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A Case for Upgrading the CTA
Oct 19, 2001

In the morning of Wednesday, Oct. 17, 2001, our law firm, the Romulo Mabanta Buenaventura Sayoc and De Los Angeles, conducted, with the cooperation of the Bankers Association of the Philippines and the Trust Officers Association of the Philippines, a consultation seminar on the Anti-Money Laundering Act of 2001. After the affair was opened by BSP Deputy Governor Alberto V. Reyes, Atty. Juan De Zuniga, Jr., General Counsel of the BSP, presented the legislative history and rationale of the major provisions of the law while Mr. Nestor Espenilla, BSP Director, Supervisory Reports and Studies Office, explained the objectives and the emerging configuration of the regulations that are expected to be promulgated for its implementation. Antonio V. Viray, senior vice president and general counsel of Metrobank, articulated some concerns of the private sector. During the open forum, which flowed into and through lunch, many good ideas were discussed and many serious concerns were expressed, particularly those raised by the banks’ compliance officers, that I shall share with you today. However, since I have already devoted at least six articles, published in this and another broadsheet, to the topic, I will not risk talking about the law ad nauseam and would like, instead, return to my core topic, tax.

Among the first bills which were passed by both houses of the previous Congress but vetoed by President Macapagal-Arroyo is one that would have elevated the present Court of Tax Appeals into a collegiate court, to the level of the Court of Appeals. The perceived defects that provoked the president’s disapproval were not thoroughly ventilated in public, but I strongly believe, whatever they may have been, that a revised version could cure them all. The need for such a full-fledged appellate tax court is simply too urgent to be denied.

Originally, when the Court of Tax Appeals was established by R.A. No. 1125 in 1954, appeals from its decisions were brought straight to the Supreme Court. This resulted in a reasonably expeditious manner of resolving tax issues with finality. In 1989, however, the Supreme Court, in its resolution in the case of Development Bank of the Philippines v. Court of Appeals (181 SCRA 609), ruled that, by virtue of the passage of Batas Pambansa Blg. 129 in 1981, the Court of Appeals acquired exclusive appellate jurisdiction over the decisions of the Court of Tax Appeals. The effect was not only to prolong the life of a tax issue because of the additional layer of appeal but also, on account of the number of divisions in the Court of Appeals, create situations where the ruling of one division on a particular issue is different from the ruling of another division. This conflict creates uncertainty in tax law, a situation by itself that is anathema to an efficient tax system, as well unruly delays the disposition of other similar cases pending in the Court of Tax Appeals.

Take the case of the Senior Citizen’s discount. Republic Act No. 7432 grants senior citizens a twenty percent discount from all establishments relative to utilization of transportation services, hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicine anywhere in the country. In order to avoid the accusation that the law constitutes a confiscation of property without just compensation, the lawmakers decided to permit the affected establishments to "claim the cost as a tax credit". The question is what is the "cost" that may be claimed as a tax credit? Is it the entire 20 percent discount? Or is it simply the actual amount spent in complying with the mandate to give the discount? Obviously, the second alternative (which takes "cost" from the point of view of the establishment) is less than the first (which understands "cost", as in cost of the item purchased, from the point of view of the senior citizen).

The Thirteenth Division of the Court of Appeals on 19 October 1999, in the case of Commissioner v. Elmas Drug Corporation, CA-G.R. SP No. 49946, conceded the complying establishment only the actual amount spent. The Third Division of the Court of Appeals, however, on 28 February 2000, in the case of Mar-Tess Drug Corporation v. Hon. Roberto F. De Ocampo, CA-G.R. SP No. 44844, permitted the entire 20 percent discount.

This impasse cannot be resolved within the Court of Appeals itself. It must await final say of the Supreme Court. In the meantime, cases that are pending with the Court of Tax Appeals which involve the unresolved issue are placed in suspended animation. If the Court of Tax Appeals, however, were the upgraded court it was proposed to be under the vetoed law, the three-division, nine-member court could, on account of its small size and limited focus, conceivably be in a better position to achieve such a frustrating situation.

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