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People of the Philippines vs

Sandiganbayan and Bienvenido

Tan, Jr.
January 11, 2013

Taxation – Abatement Defined

In July 1987, Commissioner of Internal Revenue (CIR) Bienvenido Tan, Jr. issued
an assessment against San Miguel Corporation (SMC) demanding payment of P342
million in taxes. SMC filed a request for reinvestigation. Tan granted the request and
eventually he reduced the tax liability to P302 million. But in October 1987, without
any word from SMC, Tan referred the case to the Legal Service Division of the BIR.
Various BIR officials reviewed the case and they recommended that SMC’s tax
liability be reduced to P22 million (a significant reduction from the original P342
million). The reduction was justified by the BIR officials on the ground that the tax
examiners had made some errors in computing SMC’s tax liability.
So SMC was demanded to pay P22 million but then SMC asked for a compromise of
P10 million. Again, the matter was referred to various BIR officials who agreed and
recommended to Tan that he should accept the compromise offer. Tan accepted the
P10 million compromise offer. This resulted to a criminal case against Tan for
violation of the Anti-Graft and Corrupt Practices Act. Allegedly, his act of accepting
the P10 million compromise offer caused undue injury to the government and it gave
SMC unwarranted benefits due to the significantly reduced tax liability. The
Sandiganbayan originally convicted Tan but it reversed its own decision upon motion
of Tan.
ISSUE: Whether or not Tan should have been convicted of the crime charged.
HELD: No. It was found by the Sandiganbayan that there was an improper
computation in the tax liability of SMC. The error basically imposed tax on top of
another tax which if allowed would be unfair to the taxpayer. It was therefore proper
to have the tax be reduced from P302 million to P22 million.
But is it proper for Tan to accept the P10 million compromise by SMC?
Tan is well within his power to accept the P10 million compromise offer. This is
actually abatement (not compromise as termed by SMC). Tan is actually prudent to
accept the P10 million offer so as to avoid a protracted and costly litigation.
Abatement is the diminution or decrease in the amount of tax imposed. It refers to
the act of eliminating or nullifying; of lessening or moderating. To abate is “to nullify
or reduce in value or amount”. The CIR has the power to abate or cancel the whole
or any unpaid portion of a tax liability, inclusive of increments, if its assessment is
excessive or erroneous, or if the administration costs involved do not justify the
collection of the amount due. No mutual concessions need be made, because an
excessive or erroneous tax is not compromised; it is abated or canceled. Only
correct taxes should be paid. Further, Tan cannot be said to have acted in bad faith.
He acted upon concurrence and recommendation of the various BIR officials.