TRAIN Series Part 2: Enhanced powers of the Commissioner


On 1 January 2018, Republic Act No. 10963 known as the Tax Reform for Acceleration and Inclusion Act (“TRAIN”) took effect. The TRAIN introduced several changes to the National Internal Revenue Code (“NIRC”) with the aim of streamlining the Philippine tax system and improving the levels of disposable income of the taxpayers at the same time.

The most notable changes introduced by TRAIN are the updated schedule of income tax rates for individuals, including the controversial change in applicable income tax rate for managerial and technical employees of regional operating headquarters (“ROHQs”).  Much has also been written about the increase in documentary stamp tax rates, introduction of excise taxes on sweetened beverages and cosmetic procedures.  These topics were more extensively discussed in our first article on the TRAIN.  The leaning of the Bureau of Internal Revenue’s (“BIR”) interpretation towards the application of the regular 12% VAT rate on constructive importation has also been discussed in various industry sectors.

In this second part of our TRAIN Series, we will discuss on the enhanced powers of the Commissioner of Internal Revenue (“Commissioner”) brought about by TRAIN.

Enhanced powers of the Commissioner

  • To obtain information

To strengthen the power of the Commissioner in obtaining information, the TRAIN now requires the Cooperative Development Authority to submit to the BIR a Tax Incentive Report on income, Value Added Tax (“VAT”) and other tax incentives availed of by cooperatives that are registered under the Cooperative Code of the Philippines.

In an issuance recently released by the BIR (Revenue Memorandum Circular No. 12-2018, dated 22 February 2018), the BIR clarified that the power of the Commissioner to obtain information is an exception to both the attorney-client and accountant-client privilege. This is because first, the Lawyer’s Code of Professional Responsibility authorizes disclosure of client’s secrets when required by law (e.g., the NIRC as amended by the TRAIN Act). Second, the Philippine Supreme Court stressed that the attorney-client privilege does not extend to those made in contemplation of a crime or perpetuation of fraud (e.g., attempt to evade or defeat tax which is a criminal offense under the NIRC). Third, the Revised Accountancy Law states that the accountant-client privilege does not apply if the production of documents is through a subpoena issued by any court, tribunal, or government regulatory or administrative body. Fourth, the Code of Ethics of Professional Accountants allows the disclosure of confidential information acquired as a result of professional and business relationships when there is a legal right or duty to disclose. Finally, under the Lifeblood Doctrine, taxes are the lifeblood of the nation and so its collection should be actively pursued without unnecessary impediment.

  • To make assessments

With respect to the power of the Commissioner to make assessments, the Commissioner is now empowered to examine a taxpayer notwithstanding any law requiring the prior authorization of any government agency or instrumentality.

  • To prescribe real property values

Anent the power of the Commissioner to prescribe real property values, the TRAIN mandatorily requires:

  • consultation with appraisers both from the private and public sectors; and
  • prior notice to affected taxpayers.

Furthermore, any adjustment in zonal valuation must first be published or posted for it to be valid. The basis of any valuation, including the records of consultations done, shall also be open to the inquiry of any taxpayer.

In the upcoming Package 1B of the TRAIN, the powers of the Commissioner are expected to be further expanded through the controversial relaxation of Bank Secrecy laws for purposes of tax examination and audit.  Nonetheless, Package 1B of the TRAIN is much-awaited, as it will also cover the anticipated general and estate tax amnesty for deficiency taxes prior to taxable year 2016.  Package 1B is slated to be released by middle of 2018.

Watch this space

In the next part of this series, we will discuss the amendments to the Income Tax, Donor’s Tax, Estate Tax, VAT, Percentage Taxes, Excise Taxes, Documentary Stamp Taxes as well as ,matters on compliance, statutory offences and penalties.

If you have any questions or require any additional information, please contact Felix Sy, Lorybeth Baldrias Serrano or the ZICO Law partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.