Tax me notch

Early this year, the Aquino (Part II) administration boasted about some minor “improvement” in its tax effort, noting that revenue hit 13.4 percent of the GDP last year, versus the target of 13.5 percent.

The administration attributed the “improvement” mainly to the BIR’s intensive campaign against tax evasion.

Well and good; it is just that even Finance Secretary Cesar Purisima reportedly noted that the BIR could still do much better, given the billions upon billions of pesos in tax evasion cooked in this country every year.

One estimate put the tax evasion here at anywhere between P380 billion and P450 billion every year. The estimate is roughly one-third of the national budget, more than enough to cover for the yearly deficit.

In going a notch higher in its campaign against tax evasion, the BIR threatened to file tax evasion charges against 400 Filipino employees of the ADB, or Asian Development Bank, a multilateral agency based in Manila.

All along, Filipino employees of the ADB did not file income tax returns. They believed all those years that they were tax-exempt. The bank never withheld income tax payments from the employees’ salaries.

But the BIR last year ruled otherwise—they must remit to the BIR income taxes. Not only that, the BIR made the ruling retroactive. They must pay for income taxes for their entire employment with the bank, no matter how many years ago they were hired.

The ADB management agreed with the BIR that, yes, indeed, the bank’s Filipino personnel must pay their income taxes.

Adding to the headache of the employees was the “retroactive” BIR ruling, because the employees could not possibly raise the cash right away to pay for all their income taxes for the past several years.

The ADB management said the employees did not have to put up cash to pay the back taxes, because the bank would advance the payment. The employees could simply repay the ADB by deducting the advances from their retirement benefits.

It seems the poor ADB employees would end up without any money in their senior years, when they would need it the most, because their retirement money already went to the government.

In the meantime, the Department of Finance ordered the BIR to investigate Bulacan-based cigarette manufacturer Mighty Corp., owned by the Wongchuking family, for alleged tax evasion by the billions of pesos.

The DOF reportedly had reason to believe that Mighty cheated the government in excise taxes (i.e. the famous “sin tax”) of as much as P5 billion last year alone, since Mighty came from nowhere to claim 20 percent of the market in just a few months.

Mighty even claimed in newspaper ads that it remitted to the BIR P8 billion in excises taxes last year. The DOF noted that, precisely, Mighty should have paid more than that for the 20-percent market share.

The industry nowadays put the total local cigarette market at a rather conservative estimate of 100 billion sticks a year, or about 5 billion packs, meaning the excise tax at P12 per pack should have amounted to P60 billion last year.

Mighty claimed that, at 20 percent of the market, its share reached one billion packs. This means that, at the excise tax of P12 per pack, the company should have remitted to the BIR P12 billion in excise tax last year.

Our dear Mighty said in its public announcement that its excise tax payment hit P8 billion, ergo it saved about P4 billion?

When Finance Secretary Purisima issued a memo to the BIR to investigate Mighty, he specified the possible amount of tax evasion of between P4 billion and P5 billion, including customs duties and other taxes.

Now, within the BIR, the belief has been that the information of Purisima, the one regarding the tax evasion case of Mighty, came from the leading competitor of Mighty, Philip Morris Fortune Tobacco Corp., or PMFTC.

And so the BIR boss, Commissioner Kim Henares, was quoted in news reports as saying that Philip Morris International (the foreign owner of PMFTC) must prove its allegations that Mighty has been under-declaring its production to the BIR.

Henares also reportedly said that the BIR would “not take sides in the dispute (between Mighty and PMFTC),” although she reportedly said that the burden of proof rests on PMFTC.

Or else… well, according to Henares, PMFTC would be liable for libel or slander.

The last time I checked, the BIR even rewarded informants in tax evasion cases, by giving them a percentage of the amount the BIR would collect as a result of those same cases.

Well, in the case of Mighty, if indeed PMFTC reported to the government, perhaps through the DOF, some suspected illicit activities of Mighty, should it not be regarded as part of its corporate responsibility, particularly since the DOF would have been duty bound to know about it?

In the case of Mighty, it seemed that the BIR would want the informant, i.e. PMFTC, not the BIR itself, to prove the tax evasion case against Mighty. The last time I checked, it has always been the job of the BIR to look for evidence in tax cases.

So the BIR perhaps changed its strategy, and the informant must now prove the cases, although the strategy should lead us to a simple question: What would be the use of the BIR then?