BDB Law’s “Tax Law For Business” appears in the opinion section of BusinessMirror every

Thursday. BDB Law is an affiliate of Punongbayan & Araullo (P&A).

Tax laws construed

When confronted by questions on whether or not particular transactions, events,
persons or items are covered by certain tax legislations, we instantly consult our
Tax Code, other pertinent Republic Acts (or perhaps Commonwealth Acts or
Batas Pambansa), and the long lists of cases decided by the Supreme Court.

But what if there seems to be an ambiguity in our tax laws that casts doubt on its
applicability to a given circumstance? Or what if the law is couched in such a
general term it is susceptible to different interpretations? And what if an excisable
article may be taxed at different rates? Should we apply the higher rate to
provide means for the government to defray its expenses?

It is well-settled rule in taxation that a statute should not be construed as

imposing a tax unless it does so clearly, expressly and unambiguously. Likewise,
it is an ancient principle that a tax cannot be imposed without clear and express
words for that purpose. Accordingly, the general rule of requiring adherence to
the letter in construing statutes applies with peculiar strictness to tax laws, and
the provisions of a taxing act are not to be extended by implication (Marinduque
Iron Mines Agents Inc. vs The municipal council of Hinabangan, Samar G.R. No.
L-18924, June 30, 1964).

Inasmuch as revenue laws impose special burdens upon taxpayers, the same
should be construed most strongly against the government, and in favor of the
taxpayer, if the intent or meaning of the tax statute is doubtful. The application of
tax laws, if the meaning thereof is doubtful, should not be extended by implication
beyond the clear import of the language used.
This rule on statutory construction that, by the way, is used only if there is
ambiguity in the law, equally applies to the appropriate excise (or other
percentage) tax rate that should be used to determine the amount of tax to be
levied on excisable articles.

For instance, if the law clearly states that an article be taxed at a specified
amount per pack based on its net retail price, it should be taxed at that particular
rate, especially if the prevailing net retail price is determined by the government
agency tasked to conduct the price survey. It would be a flimsy excuse to subject
the article concerned to a higher or maximum tax rate on the grounds that the
purpose of the law is to maximize profit and that the government has a budget
deficit to address. There is no room, therefore, to restate the time-honored rule in
construing tax laws to one, which states that, “in case of doubt, collect the higher
tax rate”.

In assessing taxes, the government is also bound by the principle of justice and
fair play. It cannot haphazardly issue assessment notices to unsuspecting
taxpayers and leave them at the mercy of the BIR or of the courts to dispute its
findings, especially if the law is, in itself, unclear on its scope and coverage.

Considering the unavoidability of taxes for citizens and entities, it seems that the
least they are entitled to is to be expressly required to pay tax and to be
assessed of the proper amount in accordance with the clear import of the law.

On the contrary, though, exemptions from taxation are highly disfavored in law,
and he who claims an exemption must be able to justify his claim by the clearest
grant of organic or statute law. An exemption from the common burden cannot be
permitted to exist upon vague implications (Davao Light & Power Co. Inc. vs.
Commissioner of Customs, L-28739 & L-28902, March 29, 1972). To epitomize
the principle, it is well settled as well that for tax exemptions, “taxation is the rule,
and tax exemption is the exception”.

The one who claims an exemption from his or its share of the common burden in
taxation must justify his or its claim by showing that the legislature intended to
exempt him by words was too plain to be mistaken.

Similarly, a claim for tax refunds or the issuance of tax credits partakes of the
nature of an exemption, which cannot be allowed unless granted in the most
explicit and categorical language. Being in the nature of an exemption from
taxation, a claim of refund is strictly construed against the claimant, and the
failure to discharge this burden is fatal to the claim.
This is probably the underlying reason the BIR normally puts refund cases at the
end of their priority list. Every tax practitioner perhaps could foresee that he/she
will be elevating his/her refund case to the Court of Tax Appeals, especially if it
involves a considerable amount, because of the usual and expected inaction by
the administrative body within two years from the time they filed the claim.

With the foregoing rules on construction laid down and settled by the courts, it
seems that the government is still having a field day in interpreting the provisions
thereof, irrespective of the surrounding circumstances, to its advantage.