Thy sins are forgiven Thee. But first you must make a deep and sincere confession, as in the Catholic sacrament of Reconciliation. That is what the Tax Amnesty 2018 is all about.
“Once passed into law, HB-7105 will impose a flat eight percent tax on the net worth of tax delinquents for taxable year 2017, or P10,000 to P10 million, whichever is higher. Individuals availing (of) the tax amnesty will have immunity from civil, criminal, and administrative penalties (Manila Bulletin, Feb. 17, 2018).”
“Net worth” is the key phrase. Assets minus liabilities equal net worth. You must “confess” all you have and all you owe as of 2017 — effectively a “SALN,” or a “Statement of Assets, Liabilities and Net worth” as strictly required of all government employees. Must you now declare real property owned, but which is idle and has had no income, and can offset only real property taxes already paid as liability? Will you volunteer to declare jewelry and other assets with high value, but with no liabilities — you must, including cold cash. Will you be charged for non-declaration of bank accounts, for example, which bank accounts have already been deducted the mandatory 20% final withholding tax — classed as “passive income?” Imagine the impact of eight percent on such assets! But you must be absolutely honest and contrite, if you are availing of the 2018 tax amnesty. True contrition must come with true confession.
What of Republic Act 1405, or The Law on Secrecy of Bank Deposits, an act prohibiting the disclosure of or inquiry into deposits with any banking institution.
“According to the law, all deposits with banks or banking institutions in the country are confidential, and may not be examined or looked into by any person, government, official, bureau, or office (CNN Philippines, Feb. 21, 2018).” “I think we’re only one of two countries in the world that have that (the Bank Secrecy Act),” Finance Secretary Carlos Dominguez said. He wants Congress to lift bank secrecy for accounts suspected of money laundering and tax evasion.
Sec. Dominguez says the amnesty program aims to give taxpayers the chance at a clean slate. The first tax amnesty will be given to those who failed to pay estate tax before. They can pay the new, flat rate of 6% (for each transfer-level of heirs). Second, those who failed to pay income and other taxes before can pay a new tax based on their total declared assets. And then those who have pending tax cases will be allowed to make a settlement (Ibid.).
There have been seven tax amnesty schemes offered in Ferdinand Marcos’s 14-year martial law; five measures in Corazon Aquino’s 6-year term; a voluntary tax assessment program in Fidel Ramos’s 6-year term; Economic and Recovery Assistance Payment (ERAP) Program in Joseph Estrada’s 2-year term; and three Voluntary Assessment Programs in Gloria Arroyo’s 9-year term; and no amnesty program in Benigno S. C. Aquino III’s 6-year term (http://www.congress.gov.ph/download). Collection performance from these various amnesty programs from 1997-2004 claim a total of P19.2 billion, never at any one year to have contributed more than one percent of total BIR tax collections for the year the amnesty was offered, except for the ERAP program which brought in 1.03% (Ibid.).
Now a massive tax amnesty is being pushed to raise P26 billion in revenues for the government and augment the P969.2 billion to be generated from the first tax reform package under TRAIN in the next five years, the Department of Finance said (Philippine Daily Inquirer [PDI], Jan. 9, 2018). Sec. Dominguez said that “package 1B was crucial to keep the 3-percent-of-GDP deficit target” for 2018. It is estimated that this year, the government stands to lose P146.6 billion in foregone revenues from the lower personal income tax rates as well as donors’ and estate taxes, which will be offset by higher taxes on various goods to be shouldered by consumers (Ibid.).
On the flat amnesty tax rate of eight percent and the six percent reduced estate tax (not including the 40% compromise settlements on pending tax cases) the net worth to be declared by contrite erstwhile tax evaders might be in the vicinity of P300 billion. Will there be that many “confessions”?
“There are a lot of taxpayers who can’t pay because the interest (on unpaid taxes) is 20% per annum… You have to put it in the law that they can avail (of the tax amnesty),” Finance Undersecretary Antonette Tionko said (PTV News, Nov. 28, 2017). “Once legislated, there would no longer be any tax amnesty for the next 25 years,” Finance Undersecretary Karl Kendrick T. Chua warned (PDI, Jan 9, 2018). No one can speak for the next 25 years. And the simplistic cost-benefit analysis of reduced amnesty taxes eliciting contrition for the sins of the past versus the baring of present net worth will do little to entice hardened tax evaders.
The trick for recidivist tax evaders is to stay “under the radar,” meaning that the BIR must not know of assets that are not anyway already taxed in the normal course of life and business. Property is taxed real property taxes and titling will necessitate capital gains taxes and transfer taxes; other property (jewelry, cars, paintings, expensive furniture, etc.) might have been taxed upon sale/acquisition, but are not normally titled, and can be kept “confidential,” even under estate tax laws. Ergo, basing the amnesty tax settlement on net worth is truly a formidable disincentive to the laggard tax payer.
Mon Abrea, PDI contributor and former BIR examiner asks some questions: “How come less than 15% of the population is registered with BIR? How come more than 50% of the 13 million registered employees are minimum wage earners and only 20% are earning an annual gross compensation income of over P500,000? Registered “professionals” are less than 300,000, contributing roughly P14 billion (or 1% of total collections) compared with P232 billion (or 20% of the total collections) in withholding taxes from employees. Also, of the more than two million Overseas Filipino Workers, how come only 55,000 are on the BIR database (inquirerdotnet, July 4, 2016)?”
From Mr. Abrea’s figures, some 98% of total collections are still based on voluntary payments. It is a no-brainer to focus more on increasing voluntary compliance than filing tax evasion cases that end up in the warehouse of courts, he says. Less than 2% of collections come from audit/assessment — with almost 500 tax evasion cases filed by the BIR, how much in taxes were actually collected? As a last salvo, Abrea asks the question obedient taxpayers ask, “But what’s the guarantee that our revenue collections will not be compromised? More importantly, will this stop corruption in BIR?”
Commissioner Atty. Caesar R. Dulay, an honest and capable, God-fearing man appointed by President Rodrigo Duterte to lead the BIR, will know what to do to make the BIR more efficient in its role of collecting more than half of the total revenues of the government — more than forcing “confessions” of recalcitrant tax evaders under an unpromising amnesty program.
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
ahcylagan@yahoo.com
