property and levy of real property.
Judicial Action: The BIR may file a civil case for collection in the regular courts or seek enforcement through judicial means.

A. Civil Remedies

The BIR’s civil remedies enable it to directly collect from the taxpayer by seizing property or rights. These remedies include:

Summary Remedies of Distraint and Levy:
- Distraint of Personal Property: This remedy involves the seizure of the taxpayer’s personal property (movable assets) to satisfy the tax due.
- Levy on Real Property: The BIR may levy real property owned by the taxpayer. A levy involves the seizure and eventual sale of real estate assets.
- Procedure for Distraint and Levy:
  - A warrant of distraint or levy is issued by the BIR against the taxpayer’s properties.
  - The properties are then seized by BIR agents.
  - A public auction is conducted to sell the seized assets if the tax remains unpaid, with the proceeds applied to settle the tax liability.
Constructive Distraint:
- The BIR may impose constructive distraint on a taxpayer’s property if there is a strong indication of a risk of asset removal or concealment by the taxpayer.
- This process involves placing restrictions on the taxpayer’s assets, usually by marking or identifying them, to prevent their disposal while the assessment is being resolved.

B. Judicial Action

If civil remedies prove insufficient, the BIR may resort to filing a collection suit in court, which can be a lengthy process but provides judicial enforcement of tax liabilities.

Civil Suit for Collection: The BIR can file a lawsuit in the regular courts to compel the taxpayer to pay the tax due. This remedy is commonly used when distraint and levy are not viable options or when significant sums are involved.
Collection through Court Action on Large Tax Deficiencies: For larger tax deficiencies, the BIR may choose court action directly as it provides a formal route of recourse.

3. Prescriptive Periods for Collection

The BIR must observe strict prescriptive periods for tax collection actions:

Ordinary Collection Period: Generally, the BIR has three years from the date the tax return was filed or was supposed to be filed to collect taxes.
Extended Collection Period: If there was a fraudulent return or the taxpayer failed to file a return, the period is extended to ten years from the discovery of the fraud or omission.

The TRAIN Law did not modify the prescriptive periods but emphasized that adherence to these time limits is crucial to the validity of collection actions. The Ease of Paying Taxes Act streamlined some processes but did not change these prescriptive periods.

4. Protest and Appeal Mechanisms

If a taxpayer disagrees with an assessment, they may file an administrative protest within the BIR. Should the protest be denied, or if no decision is issued within a given period, the taxpayer may appeal to the Court of Tax Appeals (CTA).

Administrative Protest: The taxpayer files a protest with the BIR, contesting the findings. The BIR must respond, and failure to do so entitles the taxpayer to seek recourse from the CTA.
Court of Tax Appeals (CTA): If administrative remedies are exhausted, the taxpayer may appeal to the CTA to contest the assessment or the BIR’s collection actions.

5. Suspension of Collection Process

Several situations may suspend the collection process:

Pending Protest: The filing of a protest by the taxpayer against the assessment suspends the collection process until a final decision is made.
Injunction by the Court: The CTA or a higher court may issue an injunction to halt BIR’s collection actions, especially if there are grounds showing that the taxpayer’s rights are being unduly violated.
Installment Agreements: If the taxpayer agrees to an installment payment plan with the BIR, collection actions are held in abeyance as long as payments are made as scheduled.

6. Reforms Introduced by the Ease of Paying Taxes Act (R.A. No. 11976)

The Ease of Paying Taxes Act (R.A. No. 11976) introduced several reforms intended to improve the collection process:

Electronic Filing and Payment: The Act mandates that the BIR make electronic filing and payment options more accessible to taxpayers, reducing the administrative burden on the BIR and taxpayers.
Simplified Processes: The Act streamlined certain procedures, reducing bureaucratic requirements to improve efficiency in the collection process.
Reduction of Documentary Requirements: For certain tax types and collection actions, the Ease of Paying Taxes Act requires fewer documentation, thereby expediting the BIR’s collection efforts and enhancing compliance.
Enhanced Transparency: The law mandates the BIR to provide clearer guidelines and information on tax collection, increasing transparency for taxpayers and reducing disputes related to procedural matters.

7. Taxpayer Rights During the Collection Process

Both the NIRC and the recent amendments safeguard taxpayer rights:

Right to Due Process: Taxpayers are entitled to be informed of assessments and given an opportunity to respond before collection actions are enforced.
Right to Appeal: Taxpayers have the right to appeal assessments and collection actions through administrative protests and judicial appeals.
Right to Fair Collection Practices: The BIR must observe ethical and lawful practices in the collection of taxes, prohibiting harassment or undue force in enforcement actions.
Right to Installment Payment Arrangements: For taxpayers experiencing financial hardship, the BIR offers installment payment options to fulfill tax obligations gradually.

8. Penalties for Failure to Comply

Failure to comply with collection-related obligations carries penalties, including surcharges, interest, and fines. The NIRC imposes these additional amounts to encourage timely tax payments:

Surcharge: Generally, a surcharge of 25% on the tax due is imposed for failure to pay on time.
Interest: Interest is computed at a rate of 12% per annum on the unpaid tax until fully settled.
Compromise Penalties: The BIR may impose compromise penalties for minor violations, which are lower fines agreed upon between the taxpayer and the BIR to avoid litigation.

9. Implications of Non-Payment and Escalation to Criminal Charges

If a taxpayer consistently evades paying taxes or refuses to comply with collection efforts, the BIR may escalate the matter to criminal prosecution. Evasion or willful failure to pay taxes can lead to criminal charges, subject to penalties including imprisonment, fines, or both.

Conclusion

The collection process under the NIRC, as amended by the TRAIN Law and the Ease of Paying Taxes Act, is robust and structured to enforce tax compliance efficiently. The recent amendments aim to streamline procedures, safeguard taxpayer rights, and provide electronic and accessible payment options, making it easier for the BIR to collect taxes while ensuring fairness in enforcement. Proper adherence to the BIR’s collection remedies and procedures not only enables effective tax administration but also encourages taxpayer cooperation and compliance in the Philippines.