Potential sources of revenue

The Bureau of Internal Revenue (BIR), the government’s principal source of funds, has a tough job ahead this year because of COVID-19.

It has to raise the P10.5 billion that Congress allocated to the Department of Health in the 2021 national budget and in Bayanihan to Recover As One Act (Bayanihan 2) for the acquisition of vaccines.

Those allocations are in addition to the P70 billion the government is borrowing from the Asian Development Bank, World Bank, Asian Infrastructure Investment Bank and the private sector.

Sooner or later, depending on their grace period, those loans have to be repaid by the government from tax revenues. Some government fund allocations may have to be reduced or realigned in the future to meet that debt obligation.

So dire is the government’s need for funds that the BIR, as of this writing, has turned down the suggestion by some lawmakers to extend the April 15 deadline for the filing of income tax returns despite the alarming resurgence of the virus.

Recall that last year when the government imposed quarantine measures in different parts of the country to stem the spread of COVID-19, the BIR extended the filing period to July 15, 2020.

With the economy in recession and business activities way below prepandemic levels, the work is cut out for the BIR to collect the taxes needed to sustain the P10.5-billion allocation mentioned above on top of funding regular government operations.

Creating new sources of revenues at this time is out of the question. In the first place, that would require congressional action and knowing the lawmakers’ aversion to enacting new tax laws, especially with the 2022 elections a few months away, that will not happen.

Of course, the BIR can intensify its collection efforts on taxpayers who have managed to stay under the radar for reasons known only to the BIR. But considering the process that has to be followed for that purpose, that approach would not be viable now when the need for additional revenues is urgent.

But there are low hanging fruits, so to speak, the BIR can pick to help it meet its collection quota for this year, namely, the pending tax cases at the Court of Tax Appeals (CTA) and offers of settlement by taxpayers who have been served final tax assessment notices.

There are multimillion pesos worth of tax collection cases pending at the CTA that are suitable for compromise settlement by the parties.

As long as the CTA has not issued its ruling, the parties are not precluded from entering into settlement arrangements that would include, among others, the reduction of tax assessments and withdrawal of certain charges, in consideration for the payment of a certain sum of money.

It is common knowledge among tax lawyers that the BIR is prone to engaging in so-called shotgun filing. Meaning, it cites all kinds of tax violation charges that relate to a taxpayer and figure out later what can be proven and what cannot depending on the taxpayer’s response.

Note that tax cases do not come cheap in terms of attorney’s fees and other charges, not to mention the time spent attending the hearings, so it makes good business sense for the concerned taxpayers to settle them to the extent possible.

Besides, a pending tax case, whether justified or not, does not look good on a taxpayer’s financial records and could adversely affect his or her credit standing.

On the part of the BIR, a compromise settlement would mean receipt of payment on a specified date, which is much better than waiting for the CTA to make a ruling one or two years later with no assurance it would be in the BIR’s favor.

And when the CTA rules against the BIR, expect that ruling to be carefully studied by tax lawyers for possible application to pending or future cases of their clients.

A similar conciliatory approach may be applied by the BIR for taxpayers who have been served final assessment notices and have expressed their willingness to enter into a reasonable (repeat, reasonable) compromise settlement.

As the saying goes, a bird in hand is worth two in the bush. The government needs the money now, not two or three years later. INQ

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