The Bureau of Internal Revenue (BIR) recently celebrated its 115th Anniversary, and with it comes the time to recognize its performance. While the general perception of corruption remains, it is important not to forget the BIR’s active efforts. Praise what is right and criticize what is wrong.
Plenty of violators caught, higher revenues collected, and more taxpayers registered.
These achievements are displayed every year in the BIR’s annual reports, yet it never seems enough. Taxpayers remain burdened. If no longer by the tax rates, then by the complicated tax compliance. If not by the compliance, then by the corruption.
It is evident that more needs to be done.
But if year after year, the effort exerted produce the same results, then maybe the effort needs to be put in other aspects.
To truly reform the tax system, there needs to be a change in laws, how these laws are implemented, and in the mindset of the taxpayers.
ATTAINING COLLECTION TARGETS
In attaining its targets, the BIR has increased its collections year-on-year by 10.21%. For 2018, they collected P1.963 trillion out of their P2.044 trillion target.
Missing their targets does not mean that the BIR did not do their job well. In fact, the current BIR administration has exhibited the highest tax effort ratio increases within the past 10 years. Under Commissioner Caesar Dulay, the BIR has increased the tax effort ratio by 10.88% (in 2016), 11.27% (in 2017), and 11.26% (in 2018).
The TRAIN Law (Tax Reform for Acceleration and Inclusion) also fully took effect in 2018. With the main draw of the TRAIN Law being that the taxes would be lowered for the majority of the taxpayers, an increase in collections should be a welcome change. Of course, that does not mean the TRAIN Law directly contributed to the increase in collections either. Even before the law was passed, the BIR had already presented year-on-year increases in its collections.
But what it does mean is that lowering the burden on taxpayers does not equate to burdening the economy.
Similarly, the second package of the tax reforms will lower the tax rates for the corporations. But the issue most businesses have with that package is in a different matter entirely, specifically in the rationalization of incentives. Unfortunately, that does not change the fact that lowering the corporate income tax is much needed. The Philippines has the highest corporate income tax rate in the ASEAN region.
The 18th Congress has already re-filed the second package and was urged to view it as a priority bill.
For the BIR’s collections, the excise taxes have played some part as well. As of May 2018, the BIR has collected a total of P103.144 billion. By May 2019, they have collected P111.72 billion, an increase of P8.576 billion.
More recently, the increase on the excise tax of cigarettes was passed under Republic Act No. 11346. The newly passed law also imposed an excise tax on vapor products. To add to this, an increase in the excise tax of alcoholic beverages is also on the way.
These taxes are necessary to fund the government’s projects, specifically the Universal Healthcare program.
But aside from increasing taxes, there is also another way of increasing collections — broadening the number of taxpayers to collect from.
One of the BIR’s initiatives toward this is in improving the ease of paying taxes.
Already, the current BIR administration has implemented several policies that will improve the taxpayer’s experience. For one, the implementation of a single window policy when it comes to business registration has shortened the number of steps.
Just this year, the BIR passed Revenue Memorandum Circular No. 27-2019 which enhanced the BIR registration forms. Under the enhanced forms, the application for Authority to Print and the payment form have already been integrated. This effectively lowers the number of forms a taxpayer has to fill in.
In a similar vein, the TRAIN Law has shortened the number of pages for all income tax returns.
These initiatives also serve in improving the country’s ranking the Doing Business report. In recent years, the Philippines’ rank has consistently dropped. As of the World Bank’s Doing Business 2019 report, the Philippines was ranked 124th in the ease of doing business (EODB) and 94th in paying taxes.
To combat this, the government has established the Anti-Red Tape Authority (ARTA) which has recently begun its work on how to improve the EODB in various fields — including paying taxes.
INTENSIFYING TAX ENFORCEMENT
These efforts in improving the ease of paying taxes also seek to root out the violations caused by complicated regulations. Without these kinds of violators, the BIR can focus on the true “big fish” tax evaders.
In its current state, for instance, the same taxpayers are audited again and again. It does not matter whether the taxpayer has increased its compliance, or actually increased its tax payments. That is why it is important to revive a modified No Audit Program. Why should the BIR spend time auditing taxpayers whose tax compliance has already improved?
Even without that, the BIR is already catching a lot of errant taxpayers. From July 2018 to May 2019 alone, the BIR has filed 284 cases under the Run After Tax Evaders (RATE) program, with a total estimated tax liabilities amounting to P18.85 billion.
Under its Oplan Kandado, the BIR has shut down 510 non-compliant establishments and collected P1.005 billion from them. Lastly, under its Tax Compliance Verification Drive (more commonly known as Tax Mapping), the BIR has checked the compliance of 515,666 establishments and collected P528.31 million.
But the tax enforcement policy most businesses are concerned about is the BIR Audit. For most businesses, the BIR audit is an expected, yet dreaded fact.
Unfortunately, as earlier noted, even compliant taxpayers get audited. If the BIR sets a certain threshold for taxpayers to comply, then they could use that as a basis for whether a taxpayer should be audited or not.
There are only a few BIR examiners compared to the number of taxpayers in the country. It is unrealistic to expect them to be able to audit every single business. It is better if their efforts are redirected toward those who are considered high risk.
For now, such a policy does not yet exist (or has yet to be revived), so a taxpayer’s best defense remains to be proper tax compliance.
To improve tax compliance, taxpayers can implement a tax strategy for their business where they analyze leakages and avoid potential violations.
This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.
Raymond A. Abrea is a member of the MAP Tax Committee and one of the 2017 Outstanding Young Persons of the World, a Move Awards 2016 Digital Mover, one of the 2015 The Outstanding Young Men of the Philippines (TOYM), an Asia CEO Young Leader of the Year, and Founding President of the Asian Consulting Group (ACG) and the Center for Strategic Reforms of the Philippines (CSR Philippines).