Tax amnesty today, tax reform tomorrow
INTERNAL Revenue Commissioner Caesar Dulay was warmly welcomed by various tax reform groups including the Center of Strategic Reforms of the Philippines (CSR Philippines) after issuing two circulars to suspend audit and recall revenue issuances issued by his predecessor from June 1 to 30, 2016.
It is good to know that after almost a decade of advocating genuine tax reform, finally, we are seeing some light and hope.
Finance Secretary Sonny Dominguez repeatedly mentioned that tax reform was among the top priorities of the Duterte administration.
In fact, first among the top 10 recommendations of the business leaders was the adoption of a comprehensive tax reform package, which includes lowering both individual and corporate income tax to 25 percent, which is the average income tax rate among member-countries of the Association of Southeast Asian Nations.
But what’s the guarantee that our revenue collections will not be compromised? More importantly, will this stop corruption in BIR?
As a step in the right direction, I propose tax amnesty as prerequisite for genuine tax reform.
Let’s have a fresh start and stop running after the “tax evaders” when the big time tax evaders and smugglers are doing business as usual.
First, we need to broaden our taxpayer base.
How come less than 15 percent of the population is registered with BIR? How come more than 50 percent of the 13 million registered employees are minimum wage earners and only 20 percent are earning an annual gross compensation income of over P500,000?
Unfortunately, even our professionals are not being professional with less than 300,000 of them registered, contributing roughly P14 billion (or 1 percent of total collections) compared with P232 billion (or 20 percent 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?
Narrow base
With the very narrow taxpayer base, and practically unreliable and outdated numbers, BIR will never be efficient and fair in collecting taxes.
We don’t need an audit (or assessment), we need assistance and tax information to increase the taxpayer base nationwide. We also need to increase voluntary compliance by assisting taxpayers.
Stop imposing penalties and harassing the micro and small businesses.
Second, we need to engage multi-sectoral groups to reform our tax administration and adopt a risk-based automated audit for large taxpayers.
Revenue District Offices (RDO) must not be collection-driven offices but rather taxpayer assistance offices. And revenue officers must visit all micro and small businesses in their respective areas to register them, assist them to comply or remind them of the BIR deadlines.
Some 98 percent 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.
Less than 2 percent of collections come from audit/assessment. We can improve this if BIR could really prosecute or collect from big time tax evaders and smugglers. And we need a citizen watch to encourage taxpayers to complain or provide information about anybody they know who are not registered but doing business or doing illegal business, especially the smugglers in our neighborhood.
With almost 500 tax evasion cases filed by the BIR, how much in taxes were actually collected?
In 2014, we invited BIR to a tax forum at the Ateneo Graduate School of Business to discuss the impact of our tax system on doing business in the country. With our aim to promote honesty in paying taxes, we proposed a private-led certification program to award a “Seal of Honesty” after a three-year Citizen Tax Planning.
We thought of this to institutionalize honest tax payment without the threat of penalties, compromises, or worse, tax evasion cases. Ultimately, the objective of the certification program is to gather and incentivize honest taxpayers.
Unfortunately, the partnership with BIR didn’t materialize.
Voluntary compliance
Third, why tax amnesty?
We need to offset any possible revenue losses from lowering income taxes, suspension of audit, among others.
Since we all know what happens during an BIR audit and how much money goes under the table, we can conclude that the BIR audit is definitely not a reliable source of tax collections. It discourages voluntary compliance.
If the Duterte administration wants to stop corruption in BIR, it needs to trust the taxpayers to pay their taxes correctly and the BIR examiners to do their job honestly.
Under the proposed tax amnesty program, violations of tax laws and regulations from a specific period up to the present will be pardoned, allowing taxpayers to just make the amendments and declarations.
Through this, the government will be able to collect more taxes from previous taxable years without using the threat of penalty or filing tax evasion cases against the taxpayer.
Assuming the 99 percent of the taxpayers who didn’t pay their correct taxes will pay an additional 20 percent a year, we could double our total revenue collections without audit or assessment and filing of any tax evasion cases which, anyway, didn’t contribute at all.
This will definitely offset any revenue loss from lowering income taxes or suspension of BIR audits.
More importantly, the BIR can focus on data collection and industry profiling to implement a risk-based automated audit among large taxpayers.
BIR examiners assigned to handle the large taxpayers must be trained abroad on forensic and fraud audit with the use of advanced technology to prosecute big time tax evaders including smugglers.
We need to stop illegal businesses and put all smugglers in jail.
As I have promised BIR Commissioner Dulay, I will help him in every way possible to improve our tax administration, simplify compliance for SMEs, and collect more taxes for the government.
In view of this, we launched the Pledge of Support—A Commitment in Promoting A Culture of Honesty and Integrity to ask the business community to show their trust and support to the BIR and help collect more taxes by paying right.
Pledge
We ask all business chambers and professional associations to sign the pledge and help the government collect the taxes it needs to fund the “change” that we want to see.
(The author is a former BIR examiner and recipient of the 2015 Asia CEO Young Leader Award, The Outstanding Young Men (TOYM) and Distinguished Bedan Award in the field of Accounting and Taxation. He is also President of the Abrea Consulting Group. For more information, please contact Marion at 0977-856-0202 or e-mail [email protected])
