For taxpayers using the calendar year, the due date for the filing of the 2022 Income Tax Return (ITR) is April 17, 2023, since April 15 falls on a Saturday. Taxpayers are already used to this cycle of filing tax returns regularly — the ITR being the last periodic tax return to be filed for a taxable year — then wait for the Bureau of Internal Revenue to come to them for the subsequent audit.
Many have the impression that taxpayers and the BIR are on two opposite sides. Some taxpayers believe that, even when they file their tax returns correctly, the BIR will subsequently assess them arbitrarily for tax findings. On the other hand, certain BIR officers believe that some taxpayers are dishonest; hence, revenue officers becoming overly skeptical about taxpayers during audits. There appear to be trust issues on both sides.
Based on the BIR’s Annual Reports posted on its website, revenue from BIR audits for the past two taxable years comprise less than 3% of the BIR’s total collections. Meanwhile, the remainder, comprising more than 97% of the collections, comes from voluntary tax payments.
Having seen the above percentages, one might wonder — who wants to spend so much time on the measly 3% of revenue generated by BIR audits? Yes, in a revenue budget of more than P2.5 trillion, such percentage translates to over P75 billion for the government; but nonetheless, perhaps, there could be better ways to capture such relatively minimal percentages while maximizing the personnel resources of the government.
On the other hand, taxpayers also prefer to devote their resources in complying with their tax obligations and filing tax returns, rather than spending time disputing and arguing against the BIR during audits. Not to mention, such cases can end up in the courts for years. Who wants such stress, in addition to the daily demands on taxpayers and on their Finance and Tax personnel?
Regarding the 3% portion of the BIR’s revenue collections from audits, while it is relatively small part of overall revenue, that percentage could generate major discord between the BIR and the taxpayer, especially when an audit is perceived to be unreasonably handled by certain BIR revenue officers.
Audits initially alleging hundreds of millions or billions of pesos in tax assessments that are later disputed and reduced to less than 1% of the initially alleged amount suggest a major disconnect between the BIR and taxpayers. In situations like these, questions from taxpayers may arise on why the BIR almost always starts at such huge amounts. Do they really believe that the taxpayer they are examining is that dishonest? Is this a form of harassment against taxpayers?
On the part of BIR audit teams, they may contend that it is also not their fault that they start at such enormous amounts of initial tax findings, as such may have been based on the practice of the many other BIR audit teams in the past. Or perhaps, one may ask, are the BIR audit procedures really designed to follow an overly skeptical approach against taxpayers? Do the BIR audit teams want to be perceived as tormentors?
Of course, it is a different story when it comes to tax evaders, like those using false official receipts that we have been reading about in recent news reports. Needless to say, these evaders should really be run after. But for a regular BIR audit, how can the gap be narrowed between the BIR and the taxpayers?
In recent BIR tax campaigns, we have been hearing that the BIR intends to focus on providing great service to taxpayers. Further, it is the direction of the BIR that with convenience, accessibility, transparency, and fairness, more and more businesses will leave the shadow economy and voluntarily join the tax net. On the part of the taxpayers, this is a very welcome approach, as this focuses on 97% of the government’s revenue collections.
One could say that improving voluntary tax payments, instead of fighting it out during audits, should be the common ground shared by the BIR and taxpayers. Hence, in bridging the gap, both sides could channel their efforts and resources towards the promotion of tax education, simplification of tax rules and compliance thereto, and formulation of equitable BIR audit procedures, among others.
On the taxpayers’ part, the payment of correct income tax due on their 2022 ITRs at the April deadline will be a confirmation of that common ground with the BIR.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Olivier D. Aznar is a partner and head of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.
