Tax in the time of COVID-19

As of the time of this writing, the recorded number of people infected with the coronavirus disease 2019 or COVID-19 in the Philippines has reached 217, with 17 deaths and eight recoveries. Fear, panic, and anxiety has taken over the country as government leaders try to come up with solutions to contain the deadly virus. The entire Luzon has been placed under enhanced community quarantine, while local cities have initiated lockdowns of their own. Consequently, the closure of schools, public transport, and businesses, except those that provide basic goods and necessities, has been mandated. Experts forewarn that the spread of the virus is inevitable and there are approximations that it would take weeks, if not months, for the dust to settle. In these uncertain times, the Bureau of Internal Revenue (BIR) has, in definite terms, heeded our nation’s call to extend the tax filing deadline.

Previously, the BIR issued Revenue Memorandum Circular (RMC) No. 25-2020 stating that “the filing of the annual Income Tax Return (AITR) for calendar year 2019 shall not be extended. Hence, its filing shall still be done on or before April 15, 2020.” The BIR wrote the text in bold letters perhaps to further stress the point and remove all doubts of any possible extension. To limit the exposure of persons, however, the use of electronic filing facilities (e.g. Electronic Filing and Payment System (EFPS), eBIRForm Facility, etc.) was encouraged.

Nevertheless, the imposition of the enhanced community quarantine and lockdown would make it difficult for taxpayers to prepare and file income tax returns. There was an appeal from the general public for the BIR to reconsider and extend the annual filing deadline. After all, Section 53 of the Tax Code allows the commissioner of the BIR, in meritorious cases, to grant a reasonable extension of time to file income tax or final adjustment returns.

Can COVID-19 be considered a meritorious case? It seems so, based on the Department of Finance’s (DOF) announcement on March 19, and BIR RMC No. 28-2020. Particularly, the DOF announced that the BIR has extended the filing of the annual income tax returns up to May 15.

This was followed shortly by the release of BIR RMC No. 28-2020, which amends RMC No. 25-2020 and provides an extension of time up to May 15, within which the taxpayers can file and pay their income tax returns without the imposition of penalties. According to the DOF, the emergency measure is intended to offer relief to Filipino taxpayers whose tax preparation, filing and payment obligations will be affected by skeleton workforce arrangements and enhanced community quarantine rules. In the same statement, however, the DOF emphasized the effect of such extension to our tax collection targets so that those who can file within the original April 15, deadline are still urged to do so.

The author notes that this will not be the first time that an extension in the filing of tax returns is granted. For instance, in 2003, the BIR, through Revenue Regulation (RR) No. 15-03, granted taxpayers with accounting period ending Dec. 31, 2002  an extension of time to file their annual income tax returns in view of the then perceived systems failure of the eFPS as well as the reduced bank work force owing to the fact that April 15, 2003 falls within the Holy Week of the said  year. In 2001, moreover, the BIR issued RR No. 04-01, which granted taxpayers with accounting period ending Dec. 31, 2000 an extension of time within which to file their income tax returns. The extension was granted to compensate for the lost time and opportunity of the taxpayers to file their income tax returns due to the close of business operations of authorized agent banks during the Lenten break.

Currently, there is no question that a deadly virus outbreak is a serious and drastic circumstance. However, the collection of taxes is similarly a vital function of government and delays will necessarily impede the provision of public services. The lifeblood doctrine, which has often been invoked to support the imposition of taxes, finds relevance now more than ever. 

Essentially, the lifeblood doctrine emphasizes that taxation is indispensable to the existence of government such that the government needs the contribution of its citizens in order to function and operate. This doctrine is often quoted in several rulings of the BIR and court cases. In the case of Commissioner of Internal Revenue vs. Manila Bankers’ Life Insurance (G.R. No. 169103, dated March 16, 2011), the Supreme Court had the occasion to reiterate that “it is through taxes that government agencies are able to operate and with which the State executes its functions for the welfare of the constituents.” The Supreme Court further explained in the case of National Power Corp. vs. City of Cabanatuan (G.R. No. 149110, dated April 9, 2003), that “the theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.”

At this time where public funds are necessary not only to sustain economic activity, but also to ensure future stability and meet the demands for “social protection and emergency health measures meant to effectively combat COVID-19”, the role of the BIR as tax collector becomes more germane. The BIR must balance commiserating with the plight of taxpayers with guarding their sacred mandate to guarantee that collections are made on time. Although extensions may bring great relief to taxpayers, it also comes with a heavy price tag - according to the DOF, “an unintended result of the deadline extension is an estimated delay and shortfall in tax collections of around P145 billion, which may have to be covered by additional borrowings by the national government.” Hence, the appeal of the government to file within the deadline or earlier for those who can do so.

In furtherance of this balancing effort between raising funds and accommodating concerns arising from COVID-19, the BIR also waived both the penalties of taxpayers who will be filing their annual income tax returns within the extended period as well as the venue requirement. RMC No. 28-2020 provides that taxpayers may file and pay their taxes to any authorized agent bank nearest to their location or any revenue collection officer under the revenue district office.

Undeniably, COVID-19 is causing the filing of tax returns to be more challenging this year. Although the government is trying to soften its economic impact, taxpayers will still have to prepare themselves not only against the virus, but also to its accompanying side effects. The Department of Health said that the spread of the virus is inevitable as it is no longer a matter of “if” but “when.” On a positive note, the “if” and “when” concerns regarding the extension of the filing and payment of income tax returns have been finally answered.

Karen S. Baquiran 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 [email protected] or [email protected]