Voluntary tax compliance is enhanced when compliant taxpayers are protected against undue audits.
Or so goes the preamble of a 14-year-old executive order.
That EO is, of course, long dead. But the why—the rationale—behind the EO remains true.
The no audit program (originally issued as EO No. 399) operated under the assumption that tax collection is primarily affected by the level of voluntary compliance.
As such, if the government wants to increase its tax collections, it needs to encourage taxpayers to voluntarily declare and pay higher taxes.
What the no audit program tried to do was to offer instead an incentive for taxpayers to do just that. It wasn’t only the threat of audit that would encourage compliance, it was also the incentive—the light at the end of the proverbial tunnel.
Beyond the incentive, the no audit program also allowed the Bureau of Internal Revenue (BIR) to focus its audit—a more risk-based approach which might result in higher collections, not just assessments.
If the compliant taxpayers do not have to be audited, then it gives the BIR more time to audit and investigate the real tax evaders—the big fish (or cheats)—who get away because of lack of evidence, bribes, and their use of connections.
Besides, at the end of the day, what’s the point of auditing compliant taxpayers?
By addressing this problem, the no audit program improves the efficiency of the tax administration, which will complement the ongoing tax policy reforms.
There is little point to TRAIN, Trabaho, the tax amnesty, or any of the other packages if tax administration remains inefficient.
Reviving the no Audit program (with some modifications) may go a long way toward improving the taxpayer’s experience and the government’s tax collections.
But what exactly does the no audit program mean?
As implied by the program’s name, taxpayers will not be audited, but only if they qualify to certain criteria. Originally, there were six qualifications but these were later amended by EO No. 422.
Under EO 422, only the following qualifications remained:
Growth rate of income tax payment for the current tax year compared with the previous tax year must be at least 20 percent;
Ratio of income tax to gross sales/receipts for the current taxable year must be at least equal to that of the previous taxable year;
Ratio of net value added tax or business tax actually paid to gross sales/receipts for the current taxable year must be at least equal to that of the previous taxable year (or the benchmark of the industry, as set by the BIR commissioner).
In other words, under the criteria set by the no audit program, the taxpayer needs to pay more taxes every year. This increase proves the taxpayer’s continued compliance.
But why wait for another tax policy reform if the only purpose is to increase voluntary compliance? Shouldn’t this be an initiative of us “responsible citizens” as well, especially the big businesses—to contribute to nation building, not through campaign funds, but through honest tax payments?
CSR Philippines, the advocacy partner of BIR, has already started its nationwide campaign called the Tax Amnesty Roadshow—which aims to help taxpayers not just to avail themselves of the tax amnesty but to settle their pending BIR cases without compromises.
The underlying principle here is that a tax reform will only be effective if legislative (policy) and administrative (enforcement) will complement each other, along with more educated and motivated taxpayers to increase their voluntary compliance.
Unlike before where only the Department of Trade and Industry (DTI) Negosyo Centers welcome our group, the ongoing campaign now involves the regional and revenue district offices nationwide.
What’s the agenda?
We encourage business organizations and professional associations to discuss an acceptable threshold of tax compliance. For instance, a 5-percent ratio of income tax/VAT to gross sales/receipts. If they uphold the threshold, they can be removed from the list of companies regularly audited by BIR.
For taxpayers that incurred losses, or barely broke even, why not require an affidavit certifying such financial performance? Give these taxpayers a chance to explain, but at the same time, the burden to prove such losses should be on the taxpayer. The BIR can’t be expected to wait for the taxpayer. Instead, the taxpayer should remain proactive.
Another proposal is that, instead of another amnesty or tax measure, we can also legislate the accountability of professionals. Members of any professional board should have their licenses revoked if they are involved in tax evasion, smuggling, and other similar cases.
For example: an accountant reporting misstated financial statements resulting in tax evasion;
An auditor issuing unqualified opinion on a financial statement with underdeclaration of gross sales/receipts and/or overdeclaration of expenses to evade taxes;
A BIR examiner issuing jeopardy assessment resulting in compromise settlement and accepting bribes from a taxpayer or his/her representatives.
This can also be extended to elected officials, especially in graft and corruption cases.
If we truly want to improve the country and improve our tax collections, we need to raise the bar for excellence and accountability among our professionals.
Both the government and the taxpayers will need to trust each other. Each needs to share the burden of improving the country, especially through tax collections.
This is not just a situation of carrot and stick (an incentive to encourage, and a threat to discourage) type of motivation. This will hopefully start what our advocacy has been about all along—for taxpayers to pay the right taxes.
Taxpayers should be encouraged to constantly improve their compliance, to stay on the lookout, and to report those who are doing business illegally, those who do not issue receipts, and those dishonest businesses who do not do their part.
All taxpayers should contribute toward the country’s improvement.
If you want to be part of the Tax Amnesty Roadshow which will be held in Pampanga, Laguna, Vigan, Albay, Bacolod, and Puerto Princesa, contact programs@csr.ph.