Haste = Waste

Haste = Waste

by Ma. Celina Noreen D Reyes


Listen with the intent to understand, not with the intent to reply.

I recently read Stephen Covey’s 7 Habits of Highly Effective People, a self-help book which sets fundamentals in one’s journey to success. The 7 Habits he suggested are all highly useful, with Habit 5: Seek First to Understand, Then to Be Understood standing out in terms of applicability to relationships.

haste = waste

Basically, the habit talks about the difference between hearing and listening. Hearing is the ability to perceive sound while listening is paying attention and giving consideration to what we hear. In other words, the habit suggests that we must listen not only with our ears but also, and more importantly, with our hearts. Admittedly, prior to learning about this habit, my immediate response after a friend, colleague, or relative shares a story/problem was to give them unsolicited advice when, in truth, they only wanted me to lend an ear.

Thankfully, I know better now and applying the 5th habit in my daily life appears to have fostered harmony both in my personal and professional relationships.

The habit is actually applicable in other aspects of life. It finds universal application that even the 1987 Philippine Constitution has a provision which recognizes it. Specifically, Section 1 Article III provides that “No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.” It is commonly known as the due process clause.

Simply put, the right to due process means giving both parties the opportunity to be heard; the opportunity to explain one’s side of the story. It is so vital that, as a general rule, once it is violated, the consequences of the act in issue has no legal effect.

In taxation, despite the fact that taxes are the lifeblood of the government, a Final Assessment Notice (FAN) may be declared null and void if its issuance violates the right of the taxpayer to due process. This was embodied in a case which was decided by the Court of Tax Appeals on 17 January 2019.*

In this case, a domestic corporation (the Company) engaged in amusement, gambling and recreational industries, received a Preliminary Assessment Notice (PAN) on 13 March 2013 with a finding of deficiency income tax for taxable year 2009. A reply to the same was filed on 22 March 2013. On 05 April 2013, the Company received a Formal Letter of Demand/Final Assessment Notice (FLD/FAN) dated 15 March 2013 or only two days after its receipt of the PAN. On 15 April 2013, the Company protested the said FLD/FAN.

In its Petition for Review, the Company argued that, under the law, it had fifteen (15) days from the receipt of the PAN within which to file its protest thereto. However, the Commissioner of Internal Revenue (CIR) issued the FAN merely two days after the PAN was received by the Company or before the period for filing the protest has lapsed. By prematurely issuing the FAN without awaiting the lapse of fifteen (15) days from the date of the receipt of the PAN by the Company, the CIR acted with grave abuse of discretion by clearly violating the Company’s right to due process, thereby rendering the FAN void. On the other hand, the sole argument of the CIR was that the CTA did not have jurisdiction over the case since the Petition for Review was filed out of time. 

Ruling in favor of the Company, the CTA Special First Division stated that Section 228 of the National Internal Revenue Code (NIRC) of 1997, as amended, provides that the taxpayer shall be entitled to respond to the PAN within a period of fifteen (15) days. If the taxpayer fails to respond to the PAN within the said 15-day period, the taxpayer shall be considered in default and the BIR shall then issue the FLD/FAN. The Court further said that the failure of CIR to strictly comply with the requirements laid down by law and its own rules is a denial of taxpayer’s right to due process.

It is also provided in the same section that the taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Here, unfortunately, records show that the CIR failed to consider the Company’s reply on 22 March 2013 because, he had already prepared and issued the FLD/FAN only after two days from the Company’s receipt of the PAN. The fact that the Company received the FLD/FAN on 05 April 2013 is immaterial. Without considering evidence presented, how could one have come up with facts?

Thus, in compliance with the said provision, it is mandatory for the CIR to wait for the lapse of the 15-day period before issuing the pertinent FLD/FAN. Citing the Supreme Court, which held in one case that a void assessment bears no valid fruit, the CTA cancelled the FLD/FAN dated 15 March 2013.

The takeaway is this – the issuance of a FAN is not a mere formality which allows disregard for the 15-day period and carries with it the thinking that “as long as it is issued, we’re good.” The taxpayer is granted time to reply to the PAN because it is through this that the taxpayer is given the opportunity to be heard. It is through this that his right to due process is exercised. The taxpayer’s reply must be taken into consideration with the intent to understand, not with the intent to reply.

The BIR’s eagerness to collect taxes is understandable. As mentioned, taxes are the lifeblood of the government. Without it, it is impossible for the government to function and provide basic services for its people. If collection is really that critical however, then the procedural requirements must be strictly observed by the government. The age old saying about haste leading to waste holds true. The government must heed the reminder from the eminently quotable advertising executive Howard W. Newton – people forget how fast you did a job – but they remember how well you did it. Fast is good but not if it leads to wastage. When taxpayer resources are used without view for quality work, the government ends up wasting the very resources they intend to harvest.

So, one may ask, how can this be avoided? Well, above all and as Habit 5 suggests, listen to the taxpayers. Consider their pleas. Give them due process. Seek first to understand, then to be understood. This would definitely prevent wastage, which we already have plenty of, today.

As of this writing, a Motion for Reconsideration has been filed last 07 February 2019. Although the Decision of the Court of Tax Appeals is persuasive, it may still be reversed on appeal. 

*Highland Gaming Corporation vs. Commissioner of Internal Revenue (CTA Case No. 8730, 17 January 2019).



Ma. Celina Noreen D. Reyes is a Supervisor from the Tax Group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.

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