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MAPping the Future

BIR’s cleanup drive

04:32 AM August 05, 2013

The recent issuance of the Bureau of Internal Revenue (BIR) requiring the revalidation en masse of tax-exemption rulings shows a trend that reveals the direction the BIR is headed to—cleansing old accounts. There is an ongoing, continuous and sustained cleanup drive, not of people, not of the organizational structure, not of the overall system, but of old accounts—a radical move no commissioner dared to do in the past.

In April 2012, the bureau voided en masse all BIR Rulings issued prior to 1998. In effect, it invalidated the interpretations and actions made by all past commissioners since time immemorial up to 1997. Based on that issuance, these rulings cannot even be cited, relied upon or used as reference for new rulings, basically erasing from memory this wealth of guidance from past commissioners.

The BIR has a reason.


In 1998, we adopted a new and revised tax code, the BIR says. Although, that may not be accurate as most of the provisions in the old tax code were still retained in the new tax code. But perhaps, a deeper reason could be to flush out from circulation old rulings that were issued haphazardly and are continuously being used as reference when advantageous to a taxpayer’s interest.

Early this year, the BIR ordered the cancellation en masse of all existing official receipts (OR) and sales invoices (SI), and required all taxpayers to apply anew for authority to print (ATP) and have their receipts/invoices replaced with new ones.

With this move, there should no longer be any old receipt or sales invoice circulating in the country beginning Sept. 1 of this year, the deadline set for the use of old invoices/receipts.

Again, the BIR has a reason for this. There is an uncontrollable use of spurious, unregistered fake invoices and receipts which are being used to claim input tax credits or tax deductions, thereby reducing tax payments for VAT and income tax.

It was actually a good move except that, it entails significant costs and the timelines are too tight, eliciting complaints not only from taxpayers but also from the BIR front offices as they face difficulties in managing the volume of applications; and the printers who, until now, are moving heaven and earth to be able to comply with their commitments by the end of August, the set deadline.

The most recent is the order for the revocation en masse of all tax-exemption rulings given to non-stock non-profit (NSNP) entities putting an end to its validity until December 31st of this year.

There are many BIR issuances in the past, tightening the tax-exemption privileges of NSNP entities, including social clubs, condominium corporations, charitable hospitals, educational institutions and cooperatives, to name a few. Perhaps, the BIR felt this is not enough as there are still many questionable tax-exemption rulings circulating in the system that need to be purged. To sweep these up, the BIR thought of a general revocation and reapplication of tax exemption ruling so that it can screen everyone claiming tax exemption. This is the content of Revenue Memorandum Order (RMO) 20-2013.

The timeline given to process the revalidation of a ruling is five months—from Monday until Dec. 31, 2013. By the end of this year, the old ruling will no longer be valid, and if a new ruling is not secured, you may not be granted an exemption.


Note that there is a whole new process for application and screening of tax-exemption rulings. Before, the issuance of tax-exemption ruling is purely a legal function, the screening being limited to the determination of the legal basis for exemption. Under RMO 20-2013, it is now a process involving the participation of both the operations and legal departments. The operations offices will determine the factual bases of the exemption and the legal offices will determine the legal basis—a more holistic approach. Thus, an application will start with the district office (RDO) having jurisdiction of the NSNP. The office will investigate the modus operandi, as well as the sources and uses of funds, income and receipts of the entity for the last three years. The application may be disapproved at this point and, instead of a tax exemption ruling, the BIR will proceed to conduct a full investigation of the applicant and issue deficiency assessments, or file criminal charges as may be warranted.

If approved by the RDO, it will be forwarded to the legal service in the National Office for the second level of review to determine the legal basis. Again, it may be disapproved at this point. If approved, the ruling will be drafted and submitted to the revenue commissioner for her final review, approval and issuance of the ruling.

It is a three-level review and issuance process—a long and difficult process to be completed in a period of five months only. As an advice, those intending to have their rulings revalidated should file their applications early to increase the probability of getting a ruling before the old ruling expires. The commissioner is known to be averse to extension of deadlines and we should not be hopeful of an extension.

All these moves to clean up the leakages in the administration of taxes are laudable, I must admit. The BIR, as an institution, is like a turtle having difficulty moving and running fast because it is carrying on its back a heavy load of backlogs, leakages, inefficiencies, which may have accumulated in over a century of its existence. It could not catch up with the requirements of this modern time, unless it unloads that burden.

This cleanup drive is an innovative solution towards achieving the desired changes in the BIR sans structural reforms. It is a smart move, I would say, considering the difficulty in pushing for a structural change—a move that could have solved many of the problems of the BIR. Many commissioners tried to push for BIR autonomy in the past, but they failed in their efforts.

But while laudable, the means, the processes, the requirements, the deadlines should be more realistic, simpler, fair and reasonable, viable and achievable. There was an uproar against the cancellation of invoices because the deadline set for the printing of new invoices is not achievable by all stakeholders—the taxpayers, the printers and the BIR itself. There was an uproar on taxing the local employees of embassies and international organizations, not because of objection to pay, but because the announcement came only a few days before the filing deadline. Outrage over this revocation and revalidation of tax-exemption rulings may again be expected because of the difficult requirements, prolonged process and short turnaround time.

With this sustained cleanup drive requiring much work to be done, can taxpayers cope up?

Likewise, can the BIR offices, more particularly the field and frontline offices, cope with the load of work?

As it is now, the frontline offices, both legal and operations, are already burdened with existing workload and the delivery of quality and timely services to taxpayers is compromised. For example, the legal offices have this huge backlog of requests for rulings that remain unacted. It takes an average of two to four years to get a ruling released, the longest turnaround time in the history of the BIR. On many instances, a review of a ruling by one office alone takes more than a year. Similarly, the field offices have a huge backlog of unfinished Letters of Authority as far back as 2006. If you don’t attribute this to overload, then it is plain inefficiency.

This problem of increasing backlogs and overload has to be addressed, otherwise the cleanup drive would be like “cleaning up to create more mess.”

In the end, it is always us, the Filipino people and the taxpaying public, who will shoulder the cost.

(The author is chair of the tax committee of the Management Association of the Philippines (MAP) and managing partner and CEO of Du-Baladad and Associates. Feedback at <> and <>. For previous articles, visit

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TAGS: Bureau of Internal Revenue (BIR), tax exemption, tax reform, taxes
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