Does the tax bureau need a sparring PAREtner?

By Catherine T. Manahan, 11 June 2009

Last May 6, the Office of the President issued Administrative Order (AO) No. 263, clarifying the functions of the Presidential Adviser on Revenue Enhancement (PARE).

Apparently, this AO resurrected the office of the PARE which was created earlier under Memorandum Order No. 196 in 2004 for the purpose of running after tax cheaters and plugging tax leakages.

Under this latest AO, the PARE is directed to investigate tax cases in the Large Taxpayer (LT) units of the Bureau of Internal Revenue (BIR) and to initiate the filing of appropriate actions against them for any violation of laws, rules and regulations applicable to LTs, with the concurrence of the Secretary of Finance.

Who are these large taxpayers?

The Tax Code has defined large taxpayers or LTs as taxpayers which satisfy any of the following criteria:

• they have value-added tax paid or payable of at least P100,000 for any quarter of the preceding taxable year;
• they have excise tax paid or payable of at least P1 million for the preceding taxable year;
• they have annual income tax paid or payable of at least P1 million for the preceding taxable year; and
• they have withholding tax payment or remittance of at least P1 million for the preceding taxable year.

These criteria for determining a LT may be modified, expanded or shortened by the Finance secretary, upon the recommendation of the Commissioner of Internal Revenue (CIR) after taking into account such factors as inflation, volume of business, wage and employment costs and other economic variables.

Furthermore, for these taxpayers to be officially considered as LTs, they have first to be identified and notified by the BIR and will remain as such until and unless a revocation order is otherwise issued.

Looking like a superbody or an oversight committee of sort, the PARE office was created by none other than the President of the Philippines by virtue of her continuing authority to reorganize the Office of the President under the Administrative Code of 1987 and in view of her position as Chief of the Executive Branch of the government exercising control and supervision over all the executive departments under the 1987 Philippine Constitution.

However, the actions of the PARE are subject to the control and supervision of the Finance secretary, who serves as an alter ego of the President.

The question that comes to mind at this juncture is what will be the nature of the working relationship between these two executive officers — PARE, who discharges his official duties and functions under an AO, which is an executive fiat, on the one hand; and the CIR, who does so under the National Internal Revenue Code as amended, which is a legislative statute, on the other.

Are these two officers primus inter pares or coequal so that PARE can go into a tax investigation without going through BIR or securing authorization (e.g. Letter of Authority, Letter-Notice, Notice of Informal Conference, Preliminary Assessment Notice or Formal Assessment Notice, etc.) from the CIR?

Also, will those LTs which have been subjected to a PARE examination, still be investigated by the BIR? Will taxpayers belonging to the LT units be potentially exposed to double or multiple tax assessments for the same taxable period? What are the protective remedies for the LTs in these cases?

Although Malacañang’s press releases tried to justify the creation of PARE as a means to improve revenue collections and to parry the accusations that it will be interfering in the CIR’s discharge of his duties and responsibilities, this confusing situation still leaves much to be desired.

It must be borne in mind that any policy pronouncements or issuances by the Finance secretary that involve national internal revenue matters must always be predicated upon and preceded by a recommendation from the CIR. Thus, it should follow that any action or move by the PARE must be coordinated with and/or cleared by the CIR.

Given these concerns, there is a pressing need to draw up the implementing guidelines for a synchronized conduct of tax investigation and filing of tax cases involving large taxpayers, including under the RATE (Run After Tax Evaders) Program, by the PARE and the CIR offices, as well as provisions that will protect these taxpayers’ rights to due process and exemption from multiple examinations and tax assessments.

Or, better yet, a review of this Palace edict may be more appropriate, considering that the LTs have always been regarded as relatively the most compliant sector in the tax net that contributes a substantial percentage of the national internal revenue tax collections.

Indeed, the task of national governance is tough, not to mention the ever-elusive goal of attaining and sustaining faster economic growth amid the current global financial meltdown.

However, one’s eagerness to enforce laws and execute action plans must be tempered with simple, streamlined and orderly acts of administration that allow one agency the full freedom and authority to discharge its functions without any duplication by or unnecessary interference from other units of government.