Tax bureau taking steps in the right direction

Written by Carlos Mateo, 12 March 2009

The Bureau of Internal Revenue (BIR) under its newly appointed Commissioner of Internal Revenue, Sixto S. Equivias IV, still faces a huge collection target.

This task is made more daunting by the worsening global economic crisis, our country’s lower gross domestic product (GDP) and reduced revenue collections due to the lower corporate income tax rate, the higher tax exemptions on individuals and the outright income tax exemption of minimum wage earners.

The nation’s prime collection agency is tasked to collect this year P865.6 billion (from P910 billion) in revenues, or roughly 6% more than last year’s revised target of P810 billion (from P845 billion) — which by the way, was not met as collections last year reached only P778 billion.

Tax collection this year poses even a greater challenge, given the recent amendments to the Tax Code such as the lowering of the corporate income tax rate to 30% from 35%, effective last January 1, and the increased personal tax exemptions of taxpayers under Republic Act 9504.

Faced with such a huge challenge, the BIR Commissioner has implemented various measures geared at further improving and strengthening the bureau’s collection efficiency.

For a start, the Commissioner authorized previously delisted large taxpayers to be re-enlisted anew with the Large Taxpayers Service, following the so-called "Pareto principle," which states that, for many events, roughly 80% of the effects come from 20% of the causes. It is a common rule of thumb in business that 80% of sales come from 20% of clients. To further foster the renewed partnership with large taxpayers, the Commissioner even hosted an event last year to solicit the large taxpayers’ support of the Bureau’s collection efforts.

The Commissioner has also reconstituted the management committee, which is a collegial body composed of key senior officials of the bureau, to ensure effective collaboration and coordination among the various functional groups of the bureau.

This was followed by the recent reorganization in the bureau where various revenue officers — from regional directors down to revenue district officers and assistant revenue district officers — were reassigned to different offices. Certain revenue district offices have also been split into two to allow a more focused collection effort.

Revenue district offices (RDOs) were likewise instructed to run after taxpayers who filed their tax returns electronically (through the Electronic Filing and Payment System, or eFPS) but failed to pay the corresponding taxes due.

Another laudable initiative was the launching by the Bureau of "Oplan Kandado," a program that padlocks establishments found to be violating provisions of the Tax Code. Under this program, the Bureau hopes to instill fear among tax delinquents and improve compliance as a consequence. (See our past article on this topic last February 19.)

Moreover, a welcome development for taxpayers is the recent issuance of Revenue Memorandum Order (RMO) No. 5-2009, which seeks to address the problem on issuance of multiple letters of authority (LoA) by the different offices within the Bureau.

Prior to this RMO, it had been a common for taxpayers to be subjected to investigation simultaneously by different offices of the bureau for the same tax for the same taxable period. This caused confusion and inconvenience to the taxpayers and wasteful use of manpower and other resources on the part of the bureau.

Under RMO 5-2009, the scope of the investigative power of the different revenue offices has now been clearly defined.

As a rule, the investigating office (i.e., the RDO, for regular taxpayers and the appropriate Large Taxpayer District offices, or LTDO, for large taxpayers) where the taxpayer is registered shall exercise primary jurisdiction in the audit or investigation of the taxpayer’s liabilities.

However, in cases where there is prima facie evidence of fraud or cases falling under the Run After Tax Evaders (RATE) program shall be investigated either by BIR’s National Investigation Division (NID) or the Regional Special Investigation Division (SID) concerned. Fraud investigations shall be initiated by the NID or SID, but subject to evaluation of the Assistant Commissioner for Enforcement Service and the final approval of the Commissioner.

If the Commissioner approves the tax fraud investigation, the NID or SID shall take over the investigation of the concerned taxpayer.

The LoA previously issued by the primary investigating office, i.e., the RDO or LTDO, shall be deemed automatically cancelled.

The investigating office shall then be required to notify the concerned taxpayer of the change of jurisdiction and to transmit the entire docket to the NID or SID.

For other cases where there is conflict of jurisdiction, the concerned offices are also required to submit a justification report to the Office of the Commissioner for resolution.

Indeed, the Commissioner has taken initial steps in the right direction. As a follow on, the Commissioner may also want to speed up the other initiatives which have already been started, e.g., simplification of existing tax returns to make it easier for taxpayers to accomplish them; effective dissemination of information through continuous dialogues between the Bureau’s frontline offices, e.g., RDO or LTDO, and the taxpayers within their respective jurisdictions; strengthening of partnership with key professional and business organizations and major industry groups; and review of existing revenue issuances to harmonize them with the law they seek to implement.

Taxpayers, for their part, can help the Bureau achieve its revenue target by properly complying with tax obligations. They can begin by paying correct taxes punctually and by issuing the required invoices and/or official receipts.

As the tax filing deadline is fast approaching, we hope that the bureau, with these initiatives that have been set in place — complemented by the support and cooperation of the tax paying public — would be able to achieve for our country a more stable financial position as we face the global economic crisis.