Receipt or no receipt

Despite new initiatives by the government to encourage businesses to issue receipts, and for consumers to ask for them, I doubt if much headway has been made in this regard. In fact, even the National Tax Research Center (NTRC), an attached agency of the Department of Finance, is calling for heavier penalties for businesses that do not issue receipts, noting that this problem appears to be a major source of tax leakage.

Perhaps circumstantial, but even the value-added tax collection of BIR for 2006 was short of target by about P5 billion. And diligent issuance of receipts, in my opinion, could have improved VAT collection significantly, for this would have allowed the government to better track tax payments.

But this is not to say the BIR is not trying at all. Comparing the P5-billion shortfall to the total take of almost P140 billion, it can be said that the BIR did relatively well last year. In fact, 2006 VAT collection was almost 60 percent higher than 2005 collection.

What appears to be lacking is a WIIFM (What’s In It For Me) incentive for consumers to ask for receipts, or for businesses to issue them. On the other hand, it seems there is a strong WIIFM incentive for people to forego receipts if only to lower their costs. This appears to be the case in many instances like dining out or purchasing goods for personal use, including medicine.

Take this example. Family A eats out for dinner and the bill is P1,000 exclusive of 12 percent VAT and 10 percent service charge. Bill total is P1,220. As Family Head readies to pull out his credit card, Restaurant Owner inquires if Family Head is willing to pay in cash. If so, Restaurant Owner can waive the 10 percent service charge and the 12 percent VAT, as long as Family Head agrees not to ask for an Official Receipt. In fact, for cash payment, Restaurant Owner will even offer an additional 10 percent discount. Realizing that he can reduce his total bill from P1,220 to just P900 as long as he doesn’t ask for a receipt, Family Head agrees.

While the BIR may want to think that the example above is an isolated case, the reality is that in many such business transactions consumers often forego the receipt in favor of a discount. Just go check with automotive mechanic shops in many parts of the metropolis, as well as retailers of car parts and hardware.

Obviously, there is a strong WIIFM incentive for Family Head to forego an official receipt. After all, who would not want to drastically reduce his bills, may it be for food or other personal goods.

And just like Family Head, many consumers have no particular use for official receipts from such purchases, save maybe to join the Pagcor-BIR-Philweb’s SMS-based raffle promo. Food and other personal purchases are not tax deductible, including payments for medicine and medical and legal services.

There is also a strong WIIFM for Restaurant Owner: continued patronage of Family Head and more important, tax avoidance. Meantime, the state earns nothing from these transactions, and the BIR finds it hard to monitor compliance simply because a tax paper trail is never established since a receipt is not issued.

And while the NTRC bats for heavier penalties for businesses not issuing receipts, this may be just one side of the equation. Perhaps BIR also needs to encourage consumers to demand receipts every time they purchase something, that way businesses will have no choice but to issue them.

One simple way of doing this is to make certain purchases tax-deductible. Medicine purchases and payments for medical services, for instance, can be made tax-deductible. Even school tuition and rental payments may be given the same accommodation, or even food purchases (but with limits, of course). This way, consumers will surely demand for receipts from retailers or suppliers. And while this will be at a cost to the consumers, for they must forego discounts that may be offered them in place of receipts, perhaps the reduction in their taxable income will be a greater incentive to do the right thing.

The BIR, meanwhile, may expect a shift in the point of collection—from income to consumption. After all, one is better taxed not on what one earns, but on what one spends. 

Comments to matort@yahoo.com.

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Despite new initiatives by the government to encourage businesses to issue receipts, and for consumers to ask for them, I doubt if much headway has been made in this regard. In fact, even the National Tax Research Center (NTRC), an attached agency of the Department of Finance, is calling for heavier penalties for businesses that do not issue receipts, noting that this problem appears to be a major source of tax leakage.

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