Written by Brando C. Cabalsi, 21 June 2007
In the movie, “Fantastic 4-the Rise of the Silver Surfer,” there is a scene where the Invisible Woman asked the Silver Surfer why he is destroying the planet earth. Silver Surfer responded that he had no choice. The Invisible Woman bravely argued that “there is always a choice.”
Aguably, there is always a choice. This applies even to tax which, like death, is inevitable in life and may not be a matter of choice.
Choices abound when it comes to sound tax management. For example, in reacting to the current tax hypes (the BIR’s New Paradigm and Tax Amnesty Law), taxpayers may either play safe or take a proactive action.
Previously, this column alerted taxpayers on the impact of the BIR’s 15-Point New Paradigm in Meeting its Collection Target contained in Revenue Memorandum Circular 32-2007 (May 10, 2007 entitled “BIR gone haywire”). In another issue, this column also discussed the salient features of the recently enacted Tax Amnesty Law (June 7, 2007 entitled “Tax amnesty, anyone”).
These two shuffling moves or measures of the government emerged with the aim to improve the tax system (hopefully). The “New Paradigm of the BIR” is geared towards meeting the collection target while the Tax Amnesty Law aims to enhance revenue administration and collection.
At face, the common objective of these measures is to collect more taxes. From the taxpayers’ stand point, however, what choices are available vis-à-vis these tax measures?
Taxpayers who are pressed with tax examinations and assessments may be forced to pay additional taxes through the twin administrative compromise programs of the BIR (One-time Tax Abatement Program and Improved Voluntary Assessment Program) or alternatively, avail of the tax amnesty program just to facilitate the resolution of their tax assessment cases.
Even taxpayers without pending tax investigation but who desire to start with a clean slate may be tempted to grab the palatable offers of the tax amnesty law and just pay the required amount to get reprieve from perceived lapses.
Ergo, bewildered taxpayers are persuaded easily to pay compromise amount without actually realising the intrinsic value of their money. On the other hand, wise or prudent taxpayers may do some critical thinking before they either let themselves be bothered by the nerve-wracking impact or threat of the BIR’s paradigm shift or be dazzled by the cleansing effect of the tax amnesty.
Regardless of a taxpayer’s initial or (knee-jerk) reaction, however, a good grasp of one’s level of tax compliance is necessary to come up with a sound decision. For all you know, the company’s books and records may be clean and there may be no violations or malfeasance after all.
The best way to check one’s level of tax compliance is to conduct a tax compliance review or a “tax health check.” The review would prove practical and useful, whether or not the taxpayer decides to avail of the BIR’s tax compromise programs or the Tax Amnesty Law.
A tax health check is conducted to evaluate the control systems of a taxpayer’s tax environment for the purpose of detecting lapses or exposures. It is quite possible to find that the lapses, if any, are still curable and the costs of remedial actions are far less than going through the compromise settlement or the tax amnesty programs.
The tax health check exercise is not only useful in identifying lapses or exposures but also serves as a learning opportunity for the taxpayer on proper compliance with existing tax rules and regulations.
Starting on a clean slate through the availment of the tax amnesty can only take one so far. Proper compliance may give true essence to wiping one’s slate clean. Otherwise, the taxpayer may just end up committing the same violations over and over and will only be able to start clean slate again once another tax amnesty program is launched, which, unfortunately is placed under moratorium by the present Tax Amnesty Law.
Thus, a tax compliance review may bear out a better cleansing effect than mere tax amnesty alone as it will not only back up the company in its aim to start fresh but may also bestow a clear conscience and peace of mind to the responsible persons.
The question, now, is how to go about a tax health check? On this aspect, the taxpayer is also given a choice, i.e., a tax health check may be done either internally or externally.
An internal tax compliance review may be done by the taxpayer’s internal finance or accounting team using as a guide the BIR’s audit procedures and techniques as contained in Revenue Audit Memorandum Order No. 1-2000. Taxpayers who have been consistently subjected to the regular tax audit by the BIR may somehow be familiar with these procedures and techniques.
This approach, if properly done, would give the taxpayers the opportunity to identify possible areas of tax exposure ahead of an actual BIR tax audit.
However, for taxpayers who do not have the internal capability to conduct a tax health check, their option is to outsource the tax health check. Taxpayers may contract the services of third party tax consultants who have the experience to undertake the tax health check. The benefit under this option is that it offers a more objective and independent view of their tax issues.
Whether done internally or externally though, a tax health check is critical to the business and should be considered seriously by taxpayers given the BIR’s continuing intensive tax collection efforts.
