Seasonal bully

It’s that time of the year – a time for renewal. Yes, renewal of business permits: with the local government.

What should be a straightforward, ministerial, and even boring activity can turn out to be a call for great mercy, except that one may not really know whom to call. For what is worse than uneasy renewals, is refusal. Sometimes, and sometimes more often, a business establishment that has a tax case with the local government may be refused a business permit at renewal time, unless the tax case is settled. The tragedy could be, is that the tax case could be totally baseless.

To give you a perspective, imagine you have a tax case with the BIR and the BIR padlocks your store unless you pay the taxes assessed, whether it has legal basis or not. How does that look like? The BIR does not do this, and they follow the law on assessments. But some local governments do, or at least they try to. For what better leverage is there to compel settlement than stopping business, by withholding the renewal of the permit?

If you think that the issues on ease of doing business at the local government level is about permits and renewals, you are badly mistaken. The local government also issues tax assessments like the BIR, although less frequent, with a couple of major differences. One, the examiners at the local government level are not as receptive to explanations of the taxpayer; and two, a number of local governments have ordinances that state that protests to tax assessments will not be entertained unless the taxpayer “pays under protest” first.

Assuming that the rule is even legal for the sake of argument, who would pay first then be refunded (maybe) later a multi-million, or (in one of the cases we handle) more than a billion pesos worth of assessment when the same is totally baseless? To compel payment under this scenario is plain coercion, if not racketeering, by people in power locally – and we are not even in a federal type of government yet.

There is actually a CTA (Court of Tax Appeals) decision on a case involving one of the prime cities in the Visayas-Mindanao region. The city issued an order for a taxpayer to pay on a tax case. The city did not entertain the protest of the taxpayer as the latter did not pay first the entire tax assessed before filing the protest.

The city justified its ordinance requiring the prerequisite of payment before protest as a way for it to generate revenue. And since this is not expressly disallowed in the local government code, then the city that enjoys autonomy has the authority to issue the ordinance and impose it.

The CTA did not agree because the Local Government Code did not contain such requirement (of pay first under protest) and thus, the local government should not add to the law a requirement before a protest is entertained, especially a very onerous one.

There are a number of reasons why the local government should use its power to serve instead of overpowering taxpayers under its jurisdiction. Let me cite a few of them:

Taxpayers can move their offices, or at least the head office situated in that local government, to favor a place where there is a friendlier business environment.

Due process requires local government people to work and understand the merits of the case. They cannot just dismiss the protest capriciously or just push the taxpayer to go to court and incur all the legal fees that are unnecessary in the first place.

There is a new ease of doing business law that reemphasizes the liabilities of government personnel who do not follow the law and unreasonably give the taxpayers a tough time.

Apart from precedents or court rulings, the local government should be moved by fairness by doing the right thing.

Call me cynical, even naïve, to expect that solely doing the right thing should be inspiring and moving on the part of government personnel regulating business. But I refuse to believe that there is only lack of common sense, lack of goodness, and lack of kindness. In a country struggling for genuine change, the real game changer in governance is not laws, not rules, but people in government. Thus, I choose to believe in their goodness, naïve or not.

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the chairman of the Integrity Initiative Inc. (II, Inc.), a non-profit organization that promotes common ethical and acceptable integrity standards. Email your comments and questions to [email protected]. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.