DOJ Opinion No. 004, s. 2001

DOJ OPINION NO. 004 , s. 2001 January 15, 2001 Mr. Dakila B. Fonacier Commissioner of Internal Revenue Bureau of Internal Revenue Quezon City Sir : This has reference to your request for opinion on whether the Bureau of Internal Revenue (BIR) is prohibited under existing laws from implementing a plan of involving private parties or contractors in carrying out some of its activities, specifically: 1. Management, maintenance, and operation of Information Technology (IT) system and infrastructure under a Build-Operate-Transfer scheme with a private contractor; 2. Litigation of tax cases to be contracted with accredited private lawyers; and 3. Collection of unpaid or delinquent taxes to be entrusted to private collection agencies. It is disclosed that as part of the administration's strategy to make revenue generation and collection more efficient and considering the dearth of qualified professionals in the BIR's employ, the members of the Economic Coordinating Council has suggested that the Bureau explore the possibility of outsourcing to private parties or contractors some of its activities as above identified. Because the implementation of the plan will necessarily involve the disclosure of information to third parties, it has been the concern that carrying out the plan will violate Section 270 of the National Internal Revenue Code of 1997 (1997 Tax Code) which reads: DCTSEA SECTION 270. Unlawful Divulgence of Trade Secrets . Except as provided in Section 71 of this Code and Section 26 of Republic Act No. 6388, any officer or employee of the Bureau of Internal Revenue who divulges to any person or makes known in any other manner than may be provided by law information regarding the business, income, or estate of any taxpayer, the secrets, operation, style of work, or apparatus of any manufacturer or producer, or confidential information regarding the business of any taxpayer, knowledge of which was acquired by him in the discharge of his official duties, shall, upon conviction for each act or omission, be punished by a fine of not less than Fifty thousand pesos (P50,000) but not more than One hundred thousand pesos (P100,000), or suffer imprisonment of not less than two (2) years but not more than five (5) years, or both. One of the two exceptions mentioned in Section 270 of the Code is Section 71 of the same Code which reads: SECTION 71. Disposition of Income Tax Returns, Publication of Lists of Taxpayers and Filers . After the assessment shall have been made, as provided in this Title, the returns, together with any corrections thereof which may have been made by the Commissioner, shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines, under rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner. The Commissioner may, in each year, cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns. The other exception is Section 26 of Republic Act No. 6388, also known as the Election Code of 1971, which requires a candidate, upon the filing of his certificate of candidacy, to state his income and deductions as well as exemptions and tax payments for the last two (2) years preceding the election and to include in such certificate a waiver of the privilege from public disclosure of his income tax return, such waiver to be effective only during the period of his candidacy. Republic Act No. 6388 was repealed by Presidential Decree No. 1296 (1978 Election Code) which, in turn, was repealed by the Omnibus Election Code of the Philippines (Batas Pambansa Blg. 881). As noted, the purpose of the prohibition is to protect a taxpayer from the improper or unlawful divulgence of his trade secrets or other confidential information to those who do not have a legitimate interest in it. As the Code compels taxpayers to disclose to the BIR certain data regarding their business for the sole purpose of enabling internal revenue officers to assess the amount of tax that such taxpayers should pay, so does the law prohibit internal revenue officers from disclosing such information to private persons or the public in general. Without the prohibition on disclosure, taxpayers would be discouraged from giving to internal revenue officers information about their business which they are generally unwilling to furnish to private persons or the public in general if such information could be used against them in other matters that have nothing to do with the payment of taxes. In the light of the above premises, you have "outlined" your basic concerns as follows: 1. Does the outsourcing of the three activities mentioned above constitute a violation of the non-divulgence rule? 2. Can Section 71 of the Code be construed as the authority of the President to declare, through an Executive Order, exceptions to the non-divulgence rule such that the planned outsourcing of functions may be spared from the ambit of Section 270 of the same Code? 3. Are there prohibitions under other laws, particularly under the Administrative Code, about the planned outsourcing of said activities? 4. In connection with the hiring of private lawyers to handle tax litigation cases, or the hiring of collection agents for the collection of delinquent accounts, are there laws prohibiting us from paying the private fees? After due consideration of the premises and a thorough study of the questions presented, we are of the view that outsourcing BIR's IT system and infrastructure to private parties under the Build-Operate-Transfer scheme authorized under R.A. No. 6957, as amended, would not be violative of Section 270 of the 1997 Tax Code. With respect to the two other activities mentioned, namely, litigation of taxes and collection of unpaid or delinquent taxes, we did not find it necessary to devolve into the issue of whether outsourcing these two activities to private parties would violate the same Section 270 of the 1997 Tax Code because such activities may not legally be outsourced to private parties in the first place. An extended discussion of the foregoing issues hereinafter follows. I. On whether the outsourcing of BIR's computerization project violates Section 270 of the 1997 Tax Code . The issue raised is whether or not the implementation of the BIR's plan of contracting with a private contractor the management, maintenance and operation of its IT system and infrastructure under a Build-Operate-Transfer arrangement violates Section 270 of the 1997 Tax Code. The resolution of the issue requires a consideration of the act being punished by Section 270 of the 1997 Tax Code and the purpose thereof, in relation to the activity contemplated. Section 270 penalizes a BIR official or employee who discloses information regarding a taxpayer's business, etc., knowledge of which was obtained by him in the performance of his duties, unless the disclosure comes within the purview of Section 71 of the 1997 Tax Code. The provision has been designed to protect a taxpayer's legal rights against unfair competition and invasion of his right to privacy. To constitute a violation of Section 270, the following requisites must concur: (1) The BIR official or employee obtains information regarding a taxpayer's business, income, or estate, or the secrets, operation, style of work, or apparatus of any manufacturer or producer, or confidential information regarding the business of any taxpayer, in the discharge of his official duties; (2) he divulges or makes known such information to another person; and (3) the divulgence is not authorized by law. Implicit in Section 270 is the prohibition to divulge information to another person not in my way officially related to the BIR. As you aptly stated, it is evident that the purpose of the prohibition is "to protect the taxpayer from the improper or unlawful divulgence of his trade secrets or other confidential information to those who do not have a legitimate interest in it ." In a contractual relation between the BIR and a private person involving the BIR's computerization project, the disclosure of information regarding a taxpayer's business may be necessary or inescapable. We do not think, however, that this is the kind of disclosure or divulgence of information contemplated by Section 270. In this situation, the private contractor would have a legitimate interest in the information because it is a vital component of the project where the BIR is the interested party and the beneficiary. In short, the disclosure or divulgence of information to the private contractor would not be unlawful or illegal because the information not be used by the private contractor for any unlawful purpose but for the sole purpose of establishing an information technology system and infrastructure of the BIR pursuant to a contract validly executed in accordance with law. The BIR's computerization project is being proposed to be undertaken under the Build-Operate-Transfer scheme authorized under R.A. No. 6957, as amended. The "Build-Operate-Transfer" scheme means a contractual arrangement whereby the project proponent undertakes the construction, including financing, of a given infrastructure facility, and the operation and maintenance thereof. It includes a supply and operate situation which is a contractual arrangement whereby the supplier of equipment and machinery for a given infrastructure facility, if the interest of the government so requires, operates the facility providing in the process technology transfer and training to Filipino nationals. The project proponent transfers the facility to the government agency concerned at the end of the fixed term which shall not exceed 50 years (Section 2 [b], R.A. No. 6957, as amended). Information technology network and database infrastructure is one of the infrastructure or development projects that may be undertaken under the Build-Operate-Transfer arrangement (Section 2 [a], R.A. No. 6957, as amended). Allowing a private contractor to manage, maintain, and operate the IT system under the Build-Operate-Transfer scheme will not violate Section 270 because it will not involve unlawful disclosure of information penalized therein. What Section 270 prohibits is the act of disclosing information regarding a taxpayer's business, etc., knowledge of which was obtained by the disclosing BIR official or employee in the performance of his duties for the illegal purpose of defeating the noble objective of the prohibition. It does not prevent the BIR from undertaking a legitimate activity with the private sector intended to modernize revenue and tax collection. Penal statutes cannot be enlarged or extended by intendment, implication, or any equitable consideration ( People vs . Garcia , 85 Phil. 651, 656 [1950]). Notwithstanding the foregoing, the BIR would be well-advised to include a stipulation in its contract whereby the private contractor shall undertake to hold strictly confidential any information regarding a taxpayer's business and all other matters covered by Section 270 of the 1997 Tax Code, to refrain from using such information to obtain any advantage that may tend to prejudice any taxpayer, and to be subject to prosecution under Section 270 of the Code and other existing laws in case of breach thereof. II On whether the collection of unpaid or delinquent taxes may be entrusted to private collection agencies . Contracting private collection agencies to collect unpaid or delinquent taxes is legally objectionable. In Opinion No. 43, current series, we had the occasion to rule: . . . The collection of government revenues, which is done by public officers in their official capacities, cannot be let to a private person (DOJ Opinion No. 60, s. 1998 citing Op. No. 175, s. 1993). The Government Accounting and Auditing Manual, specifically Section 65 thereof, provides thus: "SECTION 65. Designation of collecting officers . The head of an agency may designate such number of collecting officers or agents as may be deemed necessary (Sec. 64, P.D. 1445) As a general rule, the collection of revenues and receipts shall be done by the regularly appointed Collecting Officer/Treasurer. In local government units, local treasurers are vested by law to collect and receive all moneys accruing to their respective jurisdiction whether in the form of collectible taxes and other revenues or receipts or trust funds pertaining to other branches or units of the government (Secs. 170 and 247, R.A. 7160) Collectors/tellers may also be designated to assist Collecting Officers/Treasurers and they shall turn over their collections daily to the Collecting Officer/Treasurer concerned. Collectors in the field shall turnover their collections on the day they return to the office." Moreover, Section 18 (1), Chapter 4, Title II, Book IV of the present Administrative Code mandates the BIR to "assess and collect all taxes, fees and charges and account for all revenues collected." Section 2 of the 1997 Tax Code states that the BIR's "powers and duties shall comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts." This power and duty to collect all taxes comprehends the duty to collect unpaid or delinquent taxes. Collection of delinquent taxes does not only involve mere sending of a demand letter to a taxpayer with delinquent or unpaid taxes but the use of remedies for collecting delinquent taxes, such as distraint of goods, chattels or effects and other personal property of whatever character, levy on real property and interest in or rights to real property, civil action, and criminal action (Section 205, 1997 Tax Code). Such a delegated power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the intervening mind of another. A Survey delegation of such power would negate the duty in violation of the trust reposed. in the delegate mandated to discharge it directly. (See Kilusang Mayo Uno Labor Center vs . Garcia Jr ., 239 SCRA 386, 405-406 [1994]) Besides, the implementation of the proposal would have the effect of expanding the coverage of Section 12 of the 1997 Tax Code which reads: SECTION 12. Agents and Deputies for Collection of National Internal Revenue Taxes . The following are hereby constituted agents of the Commissioner: (a) The Commissioner of Customs and his subordinates with respect to the collection of national internal revenue taxes on imported goods; (b) The head of the appropriate government office and his subordinates with respect to the collection of energy tax; and (c) Banks duly accredited by the Commissioner with respect to receipt of payments of internal revenue taxes authorized to be made through banks. Any officer or employee of an authorized agent bank assigned to receive internal revenue tax payments and transmit tax returns or documents of the Bureau of Internal Revenue shall be subject to the same sanctions and penalties prescribed in Sections 269 and 270 of this Code. In statutory construction, the scope of a statute may not be enlarged to include situations not provided nor intended by the lawmakers. (See Agpalo, Statutory Construction , 1990 edition, p. 51, citing cases) III On whether the litigation of tax cases may be contracted with accredited private lawyers . The adoption of the proposal to contract accredited private lawyers to handle litigation of tax cases will nullify the mandate of the Office of the Solicitor General, as indicated in Section 35, Chapter 12, Title III, Book IV of the present. Administrative Code, "to represent the Government of the Philippines, its agencies and instrumentalities and its officials and its agents in any litigation , proceeding, investigation or matter requiring the services of lawyers ." Indeed, the Supreme Court, in one case, declared: There are cases where a government agency declines the services of the Solicitor General or otherwise fails or refuses to forward the papers of the case to him for appropriate action. The Court finds and so holds that this practice should be stopped. To repeat, the Solicitor General is the lawyer of the government, any of its agents and officials in any litigation, proceeding, investigation or matter requiring the services of a lawyer. The exception is when such officials or agents are being charged criminally or are being civilly sued for damages arising from a felony. His services cannot be lightly rejected, much less ignored by the office or officials concerned. ( Orbos vs . Civil Service Commission , 189 SCRA 459, 466-467 [1990]) Emphasizing the dictates of national interest and fiscal considerations, the Supreme Court, in another case, also said: acHITE . . . Aside from the legal provisions mandating that the Solicitor General is the lawyer of the government . . ., the national interest and fiscal considerations must be taken into account. The government must not be unnecessarily subjected to financial burdens which, in the first place, it need not incur at all. . . .. (Supreme Court Resolution in Gonzales vs. Chaves, G.R. No. 97351, promulgated on March 17, 1992, clarifying its earlier Decision promulgated on February 4, 1992 in the same case) Moreover, Commission on Audit (COA) Circular No. 86-255 dated April 2, 1986 (Inhibitions against employment by government agencies and instrumentalities, including government-owned or controlled corporations, of private lawyers to handle their legal cases) directs that "the payment out of public funds of retainer fees to private law practitioners who are so hired or employed without the prior written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel as the case may be, as well as the written concurrence of the Commission on Audit shall be disallowed in audit and the same shall be a personal liability of the officials concerned." The amendatory COA Circular No. 98-002, dated June 9, 1998, provides that "public funds shall not be utilized for payment of the services of a private legal counsel or law firm to represent government agencies and instrumentalities, including government-owned or controlled corporations and local government units in court or to render legal services for them. In the event that such legal services cannot be avoided or is justified under extraordinary or exceptional circumstances for government agencies and instrumentalities, including government-owned or controlled corporations, the written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, as the case may be, and the written concurrence of the Commission on Audit shall be secured before the hiring or employment of a private lawyer or law firm." Please be guided accordingly. aSAHCE Very truly yours, (SGD.) ARTEMIO G. TUQUERO Secretary