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The
Bureau of Internal Revenue (BIR) recently started two
initiatives to improve tax administration, and it
expects both moves to yield positive results and help
the government collect much-needed tax revenues.
However,
unless safeguards are put in place to help ensure their
effectiveness, then both initiatives may end up
half-successful at best.
The
first initiative involves a massive tax-compliance audit
nationwide, with tax examiners tasked to again check on
at least 30 percent of all taxpayers in their respective
jurisdictions to determine if the proper taxes were
paid, particularly in the first half of the year.
This
will be done using “benchmarks” or records of
tax-collection levels from previous years. The downside
is that this audit, while seemingly laudable, may result
in harassment and corruption. With tax examiners
pressured to either collect or to prosecute because of
the 30-percent quota, the short runway given to them may
also result in sloppy or haphazard audit work.
The
second initiative, meanwhile, is the restoration of
BIR’s previous policy regarding tax refunds. In
particular, it reverted to the system where other top
BIR officials, at various levels, can also approve
claims for tax credits of varying amounts—as opposed to
the centralized policy instituted by former commissioner
Jose Buñag, where all refunds had to be approved by
either him or his deputy.
Offhand,
both BIR initiatives appear timely and appropriate,
considering that the government is in dire financial
straits. However, there is still the concern that these
moves can go only so far unless outliers are mitigated
by check-and-balance mechanisms. The crux of the matter
is that in encouraging better tax collection. Procedural
shortcuts should never sacrifice institutional
integrity.
However,
an audit quota may actually lead to audit shortcuts,
with tax examiners now pressured to finish the job over
a limited period of time. Same with the approval of tax
claims, with processing speed seemingly given more
weight than fair review and evaluation of claim.
In
Memorandum Circular 51-2007 dated July 30, BIR regional
directors, the assistant commissioner for assessment
service and the deputy commissioner for operations are
again given the power to grant claims for tax credits of
P10 million and below that are filed by taxpayers that
do not fall under the Large Taxpayers Service bracket,
or those belonging to the top 1,000 corporations.
Under
the new memo, the BIR chief will review claims for tax
refunds that exceed P10 million only. While this will
cut the time for processing claims, which usually takes
three to five years, there is concern that the review
and evaluation of such claims will be less stringent.
Such
decentralization has its upside as well. As early as
April last year, concerns were already expressed
regarding then commissioner Buñag’s insistence on
keeping the BIR’s power to enter into compromise
agreements with delinquent taxpayers. Couple this with
his memo to centralize all claims for tax credits, and
one can expect problems. At least this has been
mitigated.
The next
step is to review the BIR’s power to enter into
compromise settlements. This will remain a questionable
tax policy as long as the government auditors are denied
by law to access tax-collection records. Without audit,
who is to know how much the BIR should really collect,
and whether compromise agreements truly benefit the
state?
To date,
tax collection is measured only against a target set by
the BIR along with other government agencies. But who
measures that target against actual tax potential? And
who audits whether the BIR actually collected what it
claims to have collected? And who checks whether the BIR
actually reports all its collections?
Moreover, the authority to compromise obviously allows
the BIR to exercise discretion in collection. Even a
decentralized system of approving claims for tax credits
still allows BIR officials some latitude in exercising
discretion. And such discretion can lead to corruption.
This
discretion also becomes more disturbing when audit
systems are not in place, and tax records remain
strictly confidential to the BIR. Corrupt tax agents can
arbitrarily agree on compromise amounts or claims for
refunds with erring taxpayers, and this connivance can
cheat the state of much-needed revenues to pay for
public services.
Unfortunately, the state is seemingly more interested in
collecting taxes than in substantial justice, and will
rather compromise than go to court.
The
power to compromise is more worrying in light of the
Department of Finance’s earlier support for a House bill
that proposes to bar the Department of Justice from
handling tax-evasion cases.
That
bill dangerously shortcuts the criminal justice system
and removes a very important check-and-balance
mechanism, particularly in the prosecution of
tax-evasion cases, a legislated mechanism guaranteed by
the Constitution to protect the innocent from unlawful
prosecution and persecution.
It
remains uncertain whether that bill, which proposes to
give the BIR the “exclusive authority to study cases of
suspected tax evasion and to file tax-related cases in
the appropriate courts,” will be refiled in this
Congress. That bill, authored by Quezon Rep. Danilo
Suarez, will do away with the current process of BIR
forwarding tax-evasion cases to prosecutors at the
justice department, which, in turn, will file the cases
in court after determining probable cause.
Imagine
a BIR with full discretion to compromise on tax payments
and to approve or deny tax claims, and the exclusive
power to audit taxpayers and to file tax cases in court.
Strong Republic,
indeed.
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