The taxman cometh

It’s summer in Metro Manila, and for the life of me, it seems as if every year is hotter than the last—thank heavens for the rains of the past week!

For many a taxpayer and tax practitioner though, summer means not just baking temperatures and sweltering days, but the all-important April 15 deadline and the stress of filing and paying annual income taxes.

I remember from my years at the BIR (and yes, Virginia, I was once a taxman myself ) how our “elder statesmen” at the Bureau would recall that in their day, the months and weeks leading up to April 15th seemed to be the most frenetic time of the year, for everyone on both sides of the tax administration divide.

Times have changed, however, and very dramatically at that, because in this day and age, every good tax administrator worth his salt knows that the work of taxation is truly a year-round effort that doesn’t conclude or reach its peak on April 15.

Every day, taxable transactions worth millions of pesos take place all over the country, and it’s the duty of the “taxman” to make sure that all the parties to these transactions pay the correct taxes due. Small wonder, then, that one of the most important functions of tax administration—conducting a tax audit—continues to be carried out long after April 15th has come and gone.

Thinking about the ubiquitous presence of the taxman in our daily lives—“The Taxman Cometh”, to borrow the title of a classic play—I’m reminded of these lyrics from a song by the Beatles: “If you drive a car, I’ll tax the street; If you try to sit, I’ll tax your seat; If you get too cold,  I’ll tax the heat; If you take a walk, I’ll tax your feet; ’Cause I’m the taxman, yeah I’m the taxman.”

Part of life

While it’s a bit of a stretch to say that the BIR’s going to tax our feet (and in which case our basketball players, given their shoe-sizes, would certainly have quite a fair amount of “feet tax” to pay, on top of their income taxes), it is nonetheless true that taxes are a part of our lives, and it’s always interesting to see people’s reactions to this truth. A few months ago, I wrote about the whys and wherefores of paying the correct amount of taxes—as a tax practitioner and an accounting professional, it’s always been fascinating to me why some taxpayers always try to find ways to reduce the amount of tax they have to pay.  But while I can say that I understand why some taxpayers do try to pay the least amount of taxes as much as possible, usually by claiming as many deductions as legally possible, tax evasion—which entails deliberate and illegal efforts to elude the payment of taxes—is simply beyond the pale.

Tax avoidance, as most people will agree, is something of a grey area, ethically speaking. Tax evasion, however, is another matter altogether, and I’ll venture to say that tax evasion, in a sense, is a betrayal of one’s country and an exploitation not only of the nation’s resources, but also of one’s fellow citizens. Just think about it—the tax evader is able to generate wealth from operations that make use of the country’s infrastructure (roads and bridges, etc.); exploit natural resources, such as water, minerals, flora and fauna; and employ the services of Filipino citizens, all under the protection of the government’s peace and order agencies, without paying a single centavo in taxes. All that while others go to the effort of paying their taxes—in the case of salaried employees, in fact, their taxes are automatically deducted from their wages, so there’s truly no reducing the amount of taxes they pay, even if it means giving up a chunk of their hard-earned money.

Tax evasion is selfishness on a grand scale, where the tax evader thinks only of himself and what he can keep from the country to spend on himself so he can make more money. It has no place in a democratic society where equality should be the rule of the day, and everyone has to do their fair share of work in keeping the national economy viable, upholding peace and order in society, and preserving the sovereignty of the state—all of which every citizen does through the payment of taxes. The tax evader is the classic example of someone who wants to have his cake and eat it too—or, to put it bluntly, get rich on a “free” ride. But as life will eventually teach everyone, there’s no such thing as a “free” ride, and crime—which is what tax evasion definitely is—never, ever pays.

Pursuing tax evaders

Is it any wonder that the BIR, in recent years, has poured considerable efforts into pursuing tax evaders? Over the past decade, the BIR has stepped up—very significantly—its endeavours to identify and bring tax evaders to justice. Former Internal Revenue Commissioner Guillermo L. Parayno Jr. got the ball rolling with the Run after Tax Evaders (RATE) Program, which was reinvigorated by former Commissioner Joel Tan-Torres, and is now a flagship project of current Commissioner Kim S. Jacinto-Henares. A RATE case generally begins with the issuance of a special Letter of Authority (LA) and the initiation of a tax audit, then proceeds to the filing at the Department of Justice (DoJ) of a criminal complaint for tax evasion against the errant taxpayer. In most RATE cases, the BIR already has information on the suspected tax evader that was gleaned from third-party sources, and in a few cases, the data was considered strong enough for the BIR to file a complaint with the DoJ merely two days after the LA was issued to the taxpayer. The RATE Program has seen the filing of charges against some prominent taxpayers and enterprises, and I’m sure the ripple effect amongst the corporate community is considerable indeed.

While the RATE Program focuses on legal action against tax evaders, another BIR project works to bring across the point that if you don’t pay your taxes (or in some cases, if you didn’t register your establishment with the BIR), you shouldn’t be doing business at all.

Oplan Kandado

“Oplan Kandado,” which was initiated by former Commissioner Sixto S. Esquivias IV in 2009, has seen the closure of quite a few large and medium-scale enterprises that, in most cases, were found, after a required period of surveillance by revenuers acting under the authority of a Mission Order, to be significantly under-declaring their sales—a practice that could be taken as prima facie evidence of tax evasion. I remember how a number of businesses closed under the Oplan Kandado Program were located at some of Metro Manila’s biggest shopping malls, and the blow of being closed by a team of revenuers led by the Revenue District Officer prompted their owners to pay their back taxes and declare their correct sales. Talk about “shock and awe”! I learned later that VAT payments in 2009 rose almost 20 percent over VAT collections for 2008, and my friends in the BIR tell me that such an increase was largely due to the ripple effect of Oplan Kandado.

Whether it be the long-running headache of a court case or the embarrassing spectacle of a public closure, it’s painfully clear that the consequences of tax evasion aren’t pretty, and tax evaders truly have only themselves to blame for their woes. When all is said and done, no one can deny that there’s a price to pay—literally and figuratively—for doing something illegal, and the Government will surely go tooth and nail after tax evaders. In a RATE case, as a matter of fact, the filing of criminal complaint with the DoJ doesn’t mean that the tax audit initiated against the suspected tax evader will be discontinued. Oh no, the tax audit will definitely continue, which means that the accused tax evader will have to retain two teams of accountants, lawyers and tax experts to defend him: one team for the DoJ case and the other for the tax audit.  Just think about the resources that have to be funneled into paying those retainer fees, resources that could have been used to improve company operations or—ironically enough—pay the correct taxes in the first place!

Tax evaders, however, shouldn’t give their dissatisfaction with the Government’s performance as an excuse to not pay their taxes—as the old saying goes, you can’t correct a mistake with an even more serious error.  More importantly, there is this to think about: Anyone who doesn’t contribute to the national effort to generate revenues has no right to complain about the corruption or inefficiency in government because they didn’t invest in the country through their taxes. As the BIR has long been saying to the Filipino public, taxes are the people’s investment in the country; thus, the taxes we pay give us the right to expect services from the government, and above all, to express our grievances when the government fails to deliver. Anyone who doesn’t pay taxes—and worse, resorts to criminal activities to avoid paying them—has no right to complain, because they don’t have a stake in the country, and as law-breakers, they shouldn’t have any privileges at all.

Paying taxes

So, if you want to have a say in urging the government to improve its performance, then it’s only fair that you pay your taxes. Anyone who invests in something has the right to expect a return on his investment, and the taxpayer has the right to see his money well spent in services that will make life easier for him. But if you’re bound and determined to be a tax evader, then don’t be surprised if one day, the BIR hails you into court, or padlocks your business—as the title of this article says, “The xaxman cometh.”

It’s one thing to complain about lawlessness, and another to be a law-breaker.

Guess who ends up with a bigger headache?

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is a senior partner of The Tax Offices of Romero, Aguilar & Associates and member of the MAP National Issues Committee and MAP Committee on Taxation. Feedback at [email protected]. For previous articles, visit <map.org.ph>.)