Ease in paying taxes

In a recent report released by the World Bank and the International Finance Corporation (IFC), “Doing Business 2013,” the Philippines ranked No. 143 out of 185 economies in terms of ease in paying taxes.

Compared to the regional average of 70 (with Malaysia as No. 15, Thailand as No. 96, Indonesia as No. 131 and Vietnam as No. 138), the Philippines appears to be the country where businesses find that paying taxes is most difficult.

On the average, businesses make 47 tax payments a year, spend 193 hours for filing, preparing and paying taxes, and pay total taxes amounting to 46.6 percent of profit, the report says.

The result of this survey is very revealing and apt for this coming tax filing season. This is the situation we are facing and the report shows how unfriendly the tax environment is. It is no wonder why tax compliance in this country is very low—it is not only because people hate to pay taxes but it is also because the system makes it difficult and costly for them to pay taxes. How many taxpayers would have wanted to be on-ground and join the tax net if rules had been made simpler, easier and less costly?

Most businessmen complain that complying with tax obligations is a truly difficult, expensive and time-consuming undertaking characterized by complicated and ever-changing tax rules, complicated forms, complicated processes, delayed response for clarificatory inquiries, too many attachments and submissions, lack of information materials, inconsistent implementation by different district offices, among others.

The “Doing Business 2013” reports that economies simplifying their tax payments and reducing tax rates have seen revenue rise and brought concrete positive results. In the Philippines, however, the Doing Business Report has not measured or seen any effort to reform the system to address this concern since 2008.

I know for a fact that the Bureau of Internal Revenue (BIR) has been trying to computerize its systems and procedures for years but perhaps this effort has not generated measurable results yet for the Doing Business Report not to notice. Examples of these enhancements are the e-filing and e-payment, which simplifies the process of filing and payment, the e-registration which allows taxpayers to register online, among others. The meat of the report, however, is on the overall difficulty of complying with one’s tax obligations—filing, preparation and payment.

But there is another area that was not measured by the Doing Business Report and that is—how much time and cost does a taxpayer spend in doing all the work that the BIR is ought to do but has shifted the burden to the taxpayer under pain of penalty for noncompliance? I am talking here of the many reports and compliance requirements required from taxpayers but which, by the nature of the work, is supposed to be the responsibility of the tax administration. For example, how much does one incur in helping the BIR collect taxes by way of withholding? As the BIR relies more and more on withholding agents to help them in their collection, the cost of compliance will increase proportionately. How much cost does one consume to submit voluminous reports containing information on other taxpayers which the BIR needs for their audit? Basically, the BIR has relied on taxpayers to provide the audit trail for other taxpayers.

Noticeably, there is more reliance now on taxpayers to help in tax administration, thus, shifting the cost to collect taxes to businessmen.  A classic example is this requirement for taxpayers to first verify if the person they are dealing with is registered with the BIR, otherwise purchases from that unregistered taxpayer shall not be allowed as deduction. This, in effect, will force businessmen to deal only with registered taxpayers and eventually flushing out unregistered taxpayers in the mainstream.

I have no objection in making taxpayers as a partner in tax collection and administration. In fact, I see this as the ideal situation. However, as the saying goes, we should know where one ends and the other begins, otherwise, it becomes an inefficient system. Too much cost incurred to comply may force taxpayers go underground or reduce tax payments to recoup the cost incurred in complying with taxes.

The BIR leadership has been saying that at this point in time when many are still operating underground, the BIR is a law-enforcement agency and not a customer-centric agency. Its duty is to enforce the Tax Code to the fullest and less of taxpayer assistance.

With the results of this study, my thinking is that, the BIR could be both a law enforcement agency and a customer-centric agency at the same time. BIR can make payment of taxes easy, simple and less costly to attract voluntary compliance, yet at the same time be punitive and strict in the enforcement of the tax laws.

Also, depending on the segment of taxpayers the action is directed to, the BIR can shift from law enforcement to customer-friendly mode. Large taxpayers, for instance, are already highly compliant. It is tax assistance and not tax enforcement they need. Smugglers and the hard-to-tax group, on the other hand, need full tax enforcement.

(The author is the chairperson of the MAP Tax Committee and the managing partner and CEO of Du-Baladad and Associates (BDB Law). Feedback at [email protected]. For previous articles, visit www.map.org.ph.)