CIR v. COMELEC: A Tax Exemption Doesn't Excuse the Duty to Withhold

In Commissioner of Internal Revenue v. Commission on Elections (G.R. No. 244155, consolidated with G.R. No. 247508, May 11, 2021), the Supreme Court En Banc held that the Commission on Elections (COMELEC) was personally liable for ₱30,645,542.62 in deficiency expanded withholding tax (EWT) after it failed to withhold on 2008 lease payments for voting machines — even though it believed the procurement was tax-exempt. A statutory tax exemption, the Court held, does not excuse a separate duty to withhold under Section 251 of the National Internal Revenue Code (NIRC). This post is part of the Day in Court series.

Case details #

What happened #

In May 2008, COMELEC entered into lease contracts, with an option to purchase, for electronic voting machines from Smartmatic Sahi Technology, Inc. and Avante International Technology, Inc., for use in the August 2008 ARMM regional elections. Believing the procurement was covered by the exemption from “taxes and import duties” under Section 12 of Republic Act (RA) No. 8436, as amended by RA No. 9369 (the Automated Election System law), COMELEC did not withhold expanded withholding tax on its lease payments to either supplier.

A Bureau of Internal Revenue (BIR) examination followed, and the BIR assessed COMELEC for deficiency EWT: ₱26,269,583.62 attributable to its payments to Smartmatic, and ₱4,375,959.00 attributable to its payments to Avante, for a combined ₱30,645,542.62. COMELEC contested the assessment before the Court of Tax Appeals (CTA). The CTA Second Division’s Amended Decision, dated January 3, 2017, upheld the basic deficiency EWT of ₱30,645,542.62 but excused COMELEC from deficiency interest on that amount; a May 9, 2017 Resolution affirmed that outcome. The CTA En Banc denied both sides’ separate petitions seeking to disturb that result, and both the Commissioner of Internal Revenue (CIR) and COMELEC elevated the dispute to the Supreme Court — the CIR in G.R. No. 244155, seeking to add deficiency interest, and COMELEC in G.R. No. 247508, seeking to be excused from the basic tax itself. The Court consolidated the two petitions.

The issue before the court #

Whether COMELEC’s statutory exemption from “taxes and import duties” on its procurement of automated election equipment, under Section 12 of RA No. 8436 as amended, also exempted it from its separate duty under NIRC Section 251 to withhold expanded withholding tax on its lease payments to Smartmatic and Avante — and, if not, whether COMELEC (or an individual COMELEC officer) could additionally be held liable for deficiency interest on the amount it failed to withhold.

The ruling #

The Supreme Court denied both petitions, upholding COMELEC’s liability for the basic deficiency EWT while declining to add deficiency interest.

A procurement tax exemption and a withholding duty are two different things #

The Court held that COMELEC’s exemption from taxes and import duties on the lease of the voting machines “is distinct from its liability as a withholding agent for the government.” As the decision put it, “one may be exempt from the obligation to pay income tax but may still be liable for withholding.” Section 12 of RA No. 8436 exempted COMELEC’s own procurement transaction from tax; withholding, by contrast, is a separate statutory mechanism for collecting Smartmatic’s and Avante’s own income tax in advance — and neither supplier itself held, or was shown to hold, any exemption from income tax on the lease income it received.

Failing to withhold makes the agent personally liable under Section 251 #

Because COMELEC admitted it did not withhold EWT on the lease payments, the Court found that “it failed to perform its duty as a withholding agent required to deduct, withhold and remit the tax to the government.” Citing the statute directly — “Section 251 of the Tax Code makes the agent personally liable for the tax not withheld” — the Court held: “Consequently, the COMELEC becomes personally liable for deficiency tax equivalent to the amount not withheld.” It ordered COMELEC to pay ₱30,645,542.62, representing the basic deficiency EWT for taxable year 2008.

COMELEC escaped deficiency interest, but on procedural grounds — not because the withholding duty was any less binding #

On the CIR’s push for deficiency interest on top of the basic tax, the Court held that “COMELEC is not liable for deficiency interest” — not because the underlying duty to withhold was somehow less binding, but because of how the case had been litigated. The CTA Division’s original decision had already ruled against imposing interest, and the CIR did not timely move for reconsideration of that specific point, so it became final as to him. When the CIR later tried to argue, for the first time in a motion for reconsideration of the Amended Decision, that a specific “responsible officer” — rather than COMELEC as an institution — should personally bear the interest under NIRC Section 247(b), the Court held it was “too late in the day for him to raise this new issue.” Section 247(b) provides that when the withholding agent is “the Government or any of its agencies, political subdivisions or instrumentalities,” personal liability for additions to the tax falls on “the employee responsible for the withholding and remittance of the tax” — but the Court never reached whether that provision would have applied here, because the CIR raised it too late.

No separate or dissenting opinion appears in this Decision. Chief Justice Gesmundo and Justices Perlas-Bernabe, Leonen, Caguioa, Hernando, Carandang, Lazaro-Javier, Inting, Zalameda, Delos Santos, Gaerlan, Rosario, and J. Lopez concurred with the ponencia of Justice M. Lopez.

Our insights #

This applies a doctrine that predates the current NIRC itself #

The Court’s personal-liability holding against COMELEC follows a decades-old line of authority. In Philippine Guaranty Co., Inc. v. Commissioner of Internal Revenue (G.R. No. L-22074, Resolution, September 6, 1965), the Supreme Court had already held that the law “sets no condition” for a withholding agent’s personal liability to attach, and that a withholding agent genuinely in doubt about whether a payment is subject to withholding may protect itself only by withholding the tax first and then “promptly causing a query to be addressed to the Commissioner of Internal Revenue” — not by unilaterally deciding that an exemption applies and skipping withholding altogether. CIR v. COMELEC applies that same withhold-first logic to a government instrumentality that believed, apparently in good faith, that an unrelated procurement exemption also covered its withholding obligations.

Government agencies carry the same withholding exposure as private businesses — with one unresolved gap #

NIRC Section 247(b) adds a layer that applies only when the withholding agent is a government agency, political subdivision, or instrumentality: it shifts personal liability for additions to the tax (such as interest) onto the specific government employee responsible for withholding and remittance, rather than the agency itself. That provision never actually came into play against anyone in this case — the CIR’s attempt to invoke it was rejected on a procedural timing ground, not because the Court found it inapplicable on the merits. The decision leaves open, rather than resolves, how far an individual officer’s liability under Section 247(b) would reach if a future case raised the argument on time. For the related but distinct question of a government accountable officer’s own criminal and administrative exposure for the same kind of failure, see Can a Government Accountable Officer Be Compromised for Failing to Withhold or Remit Tax? Section 272 Explained.

Secondary commentary on this specific ruling is thin #

Unlike the VAT-refund and assessment-due-process rulings more commonly covered in tax-practitioner alerts, this 2021 decision does not appear to have generated dedicated law-firm or audit-firm commentary — plausibly because the taxpayer here was a government agency rather than a private corporate client, and the amount involved, while significant, was smaller than the headline cases practitioners typically flag. What is well-corroborated, across the CTA record and the Supreme Court’s own decision, is the underlying holding itself: a withholding agent’s belief that a transaction is exempt is not a defense to the separate duty to withhold. That principle is consistent with how BIR examiners apply withholding rules to private businesses every day — a payor who assumes, without verifying, that a particular payee or transaction type is exempt and skips withholding on that assumption bears the same exposure COMELEC did here.

What this means for taxpayers #

For any entity required to withhold tax — a government agency or a private business — this ruling is a reminder that a tax exemption attaching to one side of a transaction does not automatically extend to the separate statutory duty to withhold tax on payments connected to that transaction. The safer path, consistent with the Philippine Guaranty doctrine, is to withhold first and seek BIR clarification afterward if there is genuine doubt, rather than deciding independently that no withholding applies. Businesses on the receiving end of a withholding agent’s exemption assumption should also check their own documentation; see Withholding Agent Remitted Less Than It Withheld: Is the Payee’s BIR Form 2307 Still Valid? for how a payee’s own creditable withholding tax credit is affected — or, more precisely, generally not affected — by a withholding agent’s own compliance failure. For the criminal-penalty dimension of a willful failure to withhold that can accompany this kind of civil liability, see Section 255 Criminal Penalties: Willful Failure to File, Pay, or Withhold Tax.

Summary #

CIR v. COMELEC confirms that a withholding agent’s belief that a transaction is tax-exempt is not a defense to its separate statutory duty to withhold under NIRC Section 251 — a duty that attaches regardless of the withholding agent’s own tax status, and that made COMELEC personally liable for ₱30,645,542.62 in unwithheld expanded withholding tax on its 2008 voting-machine lease payments. This post is part of the Day in Court series; for a related case on when an individual government employee, rather than the agency itself, can be held personally liable for a tax violation, see Can a Government Accountable Officer Be Compromised for Failing to Withhold or Remit Tax?.

Sources #

Primary sources

• LawPhil.net — G.R. No. 244155, Commissioner of Internal Revenue v. Commission on Elections (consolidated with G.R. No. 247508), Decision, May 11, 2021
• Supreme Court E-Library — G.R. No. 244155, Commissioner of Internal Revenue v. Commission on Elections, May 11, 2021
• LawPhil.net — G.R. No. L-22074, The Philippine Guaranty Co., Inc. v. Commissioner of Internal Revenue, Resolution, September 6, 1965

Secondary sources

• Lawyerly.ph — Case Digest, Commissioner of Internal Revenue v. Commission on Elections, G.R. No. 244155