Paper trail on credit cards
Acting on information received from confidential sources, the Bureau of Internal Revenue (BIR) recently filed tax evasion charges against a dentist who reputedly has celebrities for patients.
The BIR sued Dr. Steve Mark Gan for failure to pay the right taxes for income earned from 2009 to 2011. He allegedly declared P14.29 million as income during the period when, in truth, he earned P47.49 million.
According to the BIR, Gan underdeclared his taxable income by 283.13 percent or P8.84 million in 2009, 664.46 percent or P20.18 million in 2010, and 51.43 percent or P4.18 million in 2011.
These figures were collated by the BIR from the records of Rizal Commercial Banking Corp. on credit card charges and payments made by Gan’s patients in those years.
Based on BIR findings, Gan’s total tax liabilities, inclusive of penalties and charges, amount to P36.49 million.
In separate actions but for the same reason, the BIR also filed tax evasion charges against businesswomen Boots Yamzon (who runs a retail shop in Sta. Mesa, Mesa) and Luisa Chuahiong (operator of wholesale stores in Manila), and six Filipino employees of the Asian Development Bank.
Convenience
The BIR’s use of credit card records to gather evidence against taxpayers suspected of reneging on their tax obligations has put an unexpected dimension on the domestic credit card system.
Under ordinary circumstances, given the choice, most businesses, especially small and medium scale enterprises, would prefer that payments for their goods and services be made in cash rather than on credit.
Credit card transactions entail a lot of paper work in recording and monitoring sales, on top of having to pay a certain percentage of the sales to the credit card companies as service fee.
However, it would be financially disadvantageous for businesses to go on cash basis only because not many customers like the idea of bringing wads of money with them when shopping or availing of services.
Although cash dispensing machines, or ATMs, are a ubiquitous presence in shopping centers, searching them out to withdraw cash can put a damper on the spending mood of even the enthusiastic shopper.
Besides, bulging wallets provide easy targets for pickpockets and other shady characters that roam crowded commercial areas.
By and large, credit cards provide the security and convenience that encourage their holders to spend or positively react when the shopping bug suddenly bites them.
The professional services sector, e.g., physicians, dentists, therapists and other related specialized activities, that traditionally transact business on cash-only basis, have also seen the benefits of credit card arrangements on their bottom line.
Credit records
The BIR’s action on Gan is expected to bring a chill down the spine of businessmen and professionals who want to maintain the confidentiality of their commercial records.
Credit card transactions create paper trails that show the names and addresses of and amounts paid to their payees.
These data are printed in three sets of documents separately held by the customer, business establishment and credit card company. For financing purposes, the latter is usually affiliated with a bank or financial institution.
A directive from the BIR to a credit card company to disclose the details of certain credit card transactions of a taxpayer under investigation is not something to be ignored, much less refused.
The credit card company or its affiliate bank cannot invoke “secrecy of bank deposits” to snub the order.
Although credit card payments are covered by financing arrangements with banks, they are not, in essence, banking transactions that come within the purview of bank secrecy regulations.
What’s more, invoking that argument to avoid the release of the data sought could put the credit card company and its affiliate bank under scrutiny by the BIR for possible collaboration in tax evasion activities.
When push comes to shove, the interests of a cardholder take the backseat to those of the credit card company or its affiliate bank, no matter how hefty his account may be.
Double-edged
The value to the BIR of the information that credit card transactions provide is not limited to their payees or beneficiaries. It can also be used to verify the true income of cardholders suspected of fudging their income tax returns.
Like the Statement of Assets, Liabilities and Net Worth (SALN) that government personnel are required to submit every year, the entries in income tax returns are only presumed to be accurate.
The tax returns are subject to verification by the BIR if, upon review, it thinks they are not truthful or it receives outside information to that effect.
It is common knowledge that entries in these filings are often understated to minimize the tax bite or, in the case of SALNs, to give the impression the filer has not unduly enriched himself in office.
By comparing the totality of credit card expenses of a taxpayer suspected of tax evasion to the income stated in his income tax returns, the BIR can have an idea on whether or not he honestly declared his earnings.
Thus, for example, if a taxpayer has credit card billings of over a million pesos in a year but he declared only an income of P500,000 for the same period, where did he get the money to pay for those expenses?
The taxpayer would have to explain where or how he was able to afford those expenses considering the low amount of income he declared in his tax returns.
Going back to the tax evasion charges filed against Gan, there can only be two sources of the information that led to his investigation by the BIR—a disgruntled former employee or a patient who did not like the work done on his dentures.
To paraphrase a popular saying, hell hath no equal to a person whose self-esteem went bonkers because of a botched dental treatment.
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