Request for Condonation of Penalties and Interests on Franchise Tax Deficiencies

April 1, 1997 BIR RULING NO. 032-97 204 (2) 32-97 Undersecretary Milwida M. Guevarra Department of Finance Manila M a d a m : This refers to your faxed letter received by us today referring to this Office the letter of Mr. Andres R. Leonardia, General Manager of V-M-C Rural Electric Service Cooperative, Inc. (VRESCO) dated September 10, 1996 requesting for condonation of penalties and interests on their franchise tax deficiencies for the period October 1984 to December 1985. cdt In a letter addressed to the said Mr. Andres R. Leonardia dated May 20, 1996 by Acting Regional Director Virginia L. Trinidad of Revenue Region No. 12, Bacolod City, the latter granted the request of the subject taxpayer to pay in installments the subject deficiency franchise tax liabilities on the condition that the subject taxpayer should strictly adhere to the mode of payment therein imposed, i.e., by paying the aforesaid deficiency franchise tax liabilities in the total amount of P2,024,359.36 in twenty-four monthly installments beginning June, 1996 up to May 1998. The said letter also served as a notice to lift the Warrant of Garnishment on or before June 25, 1996 as soon as the first installment payment due on that month is effected. This time, however, the taxpayer is requesting for condonation of penalties and interest on the subject franchise tax deficiencies in order to improve the financial condition of VRESCO. In reply, please be informed that Section 204 of the Tax Code, as amended, provides as follows: "SEC. 204. Authority of the Commissioner to compromise, abate and refund/credit taxes . The Commissioner may "(1) . . . "(2) Abate or cancel a tax liability, when (a) The tax or any portion thereof appears to be unjustly or excessively assessed; or (b) The administration and collection costs involved do not justify the collection of the amount due. It is very clear from the aforesaid provision of law that the Commissioner may only abate or condome taxes if the tax or any portion thereof appears to be unjustly or excessively assessed; or the administration and collection cost involved do not justify the collection of the amount due. The instant case is different. The subject taxpayer is requesting for condonation of the subject penalties and interest because he wants to improve the financial condition of VRESCO. The subject tax (i.e., franchise tax) is not unjustly or excessively assessed. In fact, the case which is still pending in court to date, is based on the ground that then Presidential Decree No. 269 exempts electric cooperative from the payment of various taxes, including the franchise tax, which this Office believes otherwise. In view thereof, we regret to inform you that we cannot grant VRESCO's request for condonation of penalties and interests on its franchise tax deficiencies for the period October 1984 to December 1985 for lack of legal basis. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue