MANILA, Philippines -- The Bureau of Internal Revenue (BIR) softened on Sunday its hardline stance against the Makati City government for alleged unpaid taxes by unfreezing the city?s bank accounts not covered by tax claims.

In a press statement, BIR Commissioner Jose Mario Buñag said he ordered the agency?s regional office to limit its freeze order to the amount that covered the tax claim.

?To enable the uninterrupted delivery of basic services to the people of Makati and the payment of salaries of city employees, I have been instructed by the President [Gloria Macapagal-Arroyo] to take the necessary steps to limit the writ of garnishment issued by the Bureau gainst the City of Makati to the amount of unpaid taxes and increments being claimed by the BIR,? he said.

The BIR case stemmed from the city government?s alleged failure to remit a total of P1,150,331,321.81 in withholding taxes of about 8,000 employees from 1999 to 2002.

With Buñag?s order, the BIR?s Makati unit immediately instructed the presidents, treasurers and cashiers of the banks that held Makati City?s funds to lift and cancel the warrant of garnishment issued on May 2, 2007.

These banks are Equitable PCI Bank, the Philippine National Bank, Allied Banking Corp., the Metropolitan Bank and Trust Co., Banco de Oro Universal Bank, Asiatrust Development Bank, China Banking Corp., LBC Development Bank, Planters Development Bank, Rizal Commercial Banking Corp., Union Bank of the Philippines, the United Coconut Planters Bank, Security Bank Corp., Asia United Bank, Bank of Commerce, BDO Private Bank, Export Industry Bank, International Exchange Bank, the Philippine Bank of Communications, the Philippine Trust Co., Land Bank of the Philippines, Development Bank of the Philippines and Banco Filipino.

Baquiran also ordered the lifting and the cancellation of the warrant of garnishment on Makati City?s funds in the Philippine Veterans Bank not covered by the disputed amount of tax liabilities.

?Makati has deposits in Veterans Bank that can cover the amount due for unpaid taxes,? Buñag said.

The move is an unusual one for the tax agency, which normally freezes all bank accounts of a delinquent taxpayer, regardless of amount, until the dispute has been settled and the levy paid.

BIR said that Makati City?s unpaid tax liabilities stood at ?around P600 to P700 million? for the years 1999, 2000 and 2001. This is significantly lower than the P1.1 billion liability the tax agency arlier announced.