Difficulties in tax compliance

BY THE end of the month, we will know if this year’s campaign of the Bureau of Internal Revenue (BIR) to encourage individual taxpayers to pay the right amount of taxes bears fruit.

Ahead of the April 15 income tax deadline, the BIR came out with advertisements in the media touting the projects the government was able to accomplish from its tax collections.

The positive approach is in sharp contrast to the BIR’s past negative advertisements that showed physicians and accountants paying lesser taxes than public school teachers and other low-salaried government employees.

The BIR also urged taxpayers to file their income tax returns early to avoid the inconvenience and hassle usually characterizing last day filings.

In spite of the BIR’s information drive, however, majority of Filipinos look at taxes as a necessary evil, or something to be avoided and evaded whenever possible, rather than an act of patriotism.

This is not surprising because no reasonably minded Filipino enjoys seeing his hard-earned money going to the pockets of corrupt senators, congressmen and other government officials.

On top of this disincentive, the payment of taxes has become an ordeal of sorts due to bureaucratic rules and procedures.

Rankings

In the “Paying Taxes 2016” research conducted by international accounting firm PwC and the World Bank Group on the tax system of 189 economies, the Philippines was 126th in overall ranking.

The study showed that the total tax rate paid by Philippine companies is 42.9 percent and it takes approximately 193 hours for them to be able to comply with 36 obligatory tax payments.

Among the countries in the Asean region, Singapore got the highest ranking at fifth overall, with a corporate tax rate of 18.4 percent and 84 hours of compliance for six tax payments.

Malaysia ranked 31 with a tax rate of 40 percent and 118 hours of compliance for 13 tax payments. Thailand ranked 70, with a tax rate of 27.5 percent and 264 hours for 22 tax payments.

The other Asean countries with comparable economies that ranked lower than the Philippines are Indonesia at 148 and Vietnam at 168.

Interestingly, three countries that are presently experiencing serious civil strife and violence were ranked higher than the Philippines, i.e., Iraq (59), Afghanistan (89) and Syria (119).

The country that is now in the center of what is considered the most serious case of international money laundering ever, Bangladesh, is way ahead of the Philippines at rank 86.

Complicated

It is a basic principle in taxation that “taxes should be enforced in a manner that facilitates voluntary compliance to the maximum extent possible.”

Meaning, the rules on taxation must be written in a manner that they can be easily understood and complied with by the taxpayer without outside assistance.

In the ideal situation, the taxpayer should be able, on his own, to figure out how much in taxes he has to pay for income earned from his labor or business and can do so with the least expense in time, money and effort.

Sadly, it is the other way around here. Our tax laws are written in such a way the ordinary taxpayer will suffer a nose bleed if he tries to make odds and ends about their sense or meaning.

The rules on taxation can be daunting even to lawyers and accountants unless tax law is their field of expertise or they took special courses to understand its nuances.

Except for the BIR form for purely compensation income that is quite simple, the other BIR forms require the assistance of somebody knowledgeable with the intricacies of taxation.

By way of example, take a look at BIR Form 1701, which self-employed individuals, estates and trusts are required to file.

It consists of 12 pages and over 200 line items that, where applicable, have to be filled up. The first four pages alone have 163 line items and the rest of the pages have an average of 10 line items each to answer, some of which require cross-references to other items. Whew!

Corruption

THIS BIR form is supposed to be the simplest among countless BIR forms that have to be filed and on the basis of which certain tax payments have to be made within specific periods of time under pain of penalties and surcharges.

If the businessman-taxpayer does not want to run afoul with the law or get a  visit from BIR examiners (both authorized and unauthorized), he has no choice but engage the services of an accountant or lawyer with sufficient expertise in taxation to assist him in the preparation of his tax returns.

As if the accomplishment of tax returns is not stressful enough, the taxpayer has to contend with the requirement of submitting, depending on the nature of his business, monthly, semestral and annual reports to the BIR or, where applicable, to other regulatory offices.

The volume of paperwork for BIR filings has reached a point that some companies, in an effort to make sure they are compliant with requirements, have to create a staff dedicated to attending to all matters solely related to the BIR.

Thanks to the patience of majority of Filipino taxpayers, other than those whose taxes are withheld from their paychecks even before they receive their wages, they continue to pay (although grudgingly) their taxes despite the difficulties and disincentives of tax compliance.

It’s probably only in the Philippines where its citizens are willing to pay their taxes but the government throws in bureaucratic obstacles to make that process tedious and stressful.

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