The Court of tax appeals. INQUIRER FILE PHOTO
The Court of Tax Appeals (CTA) has ordered the Commission on Elections (Comelec) to pay the Bureau of Internal Revenue (BIR) P49-million deficiency expanded withholding taxes for taxable year 2008.
In a 13-page decision made public Wednesday, the CTA 2nd division through Associate Justice Amelia R. Cotangco-Manalastas agreed with the BIR that while Comelec is exempt from payment of duties and taxes in line with its purchase, lease, rent or acquisition of election materials and equipment, it can still be held liable for its obligation as a withholding agent.
“Under the creditable withholding tax system, taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income. The persons required to deduct and withhold include all government offices. COMELEC is one such office which is required to deduct and withhold the creditable withholding tax on its income payments to local suppliers,” the CTA said.
The case stemmed when Comelec entered into a contract with Smartmatic Sahi Technology and Avante International Technology Inc. (Avante) for the lease with option to purchase of Optical Mark Readers for the 2008 Autonomous Region in Muslim Mindanao (ARMM) elections.
Both contracts of lease involved the procurement of at least 3,050 units of electronic voting machines free from import tariffs and duties and other taxes. For both contracts of lease, Comelec paid the amount of P525,091,672.46 to Smartmatic and P87,519,180.00 to Avante International.
In 2010, Comelec received a letter of authority from BIR. Comelec eventually submitted its position paper insisting on its exemption. The BIR then issued a preliminary assessment notice (PAN), then a final assessment notice. Comelec filed a protest which was denied by the BIR.
Comelec also sought suspension for the collection of payment which was denied by the BIR. The BIR also denied Comelec’s administrative appeal prompting the election body to go to the CTA.
While it admitted that it did not impose or withheld expanded withholding tax (EWT), it maintained that it is covered by their exemption.
It argued that exemption was provided to support the implementation of the automation project and to avoid the situation of getting the money from one pocket of the government and putting the same in the other. Comelec also argued that the exemption did not distinguish what kind of tax it is exempted from, and given that the withholding tax is still a tax, it should not be faulted for its failure to withhold such tax.
The CTA said Comelec’s exemption which is phrased as “free from taxes and import duties” refers only to the direct taxes imposed upon the purchase, lease, rent or other forms of acquisition, supplies, equipment, materials, software, facilities and other services, from local or foreign sources.
The Tax Court noted that Comelec’s admission that it did not impose expanded withholding tax from its payments to Smartmatic and Avante is “failure on its part to perform its duty to withhold tax and remit it to the government.”
The total payment the CTA said Comelec should pay the BIR is P49,082,867.69.
The decision is concurred in by Associate Justices Juanito C. Castañeda Jr. and Caesar A. Casanova. RAM