- THE COMMISSIONER’S REPORT (Delivered via video during the 109th BIR Anniversary Program held on August 2, 2013)
- MESSAGE TO REVENUERS OF PRESIDENT BENIGNO S. AQUINO III (Delivered via video during the BIR’s 107th Anniversary celebration on August 1, 2011)
- Speech of His Excellency, President Benigno S. Aquino III at the 106th Anniversary of the Bureau of Internal Revenue
- Improving Revenue Collection to Finance Government Expenditures
- Working Together…Towards Better Reforms
- Overcoming Challenges… Towards Reforms for a Better Future
- TRANSFORMING THE BUREAU OF INTERNAL REVENUE
- BIR: Working Towards Progress in the New Millennium
- Attaining Global Competitiveness
- MAJOR ACCOMPLISHMENTS OF THE BUREAU OF INTERNAL REVENUE
- E-COMMERCE AND TAX ADMINISTRATION
- The (Near) Future of Cybertaxation in the Philippines
- E-COMMERCE: Its Implications On Tax Treaties
- Developments in the BIR Tax and Information and Education Campaign
- THE PHILIPPINE TAX COLLECTION SYSTEM
- Tax Incentives – Necessity and Approaches
- THE Y2K ENIGMA
- BIR ORGANIZATIONAL RESTRUCTURING
(In video presentation introduced by Commissioner Kim S. Jacinto-Henares
during the 109th BIR Anniversary Program held on August 2, 2013)
The Bureau of Internal Revenue had an unprecedented year in 2012. For the first time in its history, it broke the P 1 Trillion barrier collecting the biggest revenue in a year. Despite economic challenges and natural calamities that hit the country, the collection represents 99.20% of the goal and is almost 15% higher than the 2011 collection. This trillion-peso revenue is a combination of the steady increase in collection and tax effort efficiency in the past 3 years.
The ratio of the change in collection to the change in Gross Domestic Product has also increased under the current administration. This trillion peso collection was achieved with an expenditure of only P 6.98 Billion. The 0.66 expenditure-collection ratio is the lowest since 2007. This collection performance is a result of the Bureau’s strict adherence to its Strategy Roadmap that requires service improvement and good governance. All these efforts lead to taxpayer satisfaction and compliance and eventually to a sustained collection growth.
In line with the Strategy Map, the BIR is reengineering its core processes of registration, declaration or filing of returns, payment and audit, and enforcement. The smart, efficient, integrity-oriented automation of these processes will minimize, if not eliminate, unnecessary human intervention which is susceptible to corruption. Thus, the BIR is currently undertaking an Enhanced Electronic Tax Information System Project in order to upgrade its current Integrated Tax Systems into a unified, web-based automated solution.
Responding to the taxpayers’ needs, the BIR enhanced its tax forms and used technology-based designs. The electronic filing system allows taxpayers to electronically process and transmit tax return information and taxes due via the internet. Employers who apply for TINs for their newly-hired employees widely use the Electronic Registration System and the Electronic Tax Identification Number. Twenty (20) e-Lounges were set up all over the county that provide taxpayers with free electronic medium to access the BIR’s web services. The BIR continues to improve the BIR Contact Center, a facility that provides a single point of contact for taxpayers’ queries, suggestions or complaints.
BIR offices are accessible, efficiently designed and have become fitting establishments to house professional tax men and women. The “One Look, One Face” Project aims to standardize the layout of the offices. All BIR offices are now required to have electronic queuing machines for frontline services.
The increase in voluntary compliance was directly proportional to the improvement of the public’s perception of the BIR’s sincerity in fighting corruption based on the recent SWS survey that saw a 39-point jump from 2009 to 2012.
Because of the BIR’s experience in the implementation of the Integrity Development Review and Integrity Development Action Plan, the Office of the President’s ODESLA and the Office of the Ombudsman chose the Bureau as one of the pilot agencies for the Integrity Management Program. The BIR’s Integrity Building Programs are one with the President’s “Daang Matuwid” and“Kung Walang Corrupt, Walang Mahirap” campaigns.
The BIR also initiated programs to address tax evasion. At the heart of the Bureau’s enforcement efforts is the Run After Tax Evaders Program (RATE). RATE seeks to identify and prosecute high profile tax evaders. RATE generates the maximum deterrent effect by impressing on the public that tax evasion is a crime and violators will be caught and punished. One of the tools of the RATE Program is the Reconciliation of Listings for Enforcement System. It enables corporate taxpayers to send their quarterly sales and purchases data through the BIR Website. BIR is able to accurately estimate the amount of sales and VAT liabilities of corporations.
Another enforcement program of the BIR is the “Oplan Kandado”. The program suspends the operations and temporarily closes the establishments of businesses which do not comply with essential BIR requirements. As of the end of 2012, “Oplan Kandado” has successfully closed 66 establishments.
A major effort in the Bureau’s proactive campaign to combat tax evasion was system automation. The CAATTS automated and simplified the audit process and increased audit efficiency. This program, supported by the United States through the Millennium Challenge Corporation, enhanced the audit capabilities and technical skills of the tax auditors under a computerized accounting system environment.
The Large Taxpayers Service (LTS) shifted to a scientific and automated, risk-based selection system of audit candidates through an in-house development compliance risk matrix. This system reduces human intervention and opportunities for corruption, taxpayer complaints and encourages voluntary compliance.
The Electronic Authority to Release Imported Goods (e-ATRIG) System will make it easier for the BIR to assess Excise Taxes. The Electronic Official Register Book (eORB) for excise products will provide accurate monitoring and reconciliation of records to uncover discrepancies on declaration.
The BIR established the Data Processing Division in the revenue regions that serve as a central processing office of all returns received by Revenue District Offices and Accredited Agent Banks.
The Electronic Mobile Revenue Collection Office System (MRCOS) is an automated and integrated system that provides the facility for the Collection Officers to immediately capture the details of tax payments and issue receipts. It also facilitates the timely and accurate reconciliation of tax collections with remittances.
The Tax Ruling and Case Management System (TRCMS) maintains legal and administrative tax information in a centralized and technical reference system. The system enables faster and easier access to tax rulings, as well as legal and administrative cases.
The Accounts Receivable Management Program (ARMP) enables the establishment of accurate accounts receivables and delinquent accounts database of the BIR across all offices for easy monitoring and timely generation of required correspondences and reports.
The Collection Reconciliation System (CRS) provides the facility for the automated reconciliation of data among the BIR, the Bureau of Treasury, Accredited Agent Banks and the Bangko Sentral ng Pilipinas.
The Electronic Letter of Authority Monitoring System (e-LAMS) generates and monitors the status of cases covered by Letter of Authority, Letter Notices and Tax Verification Notices.
The reengineering of the processes and the initiation of programs are major parts of the synergy. On top of it all, however, human resource remains to be the most important factor in the Bureau’s success. Continuous trainings in various disciplines are being held for BIR personnel to improve their skills and competence. Employee health and wellness are given as much importance as knowledge and efficiency, while organizational and management development programs continue to improve. The upgrading of office facilities and the accessibility of technology also contribute to a highly motivated BIR employees.
Various awards were given to the BIR in recognition of its exemplary work. The BIR bagged nine (9) out of the twenty-seven (27) Seal of Excellence Awards given by the Civil Service Commission in 2012. Likewise, the implementation of the Quality Management System led to the expansion of the ISO Certification to other districts. Overall, the BIR has improved on all major governance and productivity facets based on the Performance Governance System Agency Scorecard. But perhaps, the most important effect of the Bureau’s 2012 success was felt by the beneficiaries of its unprecedented revenue collection.
The BIR, with all these reforms and process innovations is on track to meet the P 1.6 Trillion collection goal by the end of 2015. This will be done by continuing and sustaining various reform programs that helped the Bureau succeed through the years, and by completing various on-going projects involving both external and internal constituents.
New innovative programs will also be introduced to provide better taxpayer service, improve compliance and enforce tax laws efficiently and properly. Tax payments via credit card is being considered to alleviate the financial burdens of the general public. The Fuson Stamps on tobacco and other exciseable products enable the BIR to monitor the distribution of these products, ensuring the collection of correct Excise Taxes.
Electronic Certificates Authorizing Registration (e-CAR), alongside the Electronic One Time Transaction System, will reduce the vulnerability of the system to revenue loses for all kinds of sales, donations and other transfer of properties as well as establish a linkage between the BIR and the Land Registration Authority.
The year 2012 has been a breakthrough year for the Bureau of Internal Revenue. The P 1 Trillion collection, however, will only serve as a springboard to bigger tax collections and better tax effort efficiency. The Bureau of Internal Revenue will continue to serve with integrity, professionalism and competence, for love of country and for the service of the Filipino.
MESSAGE TO REVENUERS OF PRESIDENT BENIGNO S. AQUINO III
(Delivered via video during the BIR’s 107th Anniversary celebration on August 1, 2011)
Isang mainit na pagbati sa lahat ng bumubuo ng kawanihan ng Rentas Internas sa inyong ika- isang daan at pitong taong anibersaryo!
Noon pa man, sadyang hindi na matatawaran ang papel na ginagampanan ng BIR sa lipunan. Habang sinisiguro ninyong sapat at hayag ang binabayarang buwis ni Juan Dela Cruz, higit na nabibigyan ng pagkakataon ang inyong gobyerno na maglingkod sa taong bayan sa pamamagitan ng paglalaan ng nalilikom na pondo sa mga epektibo at dekalidad na programang panlipunan. At dahil kabalikat ng mga Pilipino ang BIR na tumatahak sa tuwid na landas, walang ibang makikinabang sa buwis ng mamamayan kundi ang mamamayan din lamang.
Sa pangunguna ni Commissioner Kim Henares, kaliwa’t kanang inisyatiba kontra katiwalian ang naisakatuparan at napagtatagumpayan na ng BIR. Umabot na sa limampu’t tatlong (53) tax evasion cases ang naisampa ninyo mula Hulyo 2010 hagngang Hulyo 2011. Ang malilikom na buwis mula dito ay tinatayang aabot sa P 23.18 Bilyon. At kapag nakalap pa natin ang dagdag na pondo mula sa natuklasan ninyong ilang self-employed at professional taxpayers na hindi sapat ang binabayad na buwis, mas marami pa tayong maitataguyod na programang mapapakinabangan ng taong bayan.
Malinaw po, nakasalalay sa BIR ang tagumpay ng minimithi nating pagbabago. Ngayon, naisasakatuparan na natin ang ating mga programa, napapaunlad na natin ang ekonomiya at naisusulong na natin ang mas patas na Pilipinas para sa mga Pilipino.
Tiwala akong patuloy ninyong tutuparin ang sinumpaan ninyong tungkulin. Asahan naman po ninyo na patuloy na patitibayin ng gobyerno ang inyong ahensya. Hindi po hahayaan ng ating administrasyon na makaligtaan ang pagkakaloob ng mga karapat-dapat na serbisyo at benepisyo para sa inyo bilang pagkilala sa inyong sipag at dedikasyon sa pagsisilbi sa bayan.
At sa patuloy nating pagtutulungan sa pagpapayabong sa kaban ng bayan, tuluyan na tayong makakapag-impok ng sapat na pondong sisiguro sa ating maliwanag na kinabukasan. Muli, isang malugod na pagbati sa BIR. Maraming salamat po.
Speech of His Excellency
Benigno S. Aquino III
President of the Philippines
At the 106th Anniversary of the
Bureau of Internal Revenue
[August 2, 2010, Quezon City]
Magandang umaga po sa inyong lahat. Lubos po akong nagagalak na makasama kayo sa pagdiriwang ng ika-sandaan at anim na anibersaryo ng Kawanihan ng Rentas Internas.
Malinaw naman sa atin, lalong lalo na sa mga negosyante at sa mga nakakatanggap ng pay slip tuwing kinsenas, ang tungkulin ng BIR: ang pangasiwaan ang tapat na pangongolekta ng tama at sapat na buwis. Kaya naman hindi nakapagtataka kung bakit ganoon na lamang ang takot ng ilang mamamayan sa inyo tuwing nangangalampag kayo sa mga tila nakakalimot ng magbayad ng buwis.
Hayaan niyong pasalamatan ko kayo ngayon sa inyong malawakang kampanya na nag-uudyok sa mga mamamayang humingi ng resibo. Kaila sa ilan ang kahalagahan nito, kaya buti nandiyan kayo upang ipaalala sa taumbayan ang ating tungkuling bantayan ang ating mga karapatan bilang mamimili.
Halos isang dekadang tila kinalimutan ang kapakanan ng taumbayan dahil sa talamak na katiwalian ng dating administrasyon. Ngayon, alam na natin ang tunay na kalagayan ng kaban ng bayan. Hindi sapat ang pondo para sa mga kakaharapin nating unos, at para tustusan ang mga proyektong panlipunan na tutugon sa edukasyon, kalusugan at trabaho para sa nakararami sa ating mga mamamayan.
Dito ko kakailanganin ang inyong tulong.
Sigaw natin noong kampanya, “kung walang corrupt, walang mahirap.” Lalo pa nating dapat lakasan ang sigaw ngayon. Malaki ang nawawalang pera sa talamak na korapsyon, smuggling at hindi pagbayad ng tamang buwis, kaya nakasalalay sa tamang pamamalakad ng inyong ahensya, at ng iba pang revenue centers ng ating pamahalaan, ang paglikom pa ng mas maraming pondo para sa bayan.
Palalakasin natin ang ating mga revenue centers, at dahil ang BIR ay isa sa mga pinakamahahalagang pinagkukunan ng pondo, paiigtingin pa natin ang mga mabuting nasimulan niyo na noong mga unang linggo ng ating administrasyon: ang pagtukoy at pagsampa ng kaso sa mga indibidwal at organisasyong hindi nagbabayad ng buwis.
Hindi kayo nag-atubili sa inyong pag-aksyon, na inyong ipinakita noong unang mga linggo pa lamang ng ating panunungkulan. Kung noon, may mga may-ari ng pawnshop na nakakaligtas, ngayon, sa pangangasiwa ng ating kagalang-galang na BIR Commissioner, Atty. Kim Henares, mababawasan na ang mga uri nila. Ipagpatuloy niyo ang RATE program upang mas lalo pa nating mapigilan ang pagtagas ng kaban ng bayan dahil sa mga taong tumatakas sa kanilang tungkulin.
Noong panahon ni dating Pangulong Fidel V. Ramos, nakamit niyo ang tax effort ratio na labimpitong porsyento (17%). Magtulungan tayo upang maitaas man lang natin ang kasalukuyang labintatlong porsyento (13%) sa labinlimang porsyento bago matapos ang aking panunungkulan.
Kung nagawa niyo na ito noon, magagawa niyo ulit ito ngayon.
Naniniwala ako na ang mga tulad ninyo na nagsisilbi sa gobyerno ay likas na tapat at mahusay sa trabaho. Marami sa inyo ang wala namang ninanais kundi ang makatulong sa pag-unlad ng ating bansa. Tutulungan namin kayo na maabot ang inyong target na P860 bilyong piso mula sa P830 bilyong piso noong nakaraang taon.
Nagkaisa na ang taumbayan kaya’t samahan niyo kami sa pagtahak ng tuwid na landas, Magtulungan tayo na baguhin ang naging kalakaran tungo sa isang pamamahala na inuuna ang bayan bago ang sarili. Sa inyong pakikiisa, ang tunay na demokrasya kung saan nakakapag-aral ang mga bata, nagagamot ang mga may sakit at naghahanap-buhay ang mas marami pang Pilipino ay maaari na nating marating.
Bago po ako magtapos, gusto ko lang pong pagdiinan, marami pong humihingi ng ating oras mga araw na ito. Si Atty. Kim Henaras siguro inabisahan ako mga three days ago or four days ago kung pwede ako lumitaw. At sa lakas po ni Atty. Kim Henares at handa po sa suporta sa mga miyembro ng organisasyon na gumagawa ng tama, ako po ay nagutos sa aking appointments underseretary na makarating ako itong araw na ito. Ako po ay hihingi ng konting paumanhin sa aking BIR Commissioner na talagang masigasig na masigasig. Siya po ay miyembro sa aking think tank noong kampanya na ipinaliwanag ang mga nawawala sa ating itinatawag na revenues. At nang tinanong ko, “Ano ba ang pwede nating malikom? Dahil pag ako ang nanalo ganoon pa ang mangyayari dyan, puro problema ang mga haharapin ko at walang pagtustos sa pag ayos ng problema.” May pinangako siya sa aking numero at sabi pa niya conservative iyon. Kaya naman po nung tayo ay naproklama, pinaala ko lang sa kanya ang kanyang ipinangako. Si Secretary Purisima ho isa rin sa mga nakakausap ko mahina siguro dalawa higit tatlong beses kada linggo at hindi naman dahil nagkukulang si Secretary Cesar Purisima bagkos maganda po ang kanyang trabaho kaya na nga ho kung wala po tayong pagtustos kalimutan na natin ang plano.
Sa pagtatapos na ho talaga, naalala ko noong ako ay bata, naaalala ko ang kwento ng isang gangster sa Amerika na si Al Capone, si Al Capone napakaraming krimen, hindi ho ba? Mamamatay tao, may conspiracy to commit murder, marami hong sinuhulan doon sa mga huwes, mga abogado, District Attorney, ang dami hong krimen. Lahat na ho ata na nasa mga libro ng batas ay naviolate na po niya at siya ho ay talagang salot sa lipunan ng Amerika noong panahon na iyon. At ang dahilan nung bakit siya ay nakulong ay dahil hindi siya nagbayad ng tamang buwis. Yung salot sa lipunan na hindi mahabla sa pagpapatay ng tao, sa pagnanakaw, sa pananakot at pananambang ay nadali dahil hindi nagbayad ng buwis. Alam niyo ho niyo noong kampanya marami po naglalapit sa atin, sila ho talaga nangangamba pag dumating ang examiner siguro nga ho may itinatago pero nung dulo nag aapela, sabi niya, “Kami naman ho ay handang na ho talaga magbayad lalo na kung may makikita naming may patutunguhan yung aming pinagbabayaran.”
Siguro ho baka kung ako sa inyo, baka simpleng simple, sa inyo ho, nagagawa ng tama alam ko pong may batas na naggagatimpala sa tamang asal. Sisiguraduhin ko po na matitigil na sa lahat ng ating revenues center, yung dating kasabihan, noong panahon po kasi ng nanay ko meron pong mga nakausap tayong taga customs sabi po nila na kapag may nahuli ang gantimpala ay 20% ng kanilang hinuli pero kapag may pinasulot, 10% naman po ang reward pero marami pa rin hong lumulusot. So, tinanong ko, “Bakit ba kayo nagpapalusot na mas mahina ang kita?” Ang sagot naman po nila sa akin,”Kasi po yung 20% narrative pag nagretiro na kami at mamanahin ng amig mga apo. Yung 10% po kaliwaan.” Yan po ang binanggit ko rin kay Ginang Arroyo at siya rin po ay nagsabing, “Tama yan” at aayusin daw niya eh mukha ho yatang hindi naayos kaya ako na po ang magaayos. Kung kayo po may due reward coming from government, asahan ho niyo, kakalampagin ko si Secretary Abad na irelease na agaran ang dapat po sa inyo para naman po yung tamang asal ay talagang pamarisan ng nakararami. Pero iyong kabaligtaran naman po noon ay doon sa attrition law, na title nga po ay attrition, sa mali png ginagawa huwag ho kayo magaalala marami akong oras para hanapin kayo. Kaya pakiusap ko po, magsamasama na tayo dito sa tuwid na landas. Yung mga anak po niyo, mga pamangkin niyo, yung mga susunod na henerasyon, umaasa na gagawin nating tama ngayon ang ating obligasyon.
Magandang umaga at maraming salamat po.
Improving Revenue Collection to Finance
Good morning fellow revenuers and dear taxpayers!
In my first BIR anniversary speech two years ago, I said that fate seemed to have put me here as the birth of this institution coincides with my own birthday.
And as they say, birthdays – or anniversaries for the matter – are occasions for planning, dreaming, and hoping for the best. Although the past year has been particularly stressful for all of us, we can make something positive come out of this experience. By doubling our efforts and working closely together, I believe we will be able to make considerable progress in reaching our shared goals.
As today happens to be my birthday, I wish to share with you this morning three of my fondest birthday wishes – specifically those that are related to the BIR.
o First, and naturally, is a much better collection performance;
o Second, an intensified implementation of tax administration reform measures; and
o Third, renewed commitment and support from all of you on these challenging endeavors.
The Bureau is tasked to collect close to 70 percent of revenues necessary to finance government’s expenditures. Higher revenue collection will allow greater fiscal space for priority spending on infrastructure development and social services such as school buildings, health centers, farm-to-market roads, and irrigation that, in turn, will enhance our country’s competitiveness and stimulate higher growth.
As of June 2007, records show that the Bureau’s cumulative collection may be better than last year’s but the growth in collection is still lower than the 9.9 percent nominal GDP growth for the first quarter. The combined shortfall of the Regions and the Large Taxpayers Service had also ballooned to aboutP 35 Billion, as compared to the 2006 full year shortfall of P 6.6 Billion.
However, there is reason to be hopeful. Based on preliminary reports, we had an auspicious start in the second half of the year with both the Regions and the LTS on track with the third quarter program. This positive performance should be sustained in the coming months.
An international credit rating firm has already judged that we will not hit our revenue target. Its analyst said that we are not doing anything new that will result in better revenue performance. Let us prove him wrong!
If we hit our revenue targets, improvement in our credit ratings and overall increase in business confidence should naturally follow. All these will translate to lower borrowing costs not only for the national government but for the private sector as well. This means higher investments, more jobs, and stronger economic growth.
Based on your own actions plans, there is so much we can do to improve collection performance.
First, we can improve registration. Under-registration of taxpayers remains high. In 2006, our population was about 87 Million with 33 Million employed persons. However, only 6.6 Million were registered and paying taxes.
Out of 26 Million unregistered employed persons, the potential number of taxpayer is huge, even if a large number is below the Income Tax threshold.
The number of VAT-registered businesses at 270,000 is similarly low if you compare it with that of other emerging economies such as Mexico, Turkey, and Chile.
Improve taxpayer database
Another area we can improve on is in our taxpayer database. There are many third party sources of information available with the DOF family that can assist the BIR in its efforts to capture more taxpayers into the tax net.
Just recently, a three-hour meeting between Insurance Commissioner Vangie Escobillo and OIC-Commissioner Lilian Hefti resulted in the discovery of P 2 Billion in possible revenue collection.
Recently, we have endorsed to the President an Executive Order that will allow the BIR and the LGUs to exchange information that will be useful to boost collection.
Use available technology-based measures
Technology is also a tool to enhance the taxpayer database. Today, we are launching two innovative programs that will assist the BIR in revenue collection.
The Revenue Watch Dashboard Project is a computerized online facility that will monitor revenue collection against targets at all levels of organization – from the National Level down to the Examiners.
The second project, the LGU Revenue Assurance Project, involves information sharing between the BIR and the Local Government Units. The program will be piloted in four municipalities, namely: Taguig, Marikina, Las Pinas and Parañaque.
The President is keenly interested in seeing the progress in these projects and will be eager for results in the next command conference.
Enhance voluntary compliance and strengthen enforcement
We are also enhancing voluntary compliance and strengthening enforcement to improve revenue performance.
The National Tax Research Center and the DOF estimates that in some areas, tax evasion ranges from P 26 Billion to P 65 Billion. Meanwhile the World Bank notes the low number of audits implies that audits are not acting as an effective deterrent against tax evasion.
To carry out more effective audit work, we would like you to pursue a national audit plan and shift to risk-based audit with emphasis on taxpayers that pose the greatest compliance risks.
Equally important is to prosecute and convict tax evaders to send a clear signal that tax evasion is a crime and appropriate punishment will be imposed for those proven guilty of this grave offense.
Provide better customer service
We should also make it easier for our taxpayers to settle their tax obligations by improving on customer service. A number of initiatives have already been implemented to this end, including electronic filing, set up of the BIR website, and establishment of the national call center.
Nonetheless, there is an urgency to consolidate, rationalize, and update BIR regulations and rulings to ensure clarity and facilitate a better understanding of our rules and procedures.
Also, we should encourage taxpayers to give us feedback or suggestions on making tax payments easier.
Address resource constraints
We recognize that the implementation of these measures require resources. We need to improve capacities of our examiners, lawyers, and staff through training. We need additional equipment that will help us do our job more efficiently.
Toward this end, we are grateful for the support from our development partners such as the World Bank, the IMF, SIDA, AUSAID, and MCA, and we look forward to further collaboration in our tax administration reform undertaking.
Lateral Attrition Law
We are also providing incentives to performers and penalizing under-achievers in our tax collection agencies with the full implementation of the Lateral Attrition Law.
Under the law, revenue collectors are entitled to incentives if their institution’s full-year target and their own regional targets are exceeded. On the other hand, penalties are imposed on under-performers that range from demotion or reassignment to dismissal. We are exercising the full power of the law in both cases. Of course, your actions must always be legally defensible and morally sound.
Our efforts to increase tax collection through these initiatives will only be successful if we can solicit greater confidence from our taxpayers by assuring them of a level playing field, and showing them that we are spending the taxes collected prudently and productively.
Starting with Reformed Value-Added Tax Law, we need to regularly report on the utilization of the additional VAT revenues for transparency and accountability as provided for under Administrative Order 141. We hope that this will translate into a virtuous cycle of greater cooperation and support from taxpayers, higher tax collection, and more revenues for priority expenditures.
We have set very challenging goals this year, virtually guaranteeing ourselves stress-filled months ahead. Still, as American quality management expert Mary Case once said, “No intense pressure…. No diamonds.”
The BIR has great potential to become one of the most efficient tax collection agencies in the region. If utmost effort is exerted to implement the programs mentioned this morning, then that potential can easily be realized in less than two years.
We need your continuous support and commitment to realize our shared goal of moving this nation forward. We believe that by working together – our taxpayers, our collection agencies – the BIR and Customs – and our development partners, we will not falter.
With everybody’s cooperation, we believe that we can deliver the crucial infrastructure projects to stay on the trajectory of higher growth and lift our people from poverty.
Thank you and happy anniversary to BIR!
* Speech delivered by Finance Secretary Margarito B. Teves on the occasion of the Bureau of Internal Revenue’s 103rd anniversary celebration held on August 1, 2007 at the BIR National Office.
Working Together…Towards Better Reforms*
Secretary Teves, our honored Guests, my fellow BIR Officials and employees, good morning, and thank you for joining us at the 103rd BIR Anniversary Celebration.
In more than a century of service to the Filipino people, the Bureau has seen many a period of trial, and many a challenging situation. I will be the first to say that the past six months have been a time of considerable challenges, to say the least, especially insofar as meeting our targets is concerned.
Be that as it may, I take heart from the words of the American author and educator, Joseph Campbell, who once said “Opportunities to find deeper powers within ourselves come when life seems most challenging.”
In this light, we in the Bureau will meet these challenges with determination and resolve, and together, will work to meet our assigned goal, endeavor to offset our shortfall, and work towards better reforms, as we move into the second semester of the year and turn another page in our history as a public service institution.
Before we speak of the future, however, it is but prudent to look back on the months that have passed, to evaluate our accomplishments, assess our strengths, and consider our challenges. As the OIC – Commissioner, mine is therefore the honor and the duty to deliver a report on the Bureau’s performance for the First Semester of 2007.
My report shall consist of three parts. Part I shall cover the Collection Performance for the 1st semester. Part II shall provide an overview of our major accomplishments, all of which have had a major impact in our revenue collection. And last, but not the least, Part III shall focus on the Bureau’s Priority Measures for the second semester
I. First Semester Collection Performance
The Bureau’s collections may be divided into two major groups: first, collections from BIR operations; and second, collections from non-BIR operations.
Cumulative collections from BIR operations from January to June amounted to P 318.2 Billion, representing an increase of P 18.4 Billion or 6.1% over last year’s revenues. Collections from non-BIR operations, on the other hand, totaled P 16.5 Billion, which is lower than last year by P 2.0 Billion or 10.8%.
Overall, our collection increased by P 16.4 Billion or 5.1%, on a year-on-year perspective. Compared to goal, we are short by P 38.5 Billion or 10.3%.
Let us now consider the revenues contributed by each particular type of tax, and perhaps we should begin with Income Taxes, by far the most popular, and the most significant contributor to the Bureau’s annual collections.
Income Tax revenues reached P 200.5 Billion, indicating a growth of P 19.7 Billion or 10.9% over revenues for the First Semester of 2006. However, compared to goal, we were short by P8.9 Billion or 4.2%.
Excise Taxes collections totaling P 24.5 Billion were lower than previous year’s collection by P 4.2 Billion or 14.6%, and was short of target by P 1.9 Billion or 7.1%.
VAT revenues in the total amount of P 67.9 Billion were lower than the previous year’s collections of P 72 Billion or 5.7%, and were short of target by P 25.4 Billion or 27.2%.
It is evident, therefore, that the Bureau had to contend with at least three major challenges in our efforts to attain our target for the 1st semester, and these are:
1. The utilization of excess input tax credits, together with the impact of lifting of 70% cap, which affected VAT collections;
2. The unrealized economic assumptions for inflation rates, which had been targeted at 3.30%, but were actually recorded at 2.7%, registering a difference of 0.60%, and ultimately resulting in a decrease in VAT collections; and
3. Lower than targeted interest rates on Treasury Bills and on bank deposits, which had a negative impact on non-operations revenues from this particular source.
II. Major Accomplishments
Any setbacks in our revenue collections arising from these challenges, however, were off-set by a number of major programs and projects.
First among these programs is the Run After Tax Evaders or the RATE program, which is beginning to prove its worth as a deterrent against tax evasion. As of June, 87 cases have been filed with the DOJ and CTA. Six (6) cases have been filed with the CTA.
The Bureau has set itself a target of 116 cases that must be filed by December 2008. We hope to meet this target, however, one year earlier by end of 2007, in order to graduate to the compact level under the Millennium Challenge Account (MCA) and thereby avail of more extensive assistance from the MCA.
Another endeavor that has helped to offset somewhat our First Semester shortfall is the Abatement Program. Implemented pursuant to Revenue Regulations No. 15-2006, the Abatement Program has also created a ripple in the Bureau’s revenue generation efforts, through which we were able to raise P 4.963 Billion in the first semester of 2007.
Third on the list of our major programs is the Reconciliation of Listings for Enforcement, or RELIEF. The BIR has continued to maximize its use of the RELIEF System, which provides for two key computerized data-matching processes:
• First, the matching of data from the Summary Lists of Sales and Purchases against VAT declarations; and,
• Second, the matching of BOC records to countercheck importers’ declarations against VAT input taxes claimed in returns filed with the BIR.
It should be noted that for the first five months of 2007, the RELIEF Program has generated P 9.60 Million.
In addition to our operational efforts, the Bureau is constantly exploring ways to enhance taxpayer awareness through the use of mass media.
For this reason, the Bureau continues to implement its landmark promo “Premyo sa Resibo” (PSR), which was enhanced through a series of tri-media campaigns. The promo has since produced 22 “milyonaryo” winners for the first semester. Likewise the Bureau has also conducted six nationwide roadshows intended to sustain public awareness of the importance of receipts, and to encourage consumers to habitually ask for receipts.
Thus far, the Bureau has collected at least P 1.6 Million in penalties, representing approximately 48.5% of the total penalties assessed from establishments found to have violated the tax provisions in the issuance of receipts.
The computerization of the tax administration system continues to be a priority undertaking of the Bureau. Cognizant of the role of IT in the growth of the economy, and in the encouragement of good governance, the Bureau is forging ahead with plans for the nationwide roll-out of its computerized Integrated Tax System, or ITS.
We have therefore targeted the computerization of the remaining non-computerized Revenue District Offices by the end of 2008. To date, the Bureau has successfully computerized thirteen District Offices, and we are confident that by the end of 2008, the BIR will truly be a fully computerized public service institution.
III. Second Semester Priority Measures
For the second half of 2007, we will be pursuing two primary courses of action to enhance the efficiency of the tax administration system, and thereby improve our collection performance.
First, we will strengthen the use of business intelligence, and embark upon the data matching of income payments of withholding agents against the reported income of the concerned recipients.
Second, the Bureau will work to enhance the productivity of its audit capabilities. To this end, we shall:
• Conduct an audit of internal revenue tax liabilities for the year 2006; and,
• Audit the withholding tax compliance of the Top 10,000 Corporations and Government Agencies, including GOCCs.
Enforcement shall also continue to play a key role in our efforts. In this regard, we shall also intensify our enforcement activities, with the checking of reported sales of taxpayers using Point of Sales and Cash Register Machines, and the investigation by the RDOs of unregistered establishments under the PSR Program.
The campaign against tax evaders will continue to be accorded top priority by the Bureau, as we pursue theprosecution of RATE cases. Special attention will be focused on the specific cases filed before the CTA, to ensure the successful prosecution of these cases, and the conviction of tax evaders.
The Nationwide Rollout of Computerized Systems will be also be pursued. At present, 70 of the Bureau’s RDOs are already computerized, and we shall dedicate our energies to the task of computerization until all of our RDOs will have been computerized by 2008.
With computerization, the accessing and processing of data will be greatly enhanced, and the inter-office – as well as inter-agency – data exchange and matching will likewise be possible. Moreover, real-time reporting, monitoring and reconciliation of revenue collections can be performed, thereby providing us with accurate and timely information.
Last, but not least, among our other priority measures are these programs intended to continuously promote taxpayer awareness, enhance our enforcement capabilities, and address issues on the management of our accounts receivables:
First is the launching of the “Premyo sa Resibo” stations at 25 SM Malls nationwide, in coordination with PHILWEB.
Second is the intensification of the enforcement of tax laws and legal capabilities, through the revisiting of rulings on tax exemptions or preferential tax treatment.
And third, is the improvement of the Bureau’s Arrears Management capabilities, through the close supervision and monitoring of the utilization of Tax Credit Certificates.
To further encourage transparency in the Bureau’s processes, and improve its collection efficiency, we shall endeavor to improve our performance monitoring system through the launching of the Revenue Watch Dashboard, a state-of-the-art, computerized online facility that will allow us to monitor tax collections versus revenue targets at all levels of the organization, from the national level to the revenue examiners themselves. The Revenue Watch Dashboard, when fully implemented, will enable the BIR to monitor tax collections at any given time.
Another key project that the Bureau will embark upon is the LGU Revenue Assurance System, which will be implemented in line with ongoing initiatives to identify revenue sources through the use of Third Party Information. For its pilot implementation phase, we envision a sharing of information between the Bureau and the Local Government Units.
These two groundbreaking IT projects will be undertaken through the pursuit of our vision to transform the Bureau into a world-class public service agency.
Ladies and gentlemen, as the Bureau looks ahead to its 104th year of service to the country, I am reminded of an African proverb which is particularly relevant to today’s celebration: “Tomorrow belongs to the people who prepare for it today.”
It is, of course, one of the great truths of life that we can never truly predict what tomorrow will bring us. And yet, it is also true that we will be better able to address whatever challenges the future may bring, if we prepare ourselves to face them with fortitude, wisdom and yes, faith.
Through our programs, we shall continuously seek greater strength in our operations. Through the counsel of our superiors in government, we shall endeavor to increase our collective wisdom in the pursuit of good governance. And through the support and assistance of our partners in the private and public sectors, we shall strive to look with faith into a future of greater accomplishments, for the Bureau, for the Government, and for the Filipino people.
Thank you, and a Happy Anniversary to everyone!
* Speech delivered by OIC-Commissioner of Internal Revenue Lilian B. Hefti on the occasion of the Bureau of Internal Revenue’s 103rd anniversary celebration held on August 1, 2007 at the BIR National Office.
Towards Reforms for a Better Future*
The past six months have been a time of considerable challenge for the Bureau, given, among others, the difficulties encountered in the implementation of the R-VAT – the usual birth pains.
Nonetheless, I am proud to say that we have hurdled the challenges that were thrown before us. It is my great pleasure to report that the Bureau met its cumulative collection target for the 1st semester of 2006, and attained a tax effort ratio of 9.87% marked improvements over the previous year.
How the Bureau was able to achieve this feat is a story of tenacity, cooperation, resourcefulness and commitment on the part of revenuers across the country and of course our dear taxpayers. It is a story I am pleased to relate to you today, as we celebrate the Bureau’s 102nd Anniversary.
My report shall consist of three parts. Part I shall cover the Collection Performance for the 1st semester. Part II shall provide an overview of the Major Programs and Projects Accomplished, all of which have had a major impact in our revenue collection. And last, but not the least, Part III shall focus on the Bureau’s Priority Actions for the next 6 months.
Let me begin the presentation with our collection performance for the month of June. I am pleased to report that the Bureau was able to collect a total of P 50.3 Billion.
Compared to collections for the month of June 2005, this translates to a P 11.5 Billion, or 29.6% increase in revenues. While the Bureau experienced a modest decrease in the collection from T-bills/T-bonds/Travel Tax, collections from the Bureau’s operations, however, registered an increase of P 11.7 Billion, marking a phenomenal heretofore unachieved month-on-month growth rate of 32.2%.
FINAL COLLECTION PERFORMANCE
June 2006 vs. June 2005
(In Billion Pesos )
FINAL COLLECTION PERFORMANCE
June 2006 vs. Goal
(In Billion Pesos )
Vis-à-vis its June 2006 revenue target, I am pleased to report that the BIR exceeded its goal by P 1.3 Billion or 2.7% increase. Substantial collections from BIR operations, totaling P 2.0 Billion, effectively offset the decrease from collections from T-bills/T-bonds.
Insofar as cumulative collections are concerned, revenues for the period covering January-June 2006 reached P 318.4 Billion. Compared to its collection performance for January-June 2005, the Bureau was thus able to register an increase of 21.9%, equivalent to P 57.4 Billion. Notwithstanding a decline in collections from T-bills and T-bonds, the Bureau’s substantial collections from its operations once again successfully offset this modest decrease.
FINAL CUMULATIVE COLLECTION PERFORMANCE
January to June 2006 vs. 2005
(In Billion Pesos )
FINAL CUMULATIVE COLLECTION PERFORMANCE
January to June 2006 vs. Goal
(In Billion Pesos )
Viewed against our cumulative goal of P 300.8 Billion from January to June 2006, the Bureau was able to achieve 99.15% of our First Semester revenue target. However, if we factor out collections from T-bills and T-bonds, the disposition of which does not fall under the jurisdiction of the BIR, it is clear that the Bureau exceeded its target by P 1.2 Billion, thereby registering an increase of 0.4%.
Attaining this collection performance was a test of our mettle in the face of many challenges, among which were:
• Effective implementation of RA 9337, and the monitoring of the resulting collections, including effects of mitigating measures
• Lower volume of floatation of government securities which tempered the overall BIR collections
• Increased utilization of tax credit certificates which affected collections on Income Taxes
Any setbacks in our revenue collections arising from these challenges, however, were effectively offset by a number of major programs and projects that contributed significantly to the attainment of our collection target.
First among these programs is the Tax Mapping Program, which saw the intensified conduct of tax mapping activities nationwide wherein there was an improvement in the tax compliance of the establishments visited, with the decreasing percentage which committed violations from 77% in 2003 to 67% in 2005.
The First Semester also witnessed the enhancement in the Run After Tax Evaders (RATE) Program, through intensive training of our revenue officers on the development of RATE cases, with the assistance of USAID. As of 1st semester of 2006, the Bureau has filed 60 cases with the Department of Justice (DOJ). A proposed Memorandum of Agreement between the Bureau and the DOJ to facilitate the prosecution of these tax cases is set for signing this Friday.
To further enhance taxpayer compliance in the filing and payment of taxes, the Bureau has increased its IT payment gateways. In addition to the pioneering eFPS and the payment of taxes through Authorized Agent Banks, the Bureau is now making use of Efficient Service Machines, which are located at selected branches of Land Bank of the Philippines. And, in recognition of the advent of electronic fund facilities, the Bureau is now offering the option of using the G-Cash and SMART Money facilities for the payment of taxes.
As part of our audit strategy, we have institutionalized the benchmarking method at selected Revenue District Offices, to serve as an audit tool for the identification of low-compliance industries. This benchmarking method was pioneered at the Quezon City Region.
The BIR has also revived its electronic raffle receipts promo, the ‘Premyo sa Resibo”, in partnership with PAGCOR, Philweb and SMART Telecommunications. In previous years, the promo proved quite successful in encouraging consumers to habitually ask for receipts, and is now being implemented once more, to sustain public awareness of the importance of receipts.
Customer services, of course, continue to play a significant role in the enhancement of our revenue performance. To provide the public with ever-more efficient customer services, the Bureau has expanded the ambit of the BIR Contact Center to two pilot Regional Offices: Revenue Region No. 9, San Pablo City and Revenue Region No. 13, Cebu City, with technical assistance from the Canadian International Development Agency.
In addition, e-Lounges have also been established in several revenue regions across the country. These e-Lounges, equipped with internet-linked computer facilities, can be used by taxpayers for the online filing of their taxes, downloading of BIR forms, or applying for a Taxpayer Identification Number.
Good governance remains one of the Bureau’s primary concerns. As part of our Integrity Development Action Plan to uphold the ideals of good governance within the Bureau, we have installed an e-Complaint system, whereby taxpayers can access the BIR website to log in their complaints against erring BIR personnel.
Last, but certainly not the least, the Bureau continues to support Tax Reform Management as a vital avenue for the enhancement of the quality of tax administration. To this end, a Tax Reform Administrator was recently designated to coordinate with foreign donor agencies such as the World Bank, the Millennium Challenge Corporation, the Swedish International Development Agency, USAID and AUSAID, concerning the funding, operationalizing, prioritizing and monitoring of the Bureau’s tax reform package.
The Second Semester promises to be a time of continued challenge, but even greater opportunities. In this regard, the Bureau shall implement a number of flagship programs throughout the remaining six months of 2006, which shall enable us to attain, or even exceed, our collection target.
First, the Bureau shall enhance its Delinquent Account Management and Collection to significantly reduce the inventory of delinquent accounts.
We shall also intensify our industry profiling and benchmarking activities at the Regional Offices. With the assistance of our donor agencies, we shall further intensify the RATE program, and expand our linkages for third party information with LTFRB, LTO and SSS.
To continually update our taxpayer database and minimize revenue leakages, the Bureau shall also intensify clean-up activities for the registration databases in each Revenue District Office.
And finally, the Bureau shall – in line with the Lateral Attrition Law – develop and institutionalize implementing guidelines for its new Performance Measurement System to optimize revenue performance.
We will be helped in significant ways by the IMF, Swedish International Development Agency (SIDA), World Bank, Millennium Challenge Corporation, JICA. To them our thanks and we pledge that their assistance would not be in vain.
With all these measures in place, the Bureau is confident that we shall be able to exceed our target for the year. Thank you, and good morning!
*Speech delivered by Commissioner Jose Mario C. Buñag on the occasion of the Bureau of Internal Revenue’s 102nd anniversary celebration.
TRANSFORMING THE BUREAU OF INTERNAL REVENUE*
Executive Secretary Romulo, distinguished members of the Cabinet, I am deeply grateful for the opportunity to share with you the Bureau's Transformation Program.
Last night, I was listening to the speech delivered by Prime Minister Tony Blair before the Labor Party Conference. It was indeed a very powerful speech, and I was struck by something that he said, and which I believe is at the heart of the Bureau's Transformation Program, and of our government's general campaign for good governance. Mr. Blair said, "It's not reform that is the enemy of public services. It's the status quo."
Over the years, many efforts have been made to introduce change into the Bureau. Some have been met with a measure of success, but in all of them, resistance to change, and the desire to maintain the "status quo", so to speak, have prevented truly significant improvements in the quality of tax administration. That, however, is about to change.
The desire to maintain "status quos" has, more often than not, resulted in ever decreasing productivity levels, so much so that public services have become more and more ineffective. The waning years of the 20th Century, in fact, saw a steadily declining revenue performance at the Bureau, brought about in equal measures by a flagging global economy and a tax administration system that had become increasingly unresponsive to the needs of the taxpayer, and the government. Such a situation could only result in setbacks for our economic recovery efforts, and the denial of urgently-needed basic services to our people.
If we are to reverse this trend, and attain true economic stability, then the reform of the entire tax administration system is urgent, and inevitable. The "status quo" must go, and go now. This is the guiding spirit behind the BIR Transformation Program, our blueprint for the future of tax administration. Reform is not our enemy - it is our salvation. Change is not our foe - it is our partner.
The BIR Transformation Process
A lot of issues have been raised on how government can, in fact, address the underperformance in revenue generation to provide a lasting solution to the chronic problem of budget deficits.
As the country's primary revenue-generating agency, the Bureau of Internal Revenue collects almost 80 percent of national revenues. However, there has been a decline in performance in the past years that translated to a widening gap between collection and goal, clearly indicating the need for reforms. But before I go into the specifics of the Bureau's transformation process, let me first define the role of the BIR as best articulated by our Mission, that states-
Our mission is to raise revenues for the government through effective and efficient collection of taxes, quality service to taxpayers, and impartial and uniform enforcement of tax laws.
With our mission in mind, what we envision for the new BIR are the following:
· taxpayers satisfied with BIR services
· efficient and effective tax administration
· streamlined and more productive organization
· agency with fiscal and administrative flexibility
· professional, highly skilled, morally upright, motivated and satisfied employees
· improved image of the agency
But the path towards the attainment of our vision is riddled with several obstacles, the most significant of which are the following:
· susceptibility of the BIR to political pressures
· perceived lack of collaboration among government agencies on the prosecution of tax cases
· no continuity in the transformation or business plan
· more complex business transactions due to globalization
· inability to cope with the demands of growing taxpayer population
· public perception that government lacks fiscal discipline
· low tax awareness and negative tax consciousness of Filipinos
In fact, based on the results of a recently-concluded SWS Survey -
· 60% of the respondents says "it is useless to pay more taxes because the money will be wasted or stolen"
· 80% even said that "tax evasion is unfair to those who pay the correct tax"
· within the context of tax administration, "curbing corruption in the collection of taxes is the most important thing to achieve as soon as possible," according to 51% of the respondents
It is because of these obstacles in our business environment that we are proposing an integrated and holistic approach in addressing the limitations of the present tax administration.
Toward this end, we have identified four strategies for transformation. They are…
· reform the Tax System, based on the policies and directions of the DOF
· reengineer the Tax Processes
· restructure the Organization
· recreate the Human Resources
Let us look at these four areas one by one.
On the current tax system, we are faced with the following issues:
· laws and regulations are complicated
· documentary requirements are burdensome
· system is prone to undue exercise of discretion
· susceptible to avoidance and evasion
· not adapted to Philippine setting
Our envisioned tax system for the transformation is -
· enhances voluntary compliance
· has a broad tax base
· transparent, equitable and efficient
· adapted to contemporary social values and culture
In reforming the tax system, a task force spearheaded by the Department of Finance was formed to evaluate the following tax reform proposals:
· develop systems and procedures to deal with hard-to-tax taxpayers
· shift from net to gross income taxation system
· strengthen the VAT system
· reform taxation of financial institutions
· indexation of tax rates on sin products
· rationalization of fiscal incentives
Issues on the current tax processes are the following:
· red tape and complicated tax processes and forms
· restricted venues for filing and payment due to the limited number of Accredited Agent Banks
· manual audit being practiced is prone to abuse and discretion
· Integrated Tax System needs to be updated to keep pace with current technology
What we envision for the transformation is tax processes that -
· are simple, efficient, transparent and time-bound
· promotes optimal use of new technology
· are customized according to taxpayer classification
To achieve these, we will:
· review criteria used in defining taxpayer type
· undertake research on taxpayer consciousness, behavior and requirements
· review and improve existing core business processes
· review the Integrated Tax System
· outsource identified IT functions
Issues on the present organizational structure of the BIR include:
· difficulty in integrating processes and issues that cut along functional groups
· too many management layers
· uneven allocation of resources at the national, regional and district offices vis-à-vis workload and revenue potential
Our envisioned organizational structure for the transformation is one that:
· is taxpayer or customer-focused
· flat and lean
· has an efficient office network
· complements reengineered processes
We will undertake the following activities to attain the envisioned structure:
· submit a proposed Executive Order, organization chart and statements of functions
· prepare job descriptions and competency profiles
· prepare the manpower plan and staffing pattern
· implement the new organization structure and staffing pattern
Current issues on the Bureau's human resources are the following:
· saddled with a bloated workforce
· very low salaries and limited benefits
· high incidence of graft and corruption
· limited authority to discipline incompetent, erring or recalcitrant personnel
· difficulty in hiring and retaining technically competent personnel
In our envisioned human resource component of the transformation:
· jobs are designed based on processes and customers
· recruitment, selection and hiring of people are based on clear and specific job and competency profiles
· reward and promotion are performance-based
· employees are multi-skilled and empowered to make decisions
Activities that will support this vision include:
· review and improve recruitment and selection policies and procedures
· improve performance management system
· formulate and implement retention and succession plan
· work and obtain funding for Early Retirement Program
· conduct the following training programs:
· Technical Training Courses
· Change Management
· Management & Leadership Development, and
· Customer Service
Support programs for the transformation were also lined up. What we have completed so far are the following:
· established a full time Transformation Management Team
· conducted a Visioning and Strategic Change Planning Seminar
· conducted an SWS survey on taxpayer perception on BIR services and performance
· conducted a Conference on Government Reengineering & Change Management
On-going activities include:
· consultations with multi-sectoral groups
· briefings and consultations with BIR employees
· training for the Transformation Management Team
· conduct of Organizational Effectiveness Study
· benchmarking with international revenue agencies
· conduct of Planning Sessions
Indeed, there is an inherent need for the BIR to have fiscal and administrative flexibility-
· To provide us with adequate operating budget
· To enable us to formulate our own administrative and management policies; and
· To improve our employees' compensation and benefit package
Expected benefits of transformation to the taxpayers are:
· improved delivery of taxpayer service
· minimized compliance cost
· reduced taxpayer burden
The government also stands to gain from the transformation process in the form of increased revenue collections that will result to the following:
· address the problem of budget deficit
· provide bigger budget for the delivery of basic services
· availability of more funds to streamline and reengineer other government agencies
With the expected increase in revenue collections as a result of transformation-
· government will be able to provide attractive work environment and compensation package to its employees
· lead to a more competitive work environment that will enhance employees' productivity
· improve the image of the civil servants
The expected benefits for the BIR employees include:
· improved public image
· adequate operational budget for the agency
· improved work environment
· clear lines of accountability
· empowered frontline workforce
· enhanced level of professionalism
· improved compensation and benefit package
To ensure support and commitment by all stakeholders, we will…
· obtain government support at highest level
· establish working groups and engage stakeholders
· establish internal steering committee and external advisory board, and
· secure technical assistance and funding from foreign donors
Many have called the Transformation Program ambitious, even grandiose. They forget, however, that it is in the exploration of the far horizons that we are able to step beyond the "status quo" of our lives, and establish new frontiers in civilized society. Change and reform must see beyond the ordinary, if it is to inspire us to better our government, our society, and ourselves.
Some quarters have asked, why the immense interest in transforming the tax administration system, when other aspects of governance also require sweeping reforms and changes? Why should tax administration take such precedence?
I say, why should it not? Without the revenues provided by taxes, there is not one single program of government that can hope to progress from being mere plans on paper to becoming an endeavor that shall truly serve the public. Without the funds generated through taxes, the basic services that are so desperately needed by our people will be no more than items on a thick, heavy volume known as the General Appropriations Bill, words that are no more important than the paper on which they are printed.
Taxes are the linchpin of the economy, the touchstone of our development. If this country is to achieve its goal of a controlled budget deficit, and pull itself completely out of the quagmire of economic recession; if it is to achieve any measure of success in any development program; if it is to give our people a glimmer of hope for a future of stable employment, adequate housing, decent education, competent health care; then the transformation of the tax administration system is imperative, inevitable, and indispensable.
The time to act, the time to reform, the time to change, is NOW. We may have the support of aid agencies, of civil society, of the business group, but it is the support of our fellow public servants that is the most important. We need to know that we are not alone in the battle to uphold good governance. We need to know that our dream of true integrity, greater competence, and unswerving dedication is one that is shared by everyone who calls himself a public servant. We need to know that idealism and integrity still have a place in the halls of public service.
Every day brings with it the opportunity for us to write the future of this government, and of this country, in the lives of the people we serve. And in the pages of our destiny, will the Chapter entitled "Taxation" be one of progress and social justice? Will it tell the story of effective and fair enforcement of the law, economic stability and development, social equality and advancement? The answer, ladies and gentlemen, lies with you. What answer shall it be?
Thank you, and good afternoon.
* Presentation delivered by Commissioner Rene G. Bañez to the members of the Presidential Committee on Effective Governance on October 4, 2001
BIR: Working Towards Progress in the New Millennium*
Honored guests, ladies and gentlemen. Good morning and happy anniversary to the BIR!
I shall now depart from my prepared speech and start with a good news. A few minutes ago, my cellphone rang and you must have seen Cune Gison and myself talking on the phone. That was a call from New York, and the good news is that the IMF just approved the program of the Philippines. That means we have the good housekeeping seal for financial fiscal management. So, I think we have to clap for President Estrada and Secretary Pardo and his economic team. Of course, the significance of that will be detailed by our friends in the media. Among others, aside from the good housekeeping seal of approval of the IMF, it will trigger off inflows of funds. I understand from Undersecretary Bañares, this is $325 Million and a couple of other inflows from the World Bank, ADB, the JBIC, and not to mention, in the words of Congressman Angpin, the confidence of the international financial community, inspite of the BIR not meeting its revenue targets. But if it is any consolation to everyone, in May our slippage was only 4 hours worth of collection. Not very many people know that, but I would like to take this opportunity to thank everyone in the revenue service for that great effort.
As you very well know, the BIR, each working day collects, P 1.515 Billion or almost 80% of total revenues of the government. So that in May, our slippage was only about 4 hours of collection. Kung mas mahaba ng konte sana yung oras, we could have made it. But in June, and this is the bad news, it widened to 4 1/2 days. But I’m sure we will catch up with it and we’re already starting to catch up this July. One piece of good news is that the Large Taxpayers Service, headed by Assistant Commissioner Gina Trinidad met its target in July.
As an entrepreneur and former government official, I’ve had my share of speaking engagements, as you may very well imagine. One year ago, as a matter of fact last Christmas, if someone had told me that I would be delivering an anniversary speech as Commissioner of Internal Revenue, I would have said, " your imagination is working overtime!"
Every Commissioner in his -- or her -- own time has steered the Bureau through eventful eras in our political and economic history. Former Commissioner Justice Efren Plana held the reins of the Bureau through colorful 70’s until he passed on the torch to Commissioner Ruben Ancheta. Of course, Ambassador Benny Tan and Commissioner Jose Ong were witnesses of the transition years of the late 80’s and the early 90’s. My good friend Liway Chato, steered it through relative economic good times of the mid 1990s and proved that woman power is never to be underestimated. And my immediate predecessor, Beth Rualo, became the first career man in more than 30 years to sit in the Commissioner’s office. His term, unfortunately, coincided with the so-called Asian financial crisis.
It would seem that, that is my fate and my privilege to be counted among such well known names. To be entrusted with the honor of carrying on their legacy, and to be privileged to stand with the Bureau at this historic of crossroads in its destiny. No one can deny that the task of tax administration is one that will always be colored with a degree of difficulty. But it is also an endeavor of unique urgency. The success or failure can spell the difference in the ever present battle for economic recovery and development.
Ninety-five years ago, when the Bureau marked its first year of service, its collections amounted to around P4 Million, about as much as it would take to buy a top-of-the-line sports utility vehicle today. Now, the Bureau’s collections are measured in the hundreds of billions, and for the past decade, the Bureau’s annual collections account for, on the average, one tenth of the Gross National Product.
These achievements, though, tell the story of countless efforts and sacrifices on the part of generations of revenuers, who struggle on in oftentimes thankless tasks. Their efforts to soldier on, in the face of the many challenges, is evident in our own performance for the first semester. Although collections for the first six months of the year did not quite meet our revenue target, I believe that we would have fared worse had it not been for the collective efforts of revenuers everywhere.
A preliminary analysis of our June collections showed that the relative slowdown of the economy during the months of April and May had an impact on our collections from a number of industries. Still, I am cautiously optimistic that our revenue goal is attainable, provided that we can, and if I may add a qualifier to our anniversary theme, continue " working together towards progress in the new millennium."
During a presentation held yesterday at the House of Representatives for the Committee on Appropriations, I had the opportunity to share with the committee members a five-point strategic plan to improve our collection performance for the second semester. This include innovations such as an electronic on-line metering machine system to improve our monitoring of DST collections; and a MOA with the LGUs for the collection of withholding tax at the local government level. A similar MOA, with the NGAs, signed with the DBM last March, is already bearing fruit and we are now hitting the rate of P 1.4 Billion a month towards our target of about P 18 to P 20 Billion a year. And of course, the improvement of existing operational programs, such as our audit and investigation activities. By the way, we are going full blast on these, and I have been authorized to make public that there will be no tax amnesty, at least for this year. So, we’re full blast now on tax audits and investigations.
I committed to the Committee on Appropriations yesterday about P12 Billion worth from audit and investigations, and I hope we can make it. It is P12 Billion because there will be no more amnesty this year. And then of course, a lot of discussions are going on in the settlement of delinquent accounts and the implementation of our computerization project.
The success of these efforts, and ultimately the Bureau’s attainment of its collection goal, however, is contingent upon whether we can all work as one in the realization of these programs. I know it has been a difficult first semester, but I commend you all for your efforts in the face of such challenges. If I seem, at times, to be unusually insistent that we meet our targets, it is only because I want the Bureau to succeed in helping the Estrada administration fund its development program, especially its pro-poor programs, while the Bureau enjoys the benefits that it rightfully deserves once it meets its collection goals.
Limited as I and the Deputy Commissioners are to our annual budget, which as you know , is lower this year than the 1999 budget, we cannot, at present, provide you with higher salaries or more modern equipment. But time-honored tradition dictates in times of collection surpluses, a portion of the excess over the annual goal shall be disbursed as bonuses or incentives to all revenuers. This is a tradition that I hope to carry on, with your help.
Nonetheless, and as a matter of a fact, even without waiting for the achievement for our goals this year, we have obtained the approval of Secretary Pardo, Secretary Diokno, and the President Estrada himself, that our budget next year will go up more than 50% from its present budget level of P2.3 Billion up to P3.9 Billion. The bad news is, P500 Million is unprogrammed, contingent on our collections. But with everybody’s help, we will be able to program that amount and I’m almost sure of that.
I know that implementing these programs may not be a cake walk, but I ask you to have faith and trust in our collective efforts. In time, we will all realize the wisdom behind these objectives and overall vision. No one ever said that the road to excellence was an easy one. Nevertheless, it is a road that the Bureau must continue to traverse. That we have all gathered this morning to celebrate ninety-six years of service is proof that each year brings an increasingly greater degree of success in the BIR’s pursuit of more effective tax administration. I fully expect that the BIR’s ninety-seventh year will be no less colorful and challenging.
On this note, I want to commend all of you for all your efforts and cooperation these past seven months, and I encourage you, for the sake of your fellow revenuers and of the Filipino people, to continue giving your very best efforts to our collection and enforcement endeavors.
In concluding my contribution to today’s celebration, I wish to share the thoughts of management expert and author Peter Drucker. " Objectives are not fate; they are direction. They are not commands; they are commitments. They do not determine the future; they are means to mobilize resources and energies… for the making of the future."
The future of the Bureau is ours to make. Let us make it a glorious one. Happy Anniversary and Good Morning!
*Speech delivered by Commissioner Dakila B. Fonacier during the 96th BIR Anniversary Program held in the BIR National Office on August 1, 2000.
Attaining Global Competitiveness*
I am privileged to deliver the address of Secretary Jose Pardo whom we know is still with the President in the US. Distinguished guests and officers of the BIR, ladies and gentlemen of the revenue service.
The dictates of our national interests have taken me far from you on this very special occasion, and it is indeed one of my great regrets that I cannot be with you to celebrate such an important event in your history as an organization.
Today marks your ninety-sixth year of service to the nation, and the first of your anniversary celebrations in the new millennium. It is truly a memorable event for all of you. Though I am half a world away, I am with you in spirit, and I send you my very warmest greetings. I also take this opportunity to personally extend my warm congratulations and appreciation to all the officials and staff of the Bureau, led by Commissioner Fonacier, for your steadfast support to the fiscal programs of the Department of Finance. I especially commend you for your unwavering commitment to the difficult tasks of revenue generation.
I know I need not emphasize the importance of your role in our economic recovery, indeed, our economic survival. From its fledging beginnings in 1904, the Bureau has evolved into the country’s foremost revenue-generating agency.
In the past ten years, the Bureau has contributed, through its revenue collection efforts, at least one tenth of our entire Gross Domestic Product. I think I would not be remiss in saying that the Bureau’s performance is akin to that of an entire industry. Right now, the Bureau is contributing approximately 80% of the total revenues of the national government.
The Bureau’s significance as an institution will become all the more important as we drive further through the new millennium. International trade will be rendered virtually tariff-free in the year 2010 because of the new economic order, which is globalization. Thus, leaving by that time, the BIR as practically the contributor of all the tax revenues of the government. By that time also, the Bureau will be faced not with just billion budget, but with trillion budget.
The Bureau, as an institution, therefore, must be continuously protected and strengthened. In his state of the nation address, the President reminded us that, and I quote, "The global environment is not changing in small increments. It is changing by quantum leaps. We either keep pace, or we eat the dust of those who forge ahead."
Statistics show, that in terms of exports, the Philippines has not fared as well as its neighbors. As an example, let me cite the fact that in a recent survey of twelve Asian countries, we rank eleventh, just ahead of Vietnam. We do not fare very well either in terms of investments, in contrast to Thailand, Malaysia and Singapore. In short, we still have much to accomplish in keeping our nation apace with global economic development.
It is imperative, therefore, that as we approach the end of the millennium year, we shall have brought our country closer to true global competitiveness.
As I told the participants of our recent Senior Management Training seminar in Tagaytay some weeks ago, becoming globally competitive does not just consist in being able to produce world-class goods and services. It also involves the fostering of an economic climate that it is attractive to foreign investment, whether foreign or domestic. And this is where government shall play a critical role.
The creation of an attractive investment climate calls for the success in four major efforts: the judicious allocation of resources, the creation of strong infrastructure, the continuing enhancement of productivity, and the development of an effective economic strategy that is supported by government policy.
None of these can be achieved, however, if government does not have sufficient resources with which to achieve these objectives. For this reason, the success of our revenue program must be of paramount concern, not only of your Commissioner, not only of the Secretary of Finance, not only of the President, but most importantly, of each and every revenuer.
Time and again, you have heard how crucial the attainment of your revenue goal is to the success of economic development efforts. It is a task that has, through the years, become increasingly difficult, more so, with your agency’s very limited budget situation, your need for better and more modern equipment and working conditions, and your own modest compensation.
No one, with the possible exception of your Commissioner, is more sympathetic to your situation than I am. This is why, together with Commissioner Dakila Fonacier, I am working to provide the Bureau with a more generous budget for the year 2001. While we may not be able to immediately provide you with better salaries, Commissioner Fonacier and I hope to at least improve your working conditions, and the overall resource situation of the Bureau.
I know that government asks much of you. But I trust that despite the many challenges that are inherent in public service, you may still perceive behind the day-to-day routine of your work, the opportunity to change, in your own small way, the course of our nation’s history.
Ninety-six years have transformed the Bureau from a fledgling arm of the Department of Finance, to a sprawling government agency that annually accounts for at least ten to eleven percent of our Gross National Product. None of this could have been possible without the dedicated efforts of generations of revenuers, one of them being my own grandfather.
Every anniversary, the Bureau looks back on its legacy of service, and weighs the accomplishments of the present against the memories of the past. When four years from now, you shall celebrate your centennial and look back on one hundred years of your existence as an organization, may you remember your ninety-sixth year not only as the year the BIR stepped into the 21st century, but as the year when tax administration took the country beyond a new horizon of progress and peace.
Thank you, Happy Anniversary, and may the God of Wisdom and Mercy guide you through every moment of this new millennium year in your service to our people.
*Speech of Finance Secretary Jose T. Pardo delivered by DOF Undersecretary Cornelio Gison during the 96thAnniversary Program of the BIR on August 1, 2000
OF THE BUREAU OF INTERNAL REVENUE
By Rowena G. Altura
Corporate Communications Division
On the occasion of the BIR’s 96th anniversary, it is worthwhile to look back and assess what the Bureau has accomplished during the first half of the year 2000. This report recounts the BIR’s collection performance and the measures it has undertaken to enhance revenue generation and improve tax administration, in pursuit of the priority actions laid down by Commissioner Dakila B. Fonacier at the start of his administration.
I. BIR COLLECTION PERFORMANCE
For the first semester of CY 2000, the BIR was able to collect P 181.93 Billion, representing approximately 80% of the country’s total government tax revenues for the period. Said collections exceeded by 3.40% or P 5.67 Billion, the previous year’s collections for the same period.
Compared to the Bureau’s P 188.64 Billion revenue target from January to June, the BIR missed its target by 3.56% or by P 6.71 Billion. However, based on the computed P 1.52 Billion average daily collection of the BIR during the six-month period, said shortfall represents only 4 ½ days slippage in collection.
Considering that the Bureau’s goal of P 397.764 Billion for CY 2000 is anchored upon the assumption that the country’s Gross Domestic Product (GDP) will grow at 4% and the inflation rate would be at 5.5%, a look at the actual collection performance of the BIR during the first quarter would show that the Bureau overperformed during the period.
Since actual GDP registered only at 3.4%, the BIR should have collected only P 76.708 Billion during the first quarter. With an actual collection of P 82.105 Billion, the BIR overperformed by P 5.397 Billion or 7.04% during the first quarter vis-à-vis the actual GDP growth.
During the same period, the BIR’s tax effort registered at 11.81%, exceeded the targeted tax effort of 10.57%.
II. MEASURES UNDERTAKEN TO ENHANCE REVENUE GENERATION
The relatively good collection performance of the BIR is the result of implementation of measures geared towards enhancing revenue generation and improving tax administration. These measures are discussed in detail below.
- Organizational Restructuring of the BIR
The organizational restructuring of the BIR was mandated by President Joseph Estrada through Executive Order No. 175 signed in November 1999. As a result of the restructuring, the BIR was able to improve its administrative control over the large taxpayers and the excise taxpayers. This was made possible through the creation of two (2) new services in the BIR National Office: the Large Taxpayers Service (LTS) and the Excise Taxpayers Service (ETS).
Under the new structure, these two implementing groups account for more than 54% of the revenue goal for CY 2000. The LTS now renders full service to 633 identified large taxpayers, while the ETS accounts for the top 100 excise taxpayers.
As part of the organizational restructuring, a Large Taxpayers Division will also be established in RR 8 – Makati City by September 2000.
- Full Utilization of Tax Computerization
The full utilization of existing tax computerization capabilities to improve tax compliance and operational efficiency is one of the Bureau’s priorities under the administration of Commissioner Dakila Fonacier.
Much has been accomplished since the inception of the BIR Tax Computerization Project (TCP) in 1994, such as:
- Development of 14 applications of the Integrated Tax System (ITS)
- Establishment of five (5) Revenue Data Centers and the National Command Center
- Implementation of the Limited Bank Data Entry (LBDE) system to 2,524 re-accredited Authorized Agent Banks servicing all 115 RDOs
- Implementation of the ITS in all Metro Manila and Metro Cebu Revenue District Offices (RDOs)
- Establishment of the National Training Center and Cebu Training Center and training of 6,477 BIR personnel in technical and ITS business courses
- Set up of taxpayer service support infrastructure (i.e. Information Kiosks, BIR Web page)
- Implementation of RDO-based return processing in 32 RDOs
- Establishment of linkages with major institutions (i.e. LTO, LRA, IC, BOC) that facilitate the exchange of information over a network
In order to build on the initial successes brought about by the TCP, the BIR will expand its coverage by undertaking the following:
- Full implementation of existing Tax Computerization Project (TCP) capabilities, especially in sites with high collection impact, namely: LTS, ETS, Makati Region and other Metro Manila/Cebu RDOs
- Implementation of the TCP systems in key cities/municipalities outside Metro Manila, such as Davao, Baguio, Cagayan de Oro, Bacolod and Iloilo
- Expansion of the coverage of third party information linkages with other government agencies and other industry groups/institutions
- Development of an automated data capture system for taxpayer data using modern technology (i.e. electronic filing, electronic data transfer)
For the first semester of 2000, the TCP had accomplished the following:
- Conduct of preparatory activities for the implementation of ITS/core systems rollout in RR 4-Pampanga, RR 5-Valenzuela, RR 6-Manila, RR 7-Quezon City, RR 8-Makati, RR 9-San Pablo and RR 13-Cebu City
- Conduct of preparatory activities for the acceleration of full ITS rollout in the LTS, ETS and Large Taxpayers Division in RR 8-Makati
- Conduct of contract negotiation for the Internet connection of non-computerized BIR offices
- Enhancement of technical infrastructure for the implementation of the web-based TIN verification
- Establishment of linkages with the Bureau of Customs, Securities and Exchange Commission and the Manila City Government
- Conduct of preparatory activities for the automation of data capture
- Enhancement of Taxpayer Compliance
Intensification of Taxpayer Information and Education
The Bureau’s good collection performance is also a manifestation of enhanced taxpayer compliance. This may be attributed, to a large extent, to the intensification of the tax information and education campaign, which was done in coordination with the private sector.
Specifically, the following initiatives were undertaken by the BIR to help the taxpayers comply with their tax obligations:
- Establishment of Tax Tulungan Centers in selected commercial shopping centers nationwide, in coordination with the Philippine Institute of Certified Public Accountants (PICPA) and the Philippine Retailers Association
- Entering into Memoranda of Agreement with seven (7) groups to help the BIR intensify its conduct of tax campaigns. These groups are: Tax Management Association of the Philippines (TMAP), Federation of Filipino-Chinese Chamber of Commerce and Industry, Management Association of the Philippines, Philippine Chamber of Commerce and Industry, Financial Executives Institute of the Philippines, Science Park of the Philippines, Inc. and the Union of Local Authorities of the Philippines
- Development and distribution of primers and other tax information materials, such as "Guide to Error-Free Tax Filing" and "Rules and Procedures in Registering a Business
- Development and update of the BIR Webpage, which contains tax advisory/ information materials and has the capability to download BIR forms
- Conduct of nationwide BIR raffle promo which instilled in the public’s consciousness the value of asking for receipts
- Conduct of tax seminars/briefings and regular tax campaigns
- Extensive use of tri-media resources to disseminate tax information
Issuance of Revenue Regulations to Implement the CTRP
The issuance and dissemination of Revenue Regulations to implement the amendments introduced by the Comprehensive Tax Reform Program (CTRP) contributed to the enhancement of taxpayer compliance. To date, the Bureau had issued thirty-one (31) Revenue Regulations and seventeen (17) Revenue Memorandum Circulars to implement the CTRP, as well as give clarifications on its provisions.
The BIR is also collaborating with a number of private sector organizations, such as PICPA, the TMAP and the Legal Management Association of the Philippines, in the formulation of Revenue Regulations to implement the following provisions of the CTRP:
- Improperly Accumulated Earnings Tax
- Net Operating Loss Carry-Over
- Minimum Corporate Income Tax
- De Minimis Benefits and ACA
- Deductibility of Interest Expense
- Estate and Donors Taxes
- Tax Credit Certificates
- Tax Exemptions on Sale of Principal Residence
- Gross Philippine Billings
- Issuance of Sales Invoices and Receipts
- Deterrence of Tax Violations
Enhancement of Assessment System
Measures geared towards the enhancement of the Bureau’s assessment system likewise proved instrumental to the deterrence of tax violations. These measures are:
- Strengthening of the BIR-LRA Project through expansion of its coverage and prosecution of violations relative to the issuance of fake Tax Clearance Certificates and Certificates Authorizing Registration
- Adoption of policy on specific/short audit to introduce a broad range of audit checking activities and improve the targeting of audit activities to major areas of risk
- Build up of third party information (TPI) capability to broaden the taxpayer base
- Review and evaluation of taxpayer’s availment of tax exemptions and incentives
- Update of zonal valuations
- Audit/investigation of business establishments found to have issued fake or spurious sales invoices or receipts
- Conduct of tax mapping activities
Enhancement of Collection System
The increase in collection of the BIR is also the result of implementation of measures designed to enhance the Bureau’s capacity to collect the correct amount of taxes, as well as monitor the remittance of taxes collected. These measures are:
- Ensuring the withholding and remittance of taxes through collaboration with the DOF, DBM and COA, in the preparation and issuance of Joint Resolution No. 1-2000, which contains the implementing guidelines in the remittance of all taxes withheld by national government agencies to the BIR.
Another Joint Circular is being pursued to cover the withholding and remittance of taxes of local government units.
- Systematic matching of income reports received from payers under the creditable withholding arrangements
- Expansion of the use of electronic on-line DST metering machine to include all banks, insurance companies, Register of Deeds and shipping companies
- Strict implementation of the Stop-Filer/Non-Filer Detection Program
- Improvement in Operational Efficiency
Compared to the Bureau’s annual collection target, which increases by almost 12% every year (on the average), the BIR’s cost-to-collect has been declining from P 0.93 in 1996 to P 0.77 in 1999. For the year 2000, the Bureau’s budget was even slashed down to only P 2.4 Billion, which means that the BIR is expected to spend only P 0.60 for every P 100 it collects.
Given this very limited operating budget, the Bureau is undertaking measures to improve its operational efficiency. These measures are:
- Working for the outsourcing of IT and legal services
- Implementation of image-building program, to include change management and professionalization programs
- Implementation of the Human Resource Information System and the Financial Management Information System
In addition to the foregoing initiatives, the following proposed regulations are being drafted to further improve tax administration:
Cash Register Machines and Point-of-Sale Machines – amending Revenue Regulations No. 10-99, further strengthening the manner of issuing permits and the monitoring requirements for the use of cash register machines and Point-of-Sale (POS) machines by business establishments.
Computerized Ticketing System – prescribing the permit and monitoring requirements for establishments engaged in the business of printing and selling of tickets using computerized network ticketing system, for entertainment shows and sports events.
Electronic Commerce (E-Commerce) – regulations to define the impact of the E-Commerce Law (RA 8792) with respect to tax administration, such as electronic filing of returns, e-payment of taxes, electronic issuance of invoices and receipts, and the redefinition of tax venue and jurisdiction for business transactions effected electronically.
Moreover, improvements in the Bureau’s collection efficiency will be further sustained through the passage into law of several bills, namely:
- Creation of Criminal Tax Court
This proposes the conversion of the Court of Tax Appeal into a specialized tax court with exclusive criminal jurisdiction. Once approved, this will be instrumental in the expeditious and judicious settlement of tax cases appealed in court since this will give the Criminal Tax Court exclusive and original jurisdiction over all crimes arising from violations of the National Internal Revenue Code (NIRC).
- Lateral Attrition Bill
This Bill will optimize the potential of the BIR as the premier revenue-generating agency of the country through the institution of the grant of incentives to revenue officers who will meet their collection targets, as well as the imposition of well-defined sanctions and attrition to those who will unjustifiably fail to collect their assigned goal.
- Financial Institution Tax
The current gross receipt tax system imposed on banks and financial institutions does not satisfy the basic concept of feasibility in tax administration and sufficiency of tax collection from this sector. The Bureau proposes a simplified concept which will promote voluntary tax compliance and avoid the difficulty of discovering tax avoidance or evasion.
- VAT on Brokers and Professionals
The imposition of VAT on brokers and professionals has been deferred until CY 2001. Finally subjecting them to VAT, without any further deferment, would raise additional revenues for the government.
With already 46% of the Bureau’s revenue target attained during the first semester of the year, the challenge now is how to raise the remaining P 215.83 Billion collection goal for the next six months.
Commissioner Fonacier identified several measures the Bureau would focus on in order to attain this year’s revenue budge. These measures are: expansion of the use of electronic DST metering machine; intensification of collection of delinquent accounts and/or disputed assessments; conduct of full-blast tax audit and investigation; establishment of tie-up with the LGUs for the prompt remittance of their withholding taxes and full utilization of tax computerization in the Bureau’s operations.
For as long as the BIR can look to the government and private sectors for support in its tax awareness and revenue-generating efforts, the goal of attaining the P 397 Billion revenue target for the year 2000 will not be far from becoming a reality.
E-COMMERCE AND TAX ADMINISTRATION*
With the recent promulgation into law of Republic Act No. 8792, or the E-Commerce Law, which provides for the legal recognition and use of electronic commercial and non-commercial transactions, it now becomes imperative for the BIR to introduce this concept into its existing tax administration system.
Section 27 of the Act directs all government offices to recognize electronic transactions and to transact government business and/or perform governmental functions using electronic data messages or electronic documents. The same provision likewise instructs all government agencies to adopt regulations to carry out this purpose within two (2) years from the effectivity of the E-Commerce Law.
In line with this mandate, the BIR will have to restructure its existing tax administration system within the said time span. Among the critical areas of tax administration which may be designed to accommodate transactions via electronic medium are the following:
- Filing of tax returns - The filing of tax returns may be done electronically via the Internet. In fact, the BIR is now securing the appropriate software solution for this endeavor.
2. Electronic payment of taxes - The established practice now is that all tax payments are made directly with the banks. Since the banking industry is one of the foremost users of E-business methods, we foresee a joint cooperation between the banking sector and the BIR to make E-payment of taxes a reality.
3. Issuance of tax clearances, permits, licenses - The BIR is one agency of the government which issues hundreds of documents a day to taxpayers for tax clearance, permits, licenses and certificates of registration. The application for these may be done electronically and the document itself can be transmitted in like manner, thus ensuring a fast and efficient receipt by the taxpayers. However, the only thing that we cannot do away with is the physical inspection of the premises when required for reasons of factual determination.
- Keeping of books of accounts - Even before the promulgation of the E-Commerce Law, the BIR has been allowing taxpayers to convert their manual books of account into an electronic format for the past ten years or so. This is subject to minimum restrictions; e.g., the computerized system must conform to generally accepted accounting and auditing principles and the underlying BIR regulations. Also, we strictly require adequate back-up system.
- Other Compliance Requirements - In the course of the business operations of taxpayers, they are required by law to submit certain financial reports and records. This may be submitted in electronic format, such as diskette and compact disc. It is possible that the required information be submitted on-line, although at this time, the cost of the technological infrastructure required to accommodate such a huge data would be too prohibitive for this purpose.
It goes without saying that for transactions via an electronic medium, the BIR would have to address concerns on security of data, authentication of writings and signature, data protection and integrity of transmitted documents. If there is one thing that the BIR is too strict about, it is the unauthorised access of information, not only because we are subject to hefty penalties for unauthorised disclosures but also because the element of voluntary tax compliance depends to a great extent on our ability to protect information.
BIR POLICY DIRECTIONS ON E-COMMERCE
The government in general, and the DOF and the BIR in particular, have thus far not made any formal pronouncement regarding the specifics of taxation of electronic commerce. Existing tax laws, regulations and circulars have not been amended to provide for the particular tax treatment applicable to E-commerce. During the deliberations of R.A. 8792 or the E-Commerce Act, several legislators have actually raised a number of taxation issues. Nevertheless, the legislators deemed it fit not to introduce tax matters in the bill for to do so would be like rewriting a whole set of codal laws over something which has not yet fully evolved in the Philippines.
It seems to be the unwritten policy of Congress to let E-Commerce gradually develop in the Philippine setting, and in the process, gain familiarity in it, and at the same time, draw from the experience of foreign economies which are already well-advanced in this field before a comprehensive statute on the subject can be considered. This is basically the same policy direction that other countries seem to be following.
But the BIR is not at all unaware of the concept and challenges presented by the information technologies that underlie this new way of doing things. It has keenly observed developments in this field and has taken due notice of the outcome of international symposia and conventions on E-Commerce taxation such as the APEC-OECD Symposium on International Business Taxation and the latest OECD report on the taxation framework for electronic commerce.
Drawing from this background and factual milieu, the BIR is at this time, leaning towards the following policy directions insofar as they relate to E-Commerce transactions:
- Tax neutrality should be the governing principle in the interim. This presupposes that the taxing authority should impose no more taxes upon E-Commerce transactions than what is imposed upon the same activity conducted by conventional means. With the participation of the BIR, this principle has been reduced into a motherhood statement in the draft IRR being prepared by the Inter-Agency Committee headed by the Department of Trade and Industry.
- All other taxation principles, which guide the government in relation to conventional commerce, should be the same guiding principles applicable to E-Commerce transactions.
- BIR will harness the potential of E-Commerce in bringing about greater efficiency in raising revenues and an improved taxpayer service.
- BIR will rationalize its role in providing an appropriate fiscal environment within which E-Commerce may flourish, ensuring that business decisions are influenced by economic considerations rather than by tax considerations.
- The tax treatment for E-commerce transactions should have a high international acceptance, but it must strike a balance between the fiscal sovereignty of the Philippines and the fair sharing of the tax base on its counterpart countries with a view to avoiding double taxation.
SPECIFIC CONCERNS ON TAXATION
While the volume of E-Commerce in the Philippines is still presently minuscule compared to the more developed economic regimes; still the BIR recognizes that electronic commerce has the potential to grow in leap and bounds in the very near future. The BIR must therefore be prepared to meet the new challenge head on and anticipate existing and future problem areas with responsive solutions.
At this point, we cannot present specific treatment with unerring certainty. However, we can make a reasonable analysis of the likely tax scenario, including problem areas, applying existing local tax laws and regulations on conventional commerce.
When the on-line merchant (individual or corporation) and the on-line buyer (individual or corporation) are both physically present in the Philippines, there should be no issue as to business and income tax liability since the income is clearly sourced within the Philippines and the BIR can easily apply domestic laws on taxation.
But when the on-line merchant is a non-resident or physically situated outside of the Philippines while the buyers are Philippine residents, the rules on sources of income and the proper characterization of income become problematic. The problem areas are as follows:
- Permanent Establishment Concept - Under most of the Philippine tax treaties, the BIR can tax the business profits of a foreign enterprise if it maintains a permanent establishment in the Philippines. The PE concept is defined as a "fixed place of business through which the business of an enterprise is wholly or partly carried out". With E-Commerce, the principle of physical business presence is somewhat diluted because foreign merchants can now exploit the domestic market without establishing a traditional physical presence. Thus, the question of whether or not a web site or computer server is considered a permanent establishment is still largely an open question.
- On-line Professional Service - Similarly, when actual service is being provided via the internet that involves the establishment of an ongoing relationship between the foreign service provider and a local customer, another taxing problem results. Examples of such service would be providing consultancy work on-line, online banking, stock trading, internet databases, and even on-line gambling. Transactions can be therefore occur directly between the parties and without the knowledge of tax authorities simply because there is no more need to establish physical presence in the country by the service provider. A tax loss in these areas should be anticipated.
- Royalties - Royalties are typically defined in Tax Treaties as "payments of any kind received as consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematographic films". It becomes now unclear how this definition applies to the electronically transmitted sale of digitized information, such as books, music, computer programs and images. Typically, software and other copyrighted materials are licensed, not sold. If sold electronically, when and under what circumstances shall we treat income from such sales as income from sale of goods or income from royalties. Or is a digitized product a good or service? To the best of our knowledge, this is still an issue perplexing the international community.
OTHER CHALLENGES AND PROBLEM AREAS
- Audit and Collection - E-Commerce transactions are hard to track down and trace in the absence of papers on which to establish audit trails. As it is, the cost of discovery methods for conventional taxable transactions is already quite high. But with the increasing use of electronic processes, our conventional audit skills would have to be enhanced, at considerable expense, to match the required computerized auditing skills in an E-Commerce regime.
- Audit Trail - There will be an increased pressure to reprogram the Bureau’s current requirement on paper-based invoice and receipts. The BIR mandates all business establishments to issue these paper-based documents in order to ensure the declaration of the correct taxable sales. Thus, within the required two-year period, the Bureau would have to come up with regulations to permit on-line transmission of invoices or receipts. Of course, we would have to devise reasonable safeguards and conditions to ensure that all compliance requirements are met. Until such regulations are in place, the BIR would have no option but to enforce the existing conventional requirements.
- Withholding Agents - One of the means by which the BIR enforces the collection of taxes is by generally making the payor of income as the withholding agent for the government. That is, if the payor or income is a corporation or a juridical entity since such entity is generally required to be the withholding agent. But this would be absent if more business-to-consumer transactions occur. However, for payments made through credit cards, the credit card companies are made as the withholding agents for the transaction. However, modern payment modes such as electronic fund transfer or stored value cards are still outside of the withholding tax regulations.
THE WAY FORWARD
- Cooperation between and among tax administrations of different jurisdictions - To achieve high international acceptance, the BIR shall implement E-Commerce taxation by considering all the internationally agreed and accepted taxation principles and treatment.
- Cooperation with the business community - Business demands certainty in taxation at all times. Toward this end, the BIR shall enlist the participation of the business sector in the development of mutually acceptable general policies and transparent rules in E-Commerce transaction.
- Let E-Commerce grow and flourish - Business should not stop just because of the absence of taxation rules. It should be borne in mind that tax authorities abide by the tenet that a tax cannot be imposed unless the clear and express language of a statute supports it. After all, if E-Commerce serves as the effective tool in the development and growth of the national economy, then not only the government gets the benefit but the entire citizenry as well.
*Discussion Paper presented by BIR Deputy Commissioner Lilia C. Guillermo during the GIIC-E-Commerce
Forum on July 12, 2000.
The (Near) Future of Cybertaxation in the Philippines
By: Joel L. Tan-Torres,Tax Partner, SGV & Co.
Each year, we go through a process of complying with our tax payment and business registration requirements. Once a new year sets in, we prepare to queue in the city or municipal halls to pay or secure our business permits, fire inspection fees, community tax certificates (formerly the residence tax certificates). We also have gotten used to annually bringing our cars to the Land Transportation Office to pay our car registration fees and every three years, to pay the fees for our drivers license. Of course we should not forget that every year, we still have to comply and pay our real property taxes and to file our income tax returns.
Presently, these processes are oftentimes long and tedious, requiring us to take time off from our regular schedule and to go to the government offices. Once we are there, more often than not, we become victims of bureaucratic delays and slowdown, where we have to tolerate long lines, snail-pace service, and submission of various paper documents. Because of these, most of us dread the time when we have to undergo these mandatory annual rituals. But, do we see any bright light "at the end of the tunnel" where the tax compliance and government registration processes will improve?
The good news is that there is a possibility that positive changes are forthcoming. With the signing into law last June 14 of Republic Act 8792, or the Electronic Commerce Act of 2000 (E-Commerce law), the exciting field of "cybertaxation" is probably just in the near future. Cybertaxation is the way tax laws and rules may be implemented in this New Economy or Information Age, with all the conveniences and benefits in using modern technology, internet and computers. After the enactment of the E-Commerce Law, the government (with the support of the private sector) immediately issued the implementing rules and regulations last July 13. On this same day, President Estrada also directed all government agencies to submit their Plan of Action for the full implementation of the E-Commerce Law. The law mandates all government offices to accept electronic data messages or documents in their transactions within two years from the date of the effectivity of the law.
Specifically, the E-commerce Law requires all departments, bureaus, offices and agencies of the government, as well as all government-owned or –controlled corporations, to accept the creation, filing or retention of documents; to issue permits, licenses, or approvals; to accept payments and issue receipts acknowledging such payments; and to transact in general the government business or perform governmental functions in the form of electronic data messages or electronic documents. As a result, we hope to be able to transact with more ease with government agencies, such as the BIR, local government units, Land Transportation Office, Bureau of Customs, etc. Who knows, the time will soon be here when we will be able to pay our taxes and fees, as well as secure our permits and licenses, without going through the rigors of going to the various government offices. By then, all that we need to do is to access these offices via our computers and internet, and to complete all our filings and even the payment of taxes and fees from the comfort of our homes and offices. Is this only wishful thinking or an inevitable occurrence that is soon forthcoming?
CYBERTAXATION IN THE BIR
As far as the Bureau of Internal Revenue (BIR) is concerned, this agency is on its way towards this cybertaxation and complying with the requirements of the E-Commerce Law. The BIR has for the last five years been involved in a modernization program, called the Tax Computerization Project (TCP). The TCP is intended to provide the BIR with integrated national tax administration systems and capable and trained personnel to implement these systems. As a result of the TCP, the BIR will be able to increase revenue collections, improve efficiency and transparency of its operations, and to increase customer satisfaction. It is in the last area where taxpayers can expect a lot of improvements in terms of the taxpayer’s compliance and the BIR’s rendering of service.
One aspect that taxpayers can look forward to is the electronic filing of tax returns. Through this electronic filing, taxpayers would have the option of filing their tax returns through their computers that will transmit or file the returns (including any tax payments) electronically to the BIR. With this in place, perhaps the long lines during the tax filing deadlines in April will be avoided. At the same time, taxpayers will be able to save on time and money with electronic filing compared to the process of going to and physically lining up in the BIR collecting offices to file tax returns and pay the taxes. In other countries, electronic filing is widely being implemented already. In the case of the United States, in 1999, there were 29.3 million individual taxpayers which filed their income tax returns electronically.
Taxpayers can also benefit if the BIR will be able to provide the facilities and the system for other tax compliance requirements to be transacted electronically. These can include such transactions as securing the Tax Identification Number; registration of business; getting permits to print invoices; getting tax primers and information; etc.
The BIR has been very receptive in venturing into this field of cybertaxtion. The BIR officials, led by Commissioner Dakila Fonacier, have been coordinating with other government offices, as well as the private sector, in meeting the requirements of the New Economy. Recently, the BIR agreed to the request of the Tax Committee of the Philippine Chamber of Commerce and Industry to organize a joint committee to address various concerns, including the implications of the E-Commerce Law. The BIR also has its own initiative of putting up its own web site (address is http://www.bir.gov.ph), where taxpayers can obtain very useful information such as the directory of the BIR officials; responses to some frequently asked questions on tax; and templates of tax returns and forms which can be downloaded and used by taxpayers.
Aside from the BIR, other tax collecting or permit issuing government offices are also on its way to providing the necessary facilities for the public to transact with them via the Internet or on an on-line basis. Among others, these include such agencies as the Bureau of Customs, the treasurers of the local government offices, the Land Transportation Office, and the Land Registration Authority. Once these government agencies have put in the necessary facilities, taxpayers will then be able to file their tax returns and pay their taxes by using their computers that shall be connected to these government offices via internet. This is something similar to what is commonly being done now in the case of on-line payment of bills via the bank network. Many of us now pay our utility and cable TV bills by merely calling the banks telephone network. Once this system is replicated in payment of taxes and government fees, the sight of taxpayers lining up in government offices will then be a thing of the past.
There are indications that positive developments are forthcoming in the way the Philippine bureaucracy will conduct its operations. The same way that businesses in the private sector are gearing up for electronic commerce (or e-commerce), the government is also on its way to e-government. E-government is the way that the government, whether in the national or local levels, improves the way it delivers services (including knowledge or information) through the use of network and telecommunication-enabled technology.
E-government is presently already in place in a number of European countries, the United States, and in some Asian countries, such as Singapore. In these countries, the citizens are already enjoying the improved services that e-government can offer. They are able to conduct their transactions on-line with the various government offices. By using their computers, taxpayers in these countries are able to file their tax returns and forms, pay their taxes and fees, secure their clearances and permits, and even get information such as the status of their social security contributions or the amount of taxes paid for a particular period. They can also participate in public biddings of government projects and procurement of goods and services.
It is to be noted that in the above examples, only developed countries are cited where e-government is in place. Is this also feasible in the case of a less developed or developing country? Given the political will and the appropriate framework put in place in a particular jurisdiction, this can also be a reality. Take the case of Andhra Pradesh, which is a southern state of India. As a result of the efforts of the elected officials of this state, this has been transformed from an old, decaying area into a state of the art center of information technology where e-government is flourishing. As a tribute to its accomplishments, two prominent visitors, in the person of Microsoft owner Bill Gates and US President Bill Clinton, recently came to witness the successes in Andhra Pradesh.
The Philippines is also in the threshold of fully embarking on e-government. As provided in the E-Commerce law, all government offices must accept electronic data messages or documents in their transactions within two years from the effectivity of the law. In fact, some offices have already started this process.
CYBERTAXATION IN E-GOVERNMENT
Similar to the Bureau of Internal Revenue, the Bureau of Customs (or BOC) is also instituting measures in the field of cybertaxation in the field of e-government. The BOC has also pursued an ambitious computerization program about five years ago. As a result, importers are now able to transact with the BOC using a remote computer, such that they can file their import declarations through an Electronic Data Interchange (EDI) or Direct Trader Input (DTI) system. These importers can thereafter avail of the new and faster import clearance procedures referred to as the Super Green Lane. With these systems in place, importers are able to complete their importations in a faster and cheaper basis.
The Land Registration Authority and Land Transportation Office are simultaneously undergoing comprehensive computerization development and acquisition programs. In a matter of time, these two offices will be able to better service the requirements of its publics when it can offer remote or electronic filing of registration documents and payment of fees and licenses.
The local governments are also showing some initiatives in the area of e-government and cybertaxation. In the case of the city of Muntinlupa, it has developed a computerized tax system which resulted in improved revenue collections and rendering of taxpayer service. Some other cities and municipalities are also pursuing their own initiatives in this area.
With all of these developments and successes by the various government tax collecting offices, it will just be a matter of time when paying taxes will be a pleasant experience in the forthcoming age of cybertaxation.
E-COMMERCE: Its Implications On Tax Treaties
By: Atty. Marissa O. Cabreros, CPA
Chief, International Tax Affairs Division
Republic Act No. 8792 or the E-Commerce Law has been recently promulgated which provides for the legal recognition and use of electronic documents and data messages. Sec. 27 of the said Law directs all government offices to recognize electronic transactions and to transact government business and perform governmental functions using electronic documents and messages.
While the volume of E-Commerce of Internet transactions in the Philippines is still miniscule compared with other countries, the risks posed by the Internet to the tax system are real. The government must focus on how to address these risks in a spirit of collective co-operation rather that in an atmosphere of competition. Governments and businesses must undertake an integrated review on the impact of the Internet on tax systems, on legislation and administrative regulations, on implementation and audit practices and on international taxation arrangements.
This article will tackle the implication of E-Commerce or the Internet on international arrangements.
Developments in the BIR Tax and Information and Education Campaign*
History tells us that taxes were often thought of as more of a burden than anything else. Who can forget that contemporary witticism, "the only things that are sure in this life are death and taxes!" Pity us taxmen whose line of work is lumped together with something so morbid!
Fortunately, although this mindset still finds a number of "true believers" in modern-day society, efforts to inform and educate the taxpaying public have made great inroads in transforming the image of taxation.
The past two months, thus far, have been very productive for the BIR. You will, in all probability, have read in recent newspaper reports that the Bureau was able to exceed its January and February monthly targets by approximately 6.4%. This accomplishent is even better than our collection performance for the same period in 1999 by 19%. I can think of few factors that were as contributory to our achievement as the constantly increasing level of taxpayer awareness.
In recent years, the launching of the BIR’s annual tax information campaign has gained increasing prominence in media and business circles. Where once the Bureau was content to rely on the public’s recall of tax filing deadlines, it now advocates the role of taxpayer education in the success of revenue collection efforts. If we are to enforce the tax laws of this land, I think, it is but appropriate that we first educate the public on the very laws they are obliged to obey.
Along this line, we have been fortunate to have the support of several prominent business organizations in our tax campaign initiatives. As a member of the accounting profession, I am particularly proud of the various joint undertakings of the BIR and the Philippine Institute of Certified Public Accountants intended to foster a greater degree of tax awareness in the accounting community.
Our latest endeavor, which is being implemented in cooperation with the Philippine Retailers Association, is the establishment of Tax Tulungan Centers. Manned by both Revenue Officers and PICPA members, these satellite taxpayer service offices situated in shopping centers and other major commercial areas, offer assistance to taxpayers in filing their tax returns. I am confident that with the help of the Tax Tulungan Centers, the confusion and consternation experienced by the man-on-the-street in filling out his tax forms is about to become a thing of the past.
The Bureau is not without its own initiatives in this annual tax information campaign, and I would like to take this opportunity to briefly discuss each of them with you. The first of these initiatives are the conduct of regular tax briefings by the Revenue District Offices, and by the Taxpayer Assistance Divisions of our Large Taxpayers and Excise Taxpayers Services. These briefings, which are being conducted for the benefit of new and existing registrants, focus among others, on the following:
• The Rights and Obligations of a Taxpayer
• How to Fill Up Various Types of BIR Forms
• The Salient Features of the Tax Code
• The Latest Regulations and BIR Issuances
Two days ago, the Bureau conducted a one-day seminar for the chief accountants and financial officers of various national government agencies, to brief them on the salient points of the recently-signed Memorandum of Agreement between the DOF, the DBM and the Commission on Audit. Once fully implemented, the MOA will dramatically increase the effectiveness of the withholding tax system since it will be applied to the country’s largest withholding agent - the government.
Another initiative of the Bureau is the development of tax information materials. Within the next few months, the BIR expects to release for general distribution three very important primers. The first shall give taxpayers a step-by-step guide to error-free tax filing. The second will contain the rules and procedures to be followed in registering a business with the Bureau. And the third, and arguably the most important of all, is the updated "Taxpayer’s Bill of Rights and Obligations."
Another initiative of the Bureau which significantly contributes to the increasing level of tax awareness is the extensive use of tri-media resources in disseminating tax information to the public. Radio interviews and TV appearances have provided the Bureau’s top officials with a forum to discuss not only the principles behind the tax reforms being instituted by the BIR, but also the goals and objectives of its various programs and projects. Through the printed word, radio broadcasts and television talk-shows, the BIR tax information campaign has reached greater heights which tax officials of ten years ago could have been hard put to imagine.
With the on-going Tax Computerization Project, the Bureau had the opportunity to bring its tax information campaign into the dynamic and ever evolving world of information technology. The BIR, through its webpage, has created its own window to the computer age. With information on every aspect of the Bureau’s operations ranging from BIR forms to the public’s most frequently asked questions, the BIR web page is constantly being updated to keep apace with the changing face of taxation.
Even as I speak, our Information Systems Group is fine -tuning the newest feature of our webpage: the download facility for BIR forms. When before, taxpayers had to visit their District Offices to obtain copies of their tax forms, now, any taxpayer with Internet access will soon be able to download the form he needs from the BIR web page.
Finally, the most popular of the Bureau’s project, the BIR raffle promo "Humingi ng Resibo, Milyun-milyon ang Panalo" has enjoyed considerable success in instilling in the public’s consciousness one of the most basic requirements of tax administration: the everyday commonplace, receipt. For many years, this ubiquitous piece of paper seemed to be without real value. Little did people know that this piece of paper helps the Bureau check registration, verify sales and purchases, and document payment of the value-added taxes.
Now on its third year, the raffle promo promises to give the receipt even greater significance as one of our basic tools in effective tax enforcement. I for one can say that those who won the raffle last year will never forget the Bureau’s perennial admonition: "always ask for your receipt."
Ladies and Gentlemen, two weeks ago, the BIR was honored with the opportunity to launch its CY 2000 Tax Information Campaign at Malacañang Palace. In the presence of the President himself, the Bureau marked the first day of its most intensive information campaign effort of the year for the month-long tax filing season. This landmark moment in the Bureau’s history also marked the signing of a Memorandum of Agreement between the BIR and four of the country’s top business organizations: the Philippine Chamber of Commerce and Industry, the Tax Management Association of the Philippines, the Filipino-Chinese Chambers of Commerce and Industry and the Management Association of the Philippines, to forge a collaborative union in intensifying the tax information campaign.
And this, I think, is the essence of the tax information and education campaign: to foster not only tax compliance, but also to emphasize the taxpayer’s role in government’s quest to make taxation a true factor in economic development. As society adapts to man’s constantly evolving civilization, so must tax administration adapt to a more sophisticated taxpaying public. Great advancements in education, communication and technology have so transformed the Filipino taxpayer, such that any effort to expand and enhance our tax information campaigns is, in its deepest sense, an acknowledgement of every citizen’s right to be informed, and a recognition of his need to understand his rights, as well as his obligations, as a taxpayer.
People may say that it is the height of irony for the country’s top taxman to be standing in a room filled by the representatives of the most taxed, and the least taxed sectors of the economy. I say that nothing could be more fitting, because here before me is the human face of the dual purpose of taxation: economic development and social justice. Neither of these goals, however, can truly be accomplished unless every taxpayer can be helped to fully understand the role taxation gives him in determining the future of his country. There can be no true progress without knowledge, and no lasting peace without enlightenment.
The Book of Proverbs tells us that "a wise heart shall acquire knowledge, and the ear of the wise seeketh instruction." With the help of this conference, I trust that the Bureau may constantly find in every taxpayer, a heart in constant search of knowledge, and spirit in quest of enlightenment.
Thank you, and may God favor all of us with his wisdom and guidance in our service to our fellow Filipinos.
*Speech delivered by Commissioner Dakila B. Fonacier during the Bishop-Businessman's Conference Breakfast Forum held in the Asian Institute of Management on March 29, 2000
THE PHILIPPINE TAX COLLECTION SYSTEM
Its Evolution and Direction
By: Estelita C. Aguirre
The Supreme Court of the Philippines has stated that it is axiomatic in the law of taxation that taxes are the lifeblood of the nation. Through the centuries, since the dawn of civilization and the birth of taxation, the veracity, and significance, of this declaration remains unchallenged, and is in truth upheld time and again through war and peace, prosperity and recession. For this reason, the mission statements of virtually all tax authorities are crafted to highlight the mandate of collecting taxes for and at the least cost to government.
An overview of the mission statements that guide the tax authorities of the Asia-Pacific’s developing economies, such as Singapore, Thailand, Indonesia, Japan, Malaysia, Korea, and the Philippines, bears out this observation. Malaysia’s Inland Revenue Board, for instance, has declared their mission to be: "To collect taxes for the nation at minimum cost, to improve compliance and to institute effective enforcement through prevailing legal procedures." The Philippines’ Bureau of Internal Revenue, on the other hand, aptly states: "Our mission is to collect taxes efficiently and effectively, for and at the least cost to government, through impartial and consistent enforcement of internal revenue laws, and convenient and honest service to taxpayers."
Indeed, the collection of taxes remains one of the primary undertakings of any government, in order to provide sufficient funds with which a nation’s economy may be sustained and developed. In this light, it has become the enduring goal of every tax authority, be it one that serves a developed or a developing nation, to seek and implement strategies and technologies that shall support the continuing improvement of their collection systems.
This paper shall explore the evolution of the Philippines’ tax collection systems, spanning a period of more than nine decades, from the establishment of the Bureau of Internal Revenue in 1904, to the present-day collection system being implemented by the country’s premier tax agency. The development of the various collection systems employed through the years shall be traced, to gain insights into the mechanics and policies behind each system, and how significantly each, in its turn, has contributed to the achievement of the country’s ever-increasing revenue goals.
II. THEORETICAL FRAMEWORK AND REVIEW OF VARIOUS MODELS
Through the years, tax authorities have explored various approaches to continually enhance the effectiveness of their collection systems. Nowhere is this more evident than in developing countries, where the advent of information technology and electronic communication has helped to bring tax administration out of a pen-and-paper cosmos into the world of fiber-optic technology, Internet access, and electronic fund transfers.
It was the consensus of the delegates of the tax administrations from the Asia-Pacific Region to the 13th Meeting of the Study Group on Asian Tax Administration and Research (SGATAR) held way back in 1983 in Bangkok, that an efficient collection machinery is vital for successful tax administration, inasmuch as the ultimate goal is to collect taxes due at the least cost. As gleaned from the SGATAR reports and discussions, some of the methods of collecting taxes which have been adopted by the member-countries are:
a. Self-Assessment System (Pay-As-You-File);
b. Withholding Tax System (Pay-As-You-Earn);
c. Direct Assessment and Payment System;
d. Annual Assessment and Installment Plan for Employers;
e. Annual Assessment for Self-Employed Persons; and
f. Provisional Assessment and Programs.
This paper shall focus on the first two (2) systems, the Self-Assessment and the Withholding Tax Systems, considering that they have long since earned universal acceptance by tax authorities around the world, and in so doing, have become the foundation of most of the world’s tax systems.
- The Self-Assessment System (PAY-AS-YOU-FILE)
A survey of the collection methods used by fifteen (15) tax authorities disclosed that with the exception of Vietnam, which has a tax assessment system for wage earners and uses the self-assessment system for businesses, all countries have adopted the self-assessment system of taxation. The Philippines, Japan, Malaysia, Thailand, South Korea, Indonesia, Australia, New Zealand and Singapore are all using the self-assessment system, as does the United States, long referred to as the world’s only remaining superpower, and the United Kingdom, arguably Europe’s most influential economy. Similarly, the Self-Assessment System is also being used by the tax administrations of Italy and the Netherlands, as well as by Argentina, one of South America’s more prosperous economies.
It is evident, therefore, that this particular tax system has truly become the choice of a greater proportion of the world’s developed and developing nations.
Under the self-assessment system, the taxpayer calculates the tax by himself, (or through an accountant) fills up his tax return, files it with the proper tax office, and pays the tax due thereon, upon filing.
The process by which the tax is computed and determined is what we call the "self-assessment" method, and the resulting tax a "self-assessed" tax. The act of tendering the payment of this self-assessed tax, on the other hand, is referred to as "voluntary payment" or "voluntary compliance."
The tax returns having been filed, it is processed and subjected to the necessary desk audit or field audit, if warranted, of the taxpayer’s books of accounts and other records. Such audits, sometimes result to additional taxes payable, referred to as "deficiency taxes". This process may thus be referred to as "assessment through enforcement", in contrast to "self-assessment".
The distinction between a self-assessed tax and a tax assessed through audit or enforcement, is that the former, which is payable on the due date, becomes a "delinquency" if not paid, and can be collected immediately by means of administrative summary remedies.
On the other hand, a "deficiency" tax resulting from an audit is effected through the issuance of an assessment notice payable within a certain period of time, which becomes a "delinquency" upon the taxpayer’s failure to pay within the due date stated in the demand notice.
- The Withholding Tax System (PAY-AS-YOU-EARN)
Considered extensions of the principle of self-assessment are the withholding of taxes on compensation and the so-called withholding of taxes at source. In the first case, the employer (or the payor), by operation of law, becomes a withholding tax agent. Each time an employee receives his wages or salaries, part of it is withheld by the employer-withholding agent as a partial advance income tax payment of the employee. When an employee files his income tax at the end of the year, all of the creditable taxes withheld shall be deducted from his income tax due per return. If the tax withheld is equal to the tax due, the return is considered a "break-even" return; if the tax withheld exceeds the tax due, the return becomes a refundable return, with the excess returned to the employee; and if the tax withheld is less than the tax due, the employee-taxpayer shall pay the difference upon filing of the return.
In the withholding of taxes at source, any individual engaged in business and any juridical person, by operation of law, becomes a withholding tax agent of the government if he/she has business dealings with any person, natural or juridical, who is subject to income tax. Income payments made to taxable persons for certain kinds of services rendered and/or for the use of their properties as defined by revenue regulations, are subject to withholding tax at source. The amount withheld is referred to as "creditable withholding tax at source", and is allowed as a tax credit against the income tax liability of the payee in the taxable year or quarter in which the income was earned or received.
The Philippines, and other countries such as Italy, the USA, and Thailand, by provision of their internal revenue laws, subjects certain income payments – such as interests on bank deposits and royalties – to final taxes. The withholding of this tax is referred to as "withholding of final tax at source". The taxpayer-payee is not required to declare and submit a tax return on such income that is subjected to final withholding tax.
Withholding at source has been an important step taken by tax agencies to privatize, by making agents in the private sector responsible for withholding taxes and turning them over to the government. It is an effective means of capturing taxpayers receiving income payments from legitimate taxpayer income-payors.
3. Collection By Enforcement
Collection by enforcement is actually a fight or campaign against non-compliance. This "campaign" is generally conducted through the identification of the sectors of business or industries, and/or segments of economic activities where the degree of compliance is low, and the subsequent audit or investigation of enterprises and companies who are part of these selected industries.
Countries adopting the self-assessment system have the tendency to focus on developing and improving their audit programs. Indonesia adopted a more exhaustive auditing system through periodic visits to taxpayers. In Korea, the field audit was extensively used to detect possible leakages in the tax system. With increasingly complex and diversified business activities, particularly those that have expanded internationally, sophisticated techniques in tax audit have been put in place. Computer technology has largely helped in tax audit and investigation. Taxpayer profits, income matching and industry standard ratios are made and applied more easily through the use of computers. For some developing countries like the Philippines, however, the extensive use of electronic data processing systems for detecting non-compliance is still wanting.
Audits and investigations give rise to deficiency assessments, which normally result to disputes between taxpayers and tax officers over the assessed liabilities. The usual procedure for disputed assessments is to settle them first at the tax office before resorting to tax courts.
Countries have adopted administrative and judicial procedures in dealing with tax deficiencies and delinquent accounts. The means of recovery by way of civil penalties are: the issuance of warrants of distraint and levy on a taxpayer’s assets, followed by their seizure and sale to satisfy the amount of delinquent taxes; the institution of civil or criminal action in court; and the issuance of a garnishment order to secure any monies held by a third party on behalf of the taxpayer.
On recovery techniques for tax arrears, most countries start recovery proceedings with the service of notices of demand. All countries have established legal provisions to counter the failure to pay taxes, but some tax authorities elevate criminal actions to the courts.
- Voluntary compliance vs. Collection Enforcement
James B. Hom, Executive Director of the Institute for Tax Administration (California, USA), in his lecture delivered at the JICA / NTA General Taxation Seminar in Japan from September 29 to 30, 1993, holds that while the goal of modern tax administrations is to foster voluntary compliance, taxpayers will comply more readily with tax laws if they believe that their failure to do so will mean assuming a substantial risk of being penalized in a relatively severe fashion. On the other hand, tax evasion models developed by economists Allingham and Sandmo in 1972, and by Srinivasan in 1973, hold that the rate at which taxpayers resort to tax evasion is dependent not only on the penalties involved, but also on the probability of detection by the tax authority, and on tax rates themselves.
By and large, research findings on tax non-compliance point to the conclusion that there is no single or easy solution to the problem of non-compliance. A balance of efforts focusing both on improved enforcement effectiveness and on increased co-operation and persuasion is needed. To improve enforcement effectiveness, further efforts should be made: (1) to decrease opportunities for non-compliance, (2) to improve effectiveness of examination and collection procedures, and (3) to communicate deterrence messages to taxpayers more effectively. To improve taxpayers’ cooperation with the tax administration and increase their willingness to comply, tax administration must take a more active role in educating taxpayers and providing assistance to those who need it. Finally, the tax administration alone cannot change the citizens’ feelings about tax compliance. Non-compliance of erring taxpayers should be a concern of all government officials and of honest and compliant taxpayers.
At present, the US tax administration is still strongly tilted toward punishment. This tilt is reflected in the resource allocations, in public images of the tax administration, and in willingness of taxpayers to overpay or to be reluctant to take legitimate deductions in order to avoid audits. Audits are time-consuming and stressful affairs, and it appears that the prospect of an audit serves to inhibit tax cheating.
The foregoing conclusion of Mr. Hom may be true in the US and other developed countries, but not in developing nations. The impact of audit and investigation on efforts to raise levels of voluntary compliance is still an open issue in most developing countries.
III. THE PHILIPPINE TAX COLLECTION SYSTEM
Forty years ago, with a growing taxpayer population and limited resources, the Philippines’ Bureau of Internal Revenue (Bureau), adopted the self-assessment system when Republic Act No. 2343 was enacted in 1959. The Act provides that the "… tax imposed by this Title shall be paid at the time the return is filed. Such tax shall be paid by the person subject thereto."
The substance of Section 56 (A) (1) of Republic Act 8424 (otherwise known as, the Tax Reform Act of 1997) has retained this principle, as it states: "The total amount of tax imposed by this Title shall be paid by the person subject thereto at the time the return is filed. x x x"
Prior to the adoption of the self-assessment system in 1959, there were relatively few income taxpayers, hence the Bureau, despite its meager resources, could effectively service a rather small taxpayer base. For instance, records show that in 1947, 117,883 taxpayers filed income tax returns. By 1959, however, following several relatively prosperous years after World War II, this number increased to 351,329, or a growth rate of 198%. While the non-self-assessment system offers a certain convenience to the taxpayer because the burden of computation is assumed by the Bureau, due to limited resources, it became hard-pressed to cope with the growing number of taxpayers. Accordingly, the self-assessment approach was adopted as a means of meeting the administrative requirements of an increasing taxpayer population, as well as to place additional responsibility on taxpayers to comply with tax laws.
Current taxpayer statistics have disclosed that the 117,883 returns filed by taxpayers in 1947 has since risen to 7,555,966 returns of various kinds filed in 1998 by various types of taxpayers, or an approximate growth rate of 6,309% over a span of five decades. This monumental increase in the taxpayer population, and the dynamic growth of information technology and electronic communication, have thus served to give even greater emphasis to the urgent need for more efficient – and effective – collection systems in an increasingly computerized environment.
Over the years, the Bureau has employed various collection methods, amending processes or introducing innovations as the need arises. On the whole, however, the methods of collection utilized by the Bureau may be classified into two (2) major categories: collection through voluntary compliance, and collection by enforcement.
1. Voluntary Compliance
As a continuing effort to constantly increase the volume of revenue collections generated under the self-assessment system, the Bureau has, over the years, effected diverse changes in its collection system. More than nine decades of innovation and restructuring are reflected in the history of the Philippine tax collection system.
At present, the methods of collecting taxes in Philippines, as in any country that adopts the self-assessment system, are: (1) Tellering; and (2) Collection Enforcement. Tellering refers to the acceptance of over-the-counter tax payments by Authorized Agent Banks (AABs) or by Revenue Collection Agents (in areas where there are no AAB branches) from taxpayers, in accordance with established rules and regulations. Collection Enforcement, on the other hand, refers to the collection of delinquency and deficiency taxes assessed through audit or investigation.
A.1. The Revenue Official Receipt (ROR) System. The history of the Tellering system has its origins in the establishment of the Bureau in 1904. Bureau personnel at that time, however, did not have a direct involvement in the actual collection of taxes, since taxpayers were then required to file and pay their taxes to their City or Municipal Treasurers, who issued the corresponding Revenue Official Receipts for such payments.
The ROR System, however, precluded the direct supervision of the Bureau over the City and Municipal Treasurers, considering that they were not under the employ of the Bureau, and were thus beyond the Bureau’s administrative control and jurisdiction. As such, the practice of enlisting the assistance of City and Municipal Treasurers which was observed for fifty-six years, was dispensed with when the Bureau fielded its first Revenue Collection Agents in 1960. Posted at the various City and Municipal Halls throughout the country, the Collection Agents took over the task of receiving tax payments and issuing Official Receipts (RORs), from the City and Municipal Treasurers.
A.2. The Revenue Tax Receipt/Confirmation Receipt (RTR/CR) System. The dramatic increase in the taxpaying population in the last quarter of the twentieth century, however, brought to the fore the need of the Bureau to further enhance the collection system. To cope with the demand for service and convenience of taxpayers, and to establish a more effective system of collecting taxes, and on the supposition that the use of the banking system as a more reliable "collection agent" shall minimize the incidence of defalcation of tax collections, then President Ferdinand Marcos enacted Executive Order No. 206 on January 9, 1970, whereby the Central Bank was directed to receive tax payments through duly accredited Agent Banks.
In 1971, the Bureau inaugurated the payment through banks option with the RTR/CR System. Under the RTR/CR System, a taxpayer files his return with the appropriate Bureau office, where he is issued a Revenue Tax Receipt (RTR) stating the amount of tax he must pay. The taxpayer then presents this RTR, and pays the corresponding amount of tax, to an Authorized Agent Bank, which in turn issues the taxpayer a Confirmation Receipt (CR), to acknowledge such payment. The taxpayer then returns to the Revenue District Office of the Bureau, to have his payment posted.
Through the years, various statutes have amended the procedures and guidelines governing the receipt of tax payments by Agent Banks. These are:
1. Central Bank (CB) Circular No. 296, dated March 18, 1970, on the implementation of EO 206;
2. CB Circular No. 314, dated January 1, 1971, also on the implementation of EO 206;
3. EO 339, dated September 9, 1971, which amended EO 206;
4. CB Circular Nos. 335 and 336, Series of 1971, on the implementation of EO 339;
5. EO 937, dated March 1, 1984, which established the criteria for the accreditation of Agent Banks, and provided for the adoption of terms and conditions under which an Agent Bank shall undertake collection of taxes;
6. Section 12 (c) of the National Internal Revenue Code, as amended, which provides that banks duly accredited by the Commissioner with respect to receipt of payments of internal revenue taxes authorized to be made thru banks, are constituted agents of the Commissioner.
A.3. The Payment Order/Confirmation Receipt (PO/CR) System. In 1982, the Revenue Tax Receipt (RTR), was replaced by the Payment Order (PO), to avoid confusion. The term "Revenue Tax Receipt" was actually a misnomer, the RTR being a mere payment order, and not a tax receipt. The PO/CR System is an enhanced version of the RTR/CR System, with better monitoring and control features.
A.4. The New Payment Control System (NPCS). Less than two decades after the implementation of the RTR/CR System, however, the need to further increase the efficiency, and expediency, of its collection system prompted the Bureau to introduce the New Payment Control System (NPCS). The NPCS, which was first implemented in 1991, streamlined collection procedures and dispensed with the issuance of Payment Orders and Confirmation Receipts. Taxpayers were thus allowed to file their tax returns, and pay the corresponding taxes, directly to the Accredited Agent Banks. The Banks would then validate the taxpayer’s copy of the return, remit their collections to the Bureau of Treasury through the Central Bank, and transmit to the Bureau copies of all tax returns filed at their Bank branches. The validated return then serves as the evidence of payment by the taxpayer. The NPCS also marked the first time the Bureau made use of the bank debit system as a means by which a taxpayer could pay his taxes.
The ROR System, however, is still in operation in those areas where there are no Authorized Agent Banks. Upon receipt of tax payments, the Revenue Collection Agents are required to issue Revenue Official Receipts (RORs) to the paying taxpayers.
A major change to the accepted modes of tax payment was instituted in 1997, when the Bureau discontinued the payment of taxes through checks. This move, although initially unpopular with the taxpaying public, was done to forestall the leakage of tax payments. In 1996, the Bureau uncovered the existence of a syndicate that was siphoning tax payments made in the form of checks. The syndicate, prior to its discovery, was able to "divert" such check payments with the help of revenue personnel (who are actually members of the syndicate) who, although unauthorized to receive such check payments, encouraged unsuspecting taxpayers to entrust to them their tax payments. These payments were then deposited in bank accounts maintained by members of the syndicate under fictitious names, in collusion with bank employees. Fake machine validations were printed on the returns, which were then given to the unsuspecting taxpayer. As such, tax payments did not enter the collection system, and therefore, no payments were posted in the taxpayer’s ledger. This practice was uncovered through the Stop-Filer/Non-Filer Program of the Bureau, an undertaking that follow-up taxpayers without recorded tax payments.
As a solution to the problem, and to encourage the use of the bank debit system as a more efficient means of paying taxes, the Bureau opted to stop the use of checks. Taxes, then, could only be paid with cash or through debit advices directly to AABs where taxpayer maintain savings or current accounts.
The year 1998, however, saw the repeal of the ban on checks as tax payments, when the Bureau promulgated Revenue Regulations No. 6-98,which provided for the acceptability of checks as tax payments (effective July 20, 1998) once again, due to the inconvenience experienced by a taxpayer who does not maintain an account with any AAB within the jurisdiction of the Revenue District Office where the taxpayer is registered.
A.5. The Collection and Banks Reconciliation (CBR) System. The most recent innovation of the Bureau in the area of collection remittance and monitoring through the banking system is the Collection and Banks Reconciliation System (CBR), which is one of the major delivery systems of the Bureau’s computerized Integrated Tax System (ITS), and is actually a computerized and enhanced version of the NPCS.
Developed by Andersen Consulting for the Bureau, and piloted in six (6) Revenue District Offices, the CBR has since been rolled-out in eighty-eight (88) other Revenue District Offices. By the end of the first semester of 1999, it is expected that the computerized CBR System will cover all Revenue District Offices nationwide.
The CBR basically provides for the capture, validation and processing of tax payment data. It supports the Bureau in monitoring the performance of its AABs and Revenue Collection Agents, and reconciles collections based on a taxpayer’s returns and reports from the various Collection Agents. Briefly stated, its main objectives are:
1. To capture all data on tax payments made through the AABs, Revenue Collection Officers (RCOs), and deputized Municipal Treasurers;
2. To ensure that all payments made at the various collection agencies are reflected in the correct taxpayer account ledger;
3. To ascertain that all payments collected have been accurately remitted by the collection agencies, within the deadlines provided by law;
4. To monitor and control the accountabilities and performance of the AABs, RCOs and deputized Municipal Treasurers involved in the Bureau’s collection process.
Presently, some AABs are electronically linked to the Bureau’s Revenue Data Centers. This has enabled them to transmit collection data within twenty-four (24) hours through the Electronic Data Transfer (EDT) System and the Limited Bank Data Entry (LBDE) System. In the recently issued Revenue Memorandum Order No. 4-99 (dated October 27, 1998), AABs were directed by the Bureau to pay all types of taxes due from banks, except for capital gains and documentary stamps taxes, through the Electronic Data Fund Transfer Instruction System (EFTIS). Full implementation of the EDT System nationwide is a dream of the Bureau that may be fulfilled in the near future.
A.6 Enhanced CBR System for the Large Taxpayers Division. With the implementation of Revenue Regulations (RR) No. 1-98 (effective September 1, 1989), filing and payment procedures were modified for the top one thousand five hundred (1,500) taxpayers; the first two hundred (200) taxpayers were identified and notified in accordance with said Regulations, and the modified procedures were pilot-tested. Under these modified procedures, Large Taxpayers first submit their returns/payment forms to assigned personnel of the Large Taxpayers Division, for verification of the completeness of the returns/payment forms, prior to presenting them to the Bureau’s authorized Agent Banks for Large Taxpayers. Upon receipt by the Bank of a tax payment, the taxpayer’s return/payment form is validated and the corresponding amount is automatically credited to the savings account of the Bureau of Treasury (BTR), which the BTR maintains in the branches of all AABs authorized to receive tax payments from Large Taxpayers. All such payment data are then transmitted electronically to the BTR. To ensure that the Banks accurately report their collections, the BTR in turn furnishes the BIR’s Revenue Accounting Division and the Large Taxpayers Division with daily reports on the remittances of the Large Taxpayers’ AABs.
The present system at the Large Taxpayers Division offers advantages to the taxpayers, and to the Government. On the part of the taxpayers, the prompt remittance of tax payments to the Government coffers is assured. Diversion of tax payments is effectively eliminated, since payments are credited directly to the BTR at the time of payment. On the part of Government, daily collections are easily monitored, since the collection data comes from only three (3) Bank branches, all of which are located within the premises of the Large Taxpayers Division.
On the whole, the advantages observed from the CBR implementation at the Large Taxpayers Division are:
a. Timely identification and recovery of tax liabilities;
b. Increased efficiency in the monitoring of collections, remittances, under-remittances, and accountabilities; and
c. Timely identification of stop-filers and non-filers.
To date, the Bureau continues to explore innovations in collection methods, particularly in light of the increasing popularity of electronic fund transfer methods and computer-based financial transactions, as it moves toward the expansion of the Large Taxpayers’ CBR to include the next three hundred Large Taxpayers by the end of the year, and ultimately, all of the Top 1,000 Taxpayers who account for eighty percent (80%) of the Bureau’s total revenue collections.
It is hoped that the advent of the twenty-first century will witness more significant achievements by the Bureau in its quest for greater efficiency and effectiveness in its efforts to encourage voluntary compliance with the tax laws.
2. Collection By Enforcement
One approach toward the incessant battle against non-compliance is the identification of the sectors of business or industries and/or segments of economic activities where the degree of compliance is unacceptably low. This requires a system of measuring the taxpayers’ compliance collectively, through the setting of standards or benchmarking, and focusing audit efforts in selected areas. In this aspect of tax administration, we are still behind the tax administrations of highly developed countries, which have established effective methodologies for measuring non-compliance, such as the United States’ Taxpayer’s Compliance Measurement Program (TCMP).
Relying on the general experience, intuition and gut feel of the Regional Directors and Revenue District Officers, who are more familiar with their respective jurisdictions, and the little empirical data that exists, the Assessment Service, headed by the Assistant Commissioner for Assessment, under the supervision of the Deputy Commissioner for Operations, develops (subject to the approval of the Commissioner) the Selective Audit Program every year, to set the parameters for the audit of taxpayers that appear to have great tax potentials, yet manifest low tax compliance. However, the Audit System under the computerized Integrated Tax System shall, once in place, provide much-needed empirical data for a rational, objective and impartial method of selecting cases for audit.
Presently, the Bureau has three groups of examiners and investigators: (1) the Revenue Officers for Assessment who are assigned in the Revenue District Offices; (2) the Revenue Officers specially assigned to policy cases of selected industries, who are assigned at the National Office (NO); and (3) the revenue investigators assigned at the Tax Fraud Division in the NO and at the Special Investigation Divisions of the Regional Offices. They number a little less than three thousand (3,000), and are the collection enforcers bringing in additional taxes on top of the amounts voluntarily paid by taxpayers.
3. Collection of Delinquent Accounts
Deficiency taxes which are unpaid on their due dates give rise to delinquent accounts. Tax authorities have two distinct remedies available to collect them, administrative and judicial. Section 205 of the National Internal Revenue Code specifies the civil remedies available to the tax officers as follows:
"SEC. 205. Remedies for the Collection of Delinquent Taxes. --- The civil remedies for the collection of internal revenue taxes, fees, or charges, and any increment thereto resulting from delinquency shall be:
- By distraint of goods, chattel, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property, and by levy upon real property and interest in or rights to real property; and
- By civil or criminal action.
Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of such taxes: Provided, however, That the remedies of distraint and levy shall not be availed of where the amount of tax involved is not more than One hundred pesos (P100).
The judgement in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the Commissioner.
The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by means of civil or criminal action, including the preservation or transportation of personal property distrained and the advertisement and sale thereof, as well as of real property and improvements thereon."
The term "distraint" refers to the seizure by government of the personal property (tangible or intangible) of a taxpayer, to enforce the payment of his tax liabilities. On the other hand, "levy" is the seizure by government of a taxpayer’s real properties and interest in, or rights to, such real properties, in order to enforce the payment of taxes.
In certain instances, however, the Commissioner of Internal Revenue may grant a compromise of deficiency taxes, pursuant to Section 204 (A) of the National Internal Revenue Code (as amended), which is stated hereunder:
"SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. – The Commissioner may –
(a) Compromise the payment of any internal revenue tax, when:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be subject to the following minimum amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax; and
For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.
Where the basic tax involved exceeds One million pesos (P1,000,000) or where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board, which shall be composed of the Commissioner and the four (4) Deputy Commissioners."
The Commissioner is likewise vested with the authority to abate or cancel a tax liability, subject to the following conditions set forth in Section 204(B) of the National Internal Revenue Code:
- When the tax or any portion thereof appears to be unjustly or excessively assessed; or
- When the administration and collection costs involved do not justify the collection of the amount due.
The Tax Code allows for the compromise of all criminal violations, except for those already filed in court, or involving fraud.
IV. COLLECTION PERFORMANCE: VOLUNTARY AND ENFORCED
The Bureau’s Annual Reports for the past five (5) years, reflect the following collection data:
(In Billion Pesos)
Collection from Enforcement
Collection from Del. Accts.
% of Vol. Compliance
% of Enforcement
% of Delinquent Accounts
It is evident, therefore, that voluntary compliance contributes the lion’s share in tax collection efforts, while enforcement efforts appear to produce minimal results. However, the enforcement examiners claim that their efforts are measured not by the amount they collect, but by the impact of their enforcement activities on voluntary compliance by taxpayers. Indeed, the validity of this claim is most difficult to do, and the measurement of the degree or level of compliance of taxpayers, as well as the impact of enforcement on voluntary compliance, is not attempted in this Report.
Since the dawn of civilization, man has tirelessly sought perfection in just about every aspect of life.
Nothing, however, can ever be truly perfect, and in truth, no system can ever be completely error-free, as we have seen time and again in everything from politics and economics, to medicine and literature. Certainly, any tax collection system, which must deal with, at the very least, hundreds upon thousands of human beings -the taxpayers --- is bound to experience difficulties in its implementation, and in its continuing evolution.
The Philippine tax collection system, as it stands, is likewise far from perfect. Revenue officials and personnel acknowledge that many loopholes in the system still exist, and leakages have still not been totally plugged.
Nevertheless, the willingness to acknowledge one’s shortcomings is perhaps the first and most important step in making improvements. In this light, this Report aims to serve as an "eye-opener" to all those who are concerned with the impartial and effective implementation of our tax laws. Though others may believe otherwise, it is often true that the best – and sometimes – the most objective – criticism can be given by those who are actually a part of the collection system itself, and who take an active part in its day-to-day operations and activities.
In the final analysis, the amount of taxes paid to, and collected by, any Government shall spell the difference between a nation’s success or failure in its quest for a humane quality of life. The late King Hussein ibn Talal of Jordan, in his parting words to his son and heir, Abdulah ibn Hussein, entrusted his dream for the Jordanian people in six simple words that, in many ways, express the dream of all those who are faithful to the ideals of public service: "Obtain for them a dignified life."
It is in this spirit that the tax collection system should continually evolve in a rapidly changing world, that it may serve as the means through which prosperity and enlightenment may be enjoyed by every citizen of a sovereign nation.
Tax Incentives – Necessity and Approaches*
I. HISTORY AND PRESENT SYSTEM
The policy of the state to encourage and to facilitate investments in desirable areas of activities is clearly stipulated in the Omnibus Investments Code of 1987 (Executive Order No. 226) which is the premier and basic law on investment incentives. Before its enactment, the Philippine government had introduced various tax incentive laws, the first of which was the New and Necessary Industries Act (Republic Act 35), passed by Congress after the United States granted Philippine Independence in 1946. Exemptions granted to "new and necessary" industries included income tax, sales tax, advance sales tax on imported materials and other local taxes. This was broadened to include exemptions from custom duties of capital equipment under RA 901 in 1953.
In 1961, Congress passed the Basic Industries Act (RA 3127) to strengthen the New and Necessary Industries Act. Listed basic industries were allowed tax and duty free importation of capital equipment. Since not all industries could be covered in the law’s listing, there were requests for Congressional amendments or for a liberal interpretation that would include related industries which were far from basic.
A wider range of tax incentives was granted under the Investment Incentives Act (RA 5186) in 1967 like accelerated depreciation; net operating loss carry over (NOLCO); tax deduction for expansion reinvestment; tax exemption on imported capital equipment; tax credits for domestic capital equipment, withholding tax on interest, sales, compensating and specific taxes, duties on raw materials used in export production and other benefits. This act also created the Board of Investments (BOI) which is charged with evaluation of project application, administering of various incentives and supervising registered projects. To complement such act, Foreign Business Regulation Law was enacted in 1968 to cover all
*Working Paper prepared by Ms. Teresita M. Dizon, Technical Assistant of the Enforcement Service, which was presented during the 28th SGATAR meeting held in Beijing, China
foreign investments in the country. This law provided that no foreign or any domestic firm, not a Philippine national or with foreign equity more than 30% shall do business in the Philippines without prior authority from BOI. This law provided that no foreign or any domestic firm, not a Philippine national or with foreign equity more than 30% shall do business in the Philippines without prior authority from BOI.
On the other hand, the Export Incentives Act (RA 6135) was passed in 1970 to invigorate the country’s export trade and accelerate economic growth. It encouraged the exportation of manufactured products that are labor intensive and those that utilize indigenous raw materials, rather than rely on exports of traditional primary products.
Several Presidential Decrees (PDs) were issued further expanding the list of tax incentives: PD 66 (1972) provided incentives to firms located in the Export Processing Zone; PD 92 (1973) extended availability of tax credit on taxes and duties on raw materials from ten (10) years to an indefinite period; PD 485 (1974) allowed additional deduction of direct labor cost and local raw material cost from income tax; PD 1159 (1977), the Agriculture Investment Incentives Act promoted the development of agro-industrial business and accelerated the attainment of a reasonable degree of self-sufficiency in basic foodstuffs and essential raw materials; and PD 1789 (1981), known as the Omnibus Investment Code consolidated the many laws and decrees into one single code without introducing significant changes in the fiscal incentives provided to industries.
Batas Pambansa (BP) 391, the Investment Incentive Policy Act (1983) repealed PD 1789. It withdrew a number of incentives granted under PD1789. It abolished the following incentives: the accelerated depreciation allowance; the expansion for reinvestment allowance; the double deduction of training expense, direct labor cost and local raw material cost; the deduction of operational and operating expense; deduction of one percent (1%) of incremental export sales and the exemption from all national taxes aside from the income tax. On the other hand, it introduced the tax credit for net value earned and for net local content. It also granted incentives like exemption/deferment of taxes and duties on imported capital equipment; net operating loss carry over; tax credit for domestic capital equipment, withholding tax on interest payment on foreign loans and duties on imported raw materials for export production and exemption from export taxes. Thus, there was a shift from investment-based incentives to performance-based incentives.
Executive Order No. 226 (Omnibus Investments Code of 1987) replaced the tax credit for net value earned and the tax credit for net local content by the income tax holiday and the additional deduction of fifty percent (50%) of incremental labor expense. Moreover, the tax and duty free importation of capital equipment was made available to both exporting and non-exporting firms in contrast to BP 391 which limited this privilege to exporting firms only and which allowed non-exporting firms to defer payment of such taxes and duties. This code was amended by the Foreign Investments Act of 1991 (RA 7042) and further amended by Republic Act Nos. 7918 and 8179.
Depending on the types of incentives desired, the kinds of investment under E.O. 226 are:
- Investment with incentives Book I
- Foreign investments without incentives Book II
(repealed by Republic Act No. 7042 or
the Foreign Investment Act of 1991)
- Incentives to multinational companies Book III
establishing regional or area
headquarters in the Philippines
- Incentives to Multinational Companies Book IV
Establishing Regional Warehouses to
Supply Spare Parts or Manufactured
Components and Raw Materials to the
Asia-Pacific Region and other Foreign
- Special Investors Resident Visa (SIRV) Book V
- Incentives for Export Processing Zone Book VI
As a matter of government policy, anyone, regardless of nationality is welcome to invest in the Philippines in almost all areas, and up to the extent of one hundred percent (100%) ownership. The Philippines is largely dependent on foreign investment to boost its economy. "Foreign investments", which means equity investments, can be made in the form of foreign exchange or other assets actually transferred to the Philippines. These non-cash assets may be in the form of capital goods, patents, formulae, or other technological rights or processes.
The Foreign Investments Act of 1991 (FIA) spells out the processes and conditions in which non-Philippine nationals may invest and do business in the Philippines. However, there are some areas of economic activities, which according to law, are reserved for Philippine nationals. These activities are listed in the Foreign Investment Negative List (FINL).
"Foreign Investment Negative List" or "Negative List" is a list of areas of economic activity whose foreign ownership is limited to forty percent (40%) of the equity capital of the enterprises engaged therein. There are two (2) components in the negative list namely: (1) List A – areas of activities where foreign ownership is limited by mandate of the Constitution and specific laws; and (2) List B – areas of activities where foreign ownership is limited for reasons of security, defense, risk to health and morals and protection of small and medium-scale enterprises.
Certain benefits and incentives may be enjoyed by an investor provided he invests in preferred areas of investments. Preferred areas of investment may be pioneer or non-pioneer. Pioneer areas are those which introduce new products or new processes for specific products and commodities which are reviewed yearly to determine whether they will continue as pioneer. Otherwise, they shall be considered as non-pioneer and accordingly listed as such in the Investments Priorities Plan (IPP ) or be removed from it.
The IPP contains the specific activities and generic categories of economic activity wherein investments are to be encouraged and the corresponding products and commodities to be grown, processed or manufactured pursuant thereto for the domestic and export markets. The 1998 IPP focuses on sustaining the economic momentum to transcend into the next millennium with emphasis on assisting in the implementation of the Social Reform Agenda. Moreover, it takes into consideration the country’s commitments under formal trade and investment agreements such as Asean Free Trade Area (AFTA); Asia Pacific Economic Cooperation (APEC); World Trade Organization (WTO). At a time when the celebration of the 100th year of Philippine political independence is being held, the 1998 IPP shall have for its theme "SUSTAINING GLOBAL COMPETITIVENESS TOWARDS ACHIEVING SOCIAL EQUITY: A CENTENNIAL LEGACY". To achieve the continuation of the economic reform program crucial in sustaining the economic gains so far achieved, the general goals of the 1998 IPP are as follows:
· enhancement of global competitiveness
· increase in exports
· increase in agricultural productivity
· setting-up and upgrading of infrastructure and support facilities
· countryside development
· alleviation of poverty through the creation of employment opportunities and the reduction in the cost of living
· improvement of the science and technology competence and support to the research and development efforts in industries
· assistance to small and medium enterprises (SMEs) by promoting linkage between the SMEs and large industries
· ensuring efficient environment and energy management
The 1998 IPP maintains the industry classifications of past IPP’s, to wit:
· export-oriented industries which cover export producer, export trader, service exporter, and activities in support of exporters;
· catalytic industries that exhibit the potential of being competitive in the export market which include manufacturing of composite board and shipbuilding/ship repair/shipbreaking;
· industries undergoing industrial adjustments of chemical and engineered products/parts/components;
· support activities as infrastructures, common carriers, environmental activities and support to other government priority programs; and
· mandatory inclusions which cover industrial tree plantation, Build-Operate-Transfer (BOT) projects, iron and steel, mineral resources, high value crops, book publishing, agriculture and fishery, petroleum industry, jewelry (limited to export-oriented), and Asean Industrial Cooperation Agreement projects.
The Philippine tax and tariff structures are confined in various Codes, to wit: the National Internal Revenue Code (NIRC), the Tariff and Customs Code (TCC) and the Local Government Code (LGC). However, pursuant to the delegated authority given to the President, there are proclamations, which have modified tariff rates or imposed additional levies.
The Bureau of Internal Revenue (BIR) under the Department of Finance is in charge of the assessment and collection of all national internal revenue taxes, fees and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgements in all cases decided in its favor by the court of Tax Appeals and the ordinary courts. The BIR is headed by the Commissioner of Internal Revenue with four (4) assistants known as Deputy Commissioners.
The National Internal Revenue Code of 1997 (RA 8424) took effect on January 1, 1998. Income tax policies and rates under Title II depends on the classification of taxpayers. Generally, foreign investors are classified into resident alien, non-resident alien and foreign corporation. Non-resident aliens are further classified into non-resident alien engaged in trade or business and non-resident alien not engaged in trade or business while corporations are sub-classified into resident foreign corporation and non-resident foreign corporation. However, this paper will focus its discussion only on the income tax policies and tax rates imposed on the income of non-resident aliens and foreign corporations as well as the value added tax system.
Tax on Individuals
1. Non-resident alien engaged in trade or business within the Philippines
• Regular income tax rates of 5%-34% (1998); 5% - 33% (1999); 5% - 32% (2000 & thereafter); on taxable income received from all sources within the Philippines
• 20% final tax on cash and or property dividends from a domestic corporation or joint stock company, or insurance or mutual fund company or regional operating headquarter of multinational company, or share in the distributable net income of a partnership (except general professional partnership), joint venture taxable as corporation, interests
• 10 % final tax on royalties (except royalties on books, as well as literary works and musical composition; prizes (except prizes amounting to P10,000 or less) and other winnings (except PCSO and lotto winnings)
• 5% final tax on net capital gains of not over P100,000 and 10% in the excess of P100,000 realized from sale, barter or exchange of shares of stock in domestic corporation not traded through the local stock exchange
• 6% final tax based on the gross selling price or current fair market value, whichever is higher, on the capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other form of conditional sales
2. Non-resident alien engaged in trade or business within the Philippines
• Twenty five percent (25%) final tax on entire income from all sources within the Philippines such as interest, cash and/or property dividends, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual or periodic or casual gains, profits and income and capital gains
• Same rate of tax applicable to non-resident alien engaged in trade or business on the capital gains realized from the sale, barter or exchange of shares of stock in any domestic corporation and real property
3. Alien employed by regional or area headquarters of multinational corporations
• Fifteen percent (15%) final tax on gross Income from all sources within the Philippines
4. Alien employed by offshore banking units
• Fifteen percent (15%) final tax on gross Income from all sources with the Philippines
5. Alien employed by petroleum service contractor and sub-contractor
• Fifteen percent (15%) final tax on gross Income from all sources with the Philippines
Tax on Corporations
i. Resident Foreign Corporations
1. In general
• Regular income tax rates of 34% (1998); 33% (1999); 32% (2000 & thereafter); on
taxable income from all sources within the Philippines with option of 15% tax on
gross income effective Jan. 1, 2000
2. Minimum Corporate Income Tax (MCIT)
• 2% MCIT beginning on the fourth taxable year immediately following the
year the corporation commenced its business operation; Carry forward of excess MCIT- to be carried forward and credited against the normal income tax for the three (3) succeeding taxable years
3. International carrier (air carriers and shipping lines)
• 2.5% final tax on Gross Philippine Billings
4. Offshore banking units (OBUs)
• 10% final tax on income derived by OBU from foreign currency transactions with
local commercial banks, including branches of foreign bank, including any interest Income from foreign currency loans granted to residents
5. Branch profit remittances
• 15% final tax on the total profits applied or earmarked for remittance except those
registered with PEZA
6. Branch profit remittances
• Not subject to income tax
7. Regional operating headquarters
• 10% final tax on taxable income from all sources within the Philippines
8. Other taxes
• 20% final tax on interest from any currency bank deposit and yield or any monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties derived from sources within the Philippines. However, interest income from a depository bank under the expanded foreign currency deposit system shall be subject to a final tax of 7-1/2%;
• 10% final tax on income derived by a depository bank from foreign currency transactions with local commercial banks including branches of foreign banks, other depository banks and residents;
• 5% final tax on the net capital gains of not over P100,000 and 10% in the excess of P100,000 realized on sale, barter, or exchange or other disposition of shares of stock in a domestic corporation not traded through the local stock exchange.
ii. Non-resident Foreign Corporations
1. In general
• Final tax of 34% (1998); 33% (1999); 32% (2000 and thereafter) on gross income but no option to pay the 15% tax on gross income from all sources within the Philippines
2. Nonresident cinematographic film owner, lessor or distributor
• 25% final tax on gross income from all sources within the Philippines
3. Nonresident owner or lessor of vessels chartered by Philippine
• 4.5% final tax on gross rentals, lease or charter fees
4. Nonresident owner or lessor ofircraft, machinery and other equipment
• 7.5% final tax on gross rentals or fees
5. Other taxes
• 20% final tax on interest income on foreign loans contracted on or after August 1, 1986
• 15% final tax on dividend received from a domestic corporation, provided the law of the foreign country in which the non-resident foreign corporation is domiciled has tax-sparing clause provisions
• Same rate of tax applicable to resident foreign corporation on the capital gains realized from the sale, barter, exchange or otherr disposition of shares
of stock in a domestic corporation not traded through the local stock exchange
The NIRC of 1997 particularly Title IV also provides for the imposition of Value- Added Tax (VAT). On each sale of goods, properties or services starting from the beginning of the production and distribution process and culminating with the sale to the final consumer, the Value-Added Tax is imposed. One of the significant characteristics of Value- Added Tax is that the tax is applied only to the value added by the firm, that is, to the excess of sales over its purchases of goods from other firms. The Philippines adopted the tax credit method, that is, Value-Added Tax paid on its purchases of goods, properties or services for business use, including tax paid on purchases of capital equipment referred to as input tax is allowed as a credit against Value-Added Tax due on his taxable sales or output tax. Any person, who in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to VAT.
A Value- Added Tax of ten percent (10%) based on the gross selling price shall be levied, assessed, collected in the case of sale, barter or exchange of goods or properties and based on gross receipts in the case of sale of services and use or lease of properties. In the case of importation, the basis shall be the total value used by the Bureau of Customs in determining the tariff and custom duties, plus custom duties, Excise Taxes, if any, and other charges. However, where the custom duties are determined on the basis of the quantity or volume of the goods, the Value-Added Tax shall be based on the landed cost plus Excise Tax, if any.
However, not all transactions are subject to Value-Added Tax. There are transactions that are subject to zero percent (0%) rate and those that are exempt from VAT. It is important to know what those zero-rated sales are since the seller is allowed to claim input tax credit/refund on his purchase of VAT taxable goods, properties or services, while no input tax credit/refund is allowed in exempt transactions. Hereunder are the zero-rated transactions enumerated in the National Internal Revenue Code (NIRC):
a) Export sales
b) Foreign currency denominated sales – refer to sale to a non-resident of goods assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)
c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sale to zero rate
a) Processing, manufacturing, or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with BSP rules and regulations
b) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with BSP rules and regulations
c) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero rate
d) Services rendered to vessels engaged exclusively in international shipping
e) Services performed by subcontractors and /or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production
It must be noted that a zero-rated transaction becomes only an exempt transaction if one fails to register as VAT taxpayer.
Other special laws were enacted by Congress which have direct or indirect impact on domestic and foreign investments. Some of these are as follows :
1. Republic Act No. 7227 (March 13,1992) created the Subic Special Economic Zone and gave the authority to the President to create other special economic zones covering former US military reservations and their extensions.
2. Republic Act 7844 (December 21, 1994), otherwise known as the Export Development Act of 1994 (EDA), provided macroeconomic policy framework to support the development of the export market and the activities undertaken by exporters who earn at least fifty percent (50%) of its total revenues from the sale of products or services abroad.
3. Republic Act No. 7903 (February 23, 1995) created Special Economic Zone and Free Port in the City of Zamboanga also referred as Zamboecozone.
4. Republic Act 7916 (February 24,1995) created Philippine Economic Zone Authority (PEZA) replacing Export Processing Zone Authority (EPZA) created under PD 66 in 1972 with the goal of turning the zones into major contributors to the country’s industrialization and export expansion programs. It provides the legal framework and mechanism for the creation, operation, administration, and coordination of Special Economic Zones (Ecozones) in the Philippines except Subic Bay Freeport and Clark Special Economic Zone. Ecozones are areas earmarked by the government for the development of balanced agricultural, industrial, commercial, and tourist/recreational regions. The act required PEZA to set general policies on the management and operations of Ecozones, export processing zones, free trade zones, industrial estates, agri-export processing estates, and chartered special economic zones.
Enterprises owned by non-Filipinos in whatever proportion may be set up in the Ecozone either by themselves or in joint venture with Filipinos in any sector of industry, international trade and commerce. Presently, PEZA manages four (4) regular and ten (10) special processing zones located in strategic parts of the country.
5. Republic Act No. 7922 (February 24, 1995) created the Special Economic Zone and Free Port in the Municipality of Sta. Ana and the neighboring islands in the Municipality of Aparri, province of Cagayan.
In addition to the various legislations discussed, other laws were enacted to provide comparable incentives to specific industries or activities some of which are as follows: Cooperative Code of the Philippines (RA 6938); Act to strengthen the Iron and Steel Industry (RA 7103); Urban Development and Housing Act of 1992 (RA 7279); Philippine Overseas Shipping Development Act (RA 7471); Philippine Mining Act of 1995 (RA 7942); and Book Publishing Industry Development Act of 1995 (RA 8047).
II. APPROACHES TO PROVIDE INCENTIVES
One of the highly significant considerations to any investment decision are taxes; and taxes, as such, frequently operate as an important impediment to investment. Hence, removal or minimization of tax obstacles will encourage investments that would not otherwise be made. The Omnibus Investments Code of 1987, as amended, provides fiscal and non-fiscal incentives to registered enterprises.
Fiscal incentives in their broader meaning, refer to a reduction in the tax burden, either through outright/total or partial exemption from a particular tax exemptions, or preferential tax treatment. The tax incentives fall into three categories: tax exemptions, tax credits and tax deductions. Tax exemptions take the form of exemptions from the payment of part or all of certain specific taxes. Tax credits take the form of offsets against taxes due to the government for certain taxes paid. Tax deductions take the form of special allowances, not normally available to enterprises under general tax laws and regulations, which eligible enterprise can use in arriving at taxable income for income tax purposes.
Firms have to register first with the Board of Investments (BOI) before they can avail of any incentives. A registered enterprise refers to an enterprise engaged in or proposing to engage; 1) in an area of activity listed in the IPP; if not so listed, at least fifty (50%) percent of its production is for export if a Philippine national or at least seventy (70%) percent of its production is for export if foreign owned; 2) in exporting part of its production under such terms and conditions and/or limited incentives as the BOI may determine; 3) in producing or manufacturing a product which is used as input to an export product; 4) in export trading of export products bought by it from one or more export producers; 5) in rendering service to domestic and foreign tourists if listed in the IPP; 6) in rendering technical, professional or other services as may be determined by BOI which are paid for in foreign currency; or 7) in exporting television and motion pictures and musical recordings made or produced in the Philippines, either directly or through an export trader. Only registered enterprises can avail of the following incentives:
1. Tax exemptions
A. Income Tax Holiday (ITH)
1. BOI registered enterprises shall be exempt from the payment of income tax reckoned with from the scheduled start of commercial operations as follows:
a. New projects with a pioneer status for six (6) years;
b. New projects with a non-pioneer status for four (4) years;
c. Expansion projects for three (3) years;
d. New or expansion projects in less developed areas for six (6) years, regardless of status (pioneer or non-pioneer); and
e. Modernization projects for three (3) years.
2. The Income Tax Holiday (ITH) is limited in the following cases:
a. Export traders may be entitled to the income tax holiday only on their income derived from the following:
(i) Export of new products, i.e., those which have not been exported in excess of US S100,000.00 in any of the two (2) years preceding the filing of the application for registration, or
(ii) Export to new markets , i.e., to a country where there has been no recorded import of a specific export product in any of the two (2) years preceding the filing of the application for registration.
b. Mining activities are not entitled to an Income Tax Holiday.
c. A new cement project granted a pioneer status on the basis of a capacity of at least I,000,000 MTPY (clinker based) shall enjoy a four (4) year ITH only.
3. Firms may avail themselves of a bonus year in each of the following cases:
a. the indigenous raw materials used in the manufacture of the registered product must at least be 50% of the total cost of raw materials for the preceding years prior to the extension unless BOI prescribes a higher percentage; or
b. the ratio of total imported and domestic capital equipment to the number of workers for the project does not exceed US S10,000.00 to one (1) worker, or
c. the net foreign exchange savings or earnings amount to at least US S500,000.00 annually during the first three (3) years of operation.
In no case shall the registered pioneer firm avail of this incentive for a period exceeding eight (8) years.
B. Exemption from taxes and duties on imported capital equipment and its accompanying spare parts
1. Firms registered on or before December 31, 1994 which are located inside the National Capital Region (NCR) can avail of this exemption until December 31, 1997. However, firms located outside NCR can still avail of this grant until December 31, 1999.
2. For firms registered after December 31, 1994, they are subject to10% VAT and 3% duty until December 31, 1997, unless exempt under RA 7369.
C. Exemption from wharfage dues and export tax, duty, impost and fees
All enterprises registered under the 1998 IPP will be given a ten (10) year period from date of registration to avail of the exemption from wharfage dues and any export tax, impost and fees on its non-traditional export products.
D. Tax exemption on breeding stocks and genetic materials
Agricultural producers will be exempted from the payment of all taxes and duties on their importation of breeding stocks and genetic materials within ten (10) years from the date of registration or commercial operation.
2. Tax Credits
A. Tax credit on domestic capital equipment and/or spare parts
Tax credit shall be granted on locally fabricated capital equipment. This shall be equivalent to the difference between the prevailing tarrif rate and 3% duty imposed on the imported counterpart. If equipment is duty-free under R.A. 7369, the tax credit shall be equivalent to 100 % of the imposable duty.
B. Tax credit on tax and duty portion of domestic breeding stocks and genetic materials
A tax credit equivalent to 100% of the value of national internal revenue taxes and customs duties on local breeding stocks within ten (10) years from date of registration or commercial operation for agricultural producers.
C. Tax credit on raw materials and supplies
A tax credit equivalent to the national internal revenue taxes and duties paid on raw materials, supplies and semi-manufacture of export products and forming part thereof shall be granted a registered enterprise.
3. Additional Deduction for Labor Expense (ADLE)
For the first five (5) years from registration, a registered enterprise shall be allowed an additional deduction from taxable income equivalent to 50% of the wages of additional skilled and unskilled workers in the direct labor force. This incentive shall be granted only if the enterprise meets a prescribed capital to labor ratio and shall not be availed simultaneously with ITH.
To encourage enterprises to locate in Less Developed Areas (LDAs) and Ecozones, the following incentives are provided for under the Omnibus Investments Code of 1987 (EO 226) and other laws, to wit:
i. Enterprises located in LDAs
A. Additional deduction for labor expense (ADLE)
For the first five years from registration, a registered enterprise whose activity is located in a less developed area shall be allowed an additional deduction from taxable income equivalent to one hundred percent (100%) of the wages of additional skilled and unskilled workers in direct labor force. This incentive shall be granted only if the enterprise meets a prescribed capital to labor ratio and shall not be availed simultaneously with ITH.
B. Additional deduction for necessary and major infrastructure works
Registered enterprises locating in LDAs or in areas deficient in infrastructure, public utilities and other facilities may deduct from taxable income an amount equivalent to the expenses incurred in the development of necessary and major infrastructure works.
The above tax benefits are in addition to the incentives given to registered BOI enterprises. If maximum incentives are given to firms located at LDAs, BOI limits incentives to firms that are located in congested urban centers. Initially, the locational restriction applies to the National Capital Region (NCR) wherein projects are not entitled to ITH except projects that will be locating in the following: Dagat-Dagatan and Navotas Fishing Port Complex, Navotas; Vitas Industrial Estate, Tondo; Bagong Silang Industrial Estate, Caloocan City; and Food Terminal Incorporated (FTI), Taguig.
ii. Enterprises located at export processing zones (EPZs)
A. Income tax holiday for six (6) years from commercial operations of new registered firms with pioneer status while for new projects with non-pioneer status, four (4) years. This can be extended for another year if they meet certain requirements but in no case shall the registered pioneer firm avail of the incentives for a period exceeding eight (8) years. Incentives granted by PEZA (RA 7916) shall apply only to registered Ecozone companies and only during the period of their registration with PEZA. Export enterprises registered under PD 66 ( EPZA) shall continue to enjoy their current incentives. However, EPZA enterprises whose ITH has already expired will be subject to the special 5% tax rate, except service enterprises. The distribution of 5% final tax on gross income is as follows: 3% to the National Government, 1% to local government units where Ecozone is located, and 1% to development fund for the development of communities surrounding Ecozone.
B. Additional deduction for incremental labor expenses and training expenses.
C. Exemption from the payment of duties and taxes for all goods intended for use in the manufacturing process pursuant to their registered operations with PEZA such as: equipment, machinery, spare parts and raw materials unless said goods are subsequently removed and delivered outside the zone. All importations of zone registered enterprises destined to their factories in the zones are not subject to inspection and/or assessment of duties and taxes at the piers where they are unloaded. Inspections are made at the factory site of the particular enterprise by PEZA and Customs examiners.
D. Exemption from export taxes, impost and fees
E. Exemption from payment of municipal business licenses
F. Exemption from wharfage, storage and other duties under the Tariff and Customs Code
G. Exemption from the 15% branch profits remittance tax
H. Zero-rated value added tax
iii. Enterprises located at Clark Special Economic Zone (CSEZ) and Subic Bay Freeport (SBF)
A. In lieu of local and national taxes, such as income tax, value added tax, excise, ad valorem and franchise taxes, shall pay a special rate of five percent (5%) final tax on the adjusted gross income
B. Exemption from customs and import duties except for those goods prohibited by law
C. Exemption from customs and import duties on articles imported for personal and household use
Incentives are also provided under other laws, some of which are:
1. Export Development Act (RA 7844)
A. Philippine Economic Zone Authority (PEZA)/ Subic Bay Metropolitan Authority (SBMA)/ Clark Development Authority (CDA) incentives if qualified to register with concerned agencies
B. Exemption from advance payment of custom duties
C. 0% duty on imported machinery & equipment and accompanying spare parts until 1997
D. Tax credit on imported raw materials for a period of five (5) years
E. Tax credit of 25% of duties on local raw materials, capital equipment and/or spare parts for a period of 3 years extendible for another 3 years
F. Tax credit for increase in current year’s export revenue:
• First 5% increase entitled to 2.5% credit
• Next 5% increase entitled to 5.0% credit
• Next 5% increase entitled to 7.5% credit
• In excess of 15% entitled to 10% credit
2. National Internal Revenue Code of 1997 (RA 8424)
Net Operation Loss Carry Over (NOLCO) - net operating loss of a business or enterprise for any taxable year immediately preceding the current taxable year, which had not been previously offset as deduction from gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss: Provided, however, that any net loss incurred in a taxable year during which the taxpayer was exempt from the income tax shall not be allowed as a deduction under this subsection: Provided, further, that the net operating loss shall be allowed only if there has been no substantial change in ownership of business or enterprise.
3. Magna Carta for Disabled Persons (RA 7277)
Private entities which employ disabled persons as regular employee, apprentice or learner shall be entitled to additional deductions from their gross income equivalent to 25% of the total amount paid as salaries and wages to disabled persons. Moreover, private entities improving or modifying their physical facilities to provide reasonable accommodation for disabled persons shall be entitled to an additional deduction from their net taxable income equivalent to fifty percent (50%) of the direct cost of the improvements or modifications.
III. ADMINISTRATIVE ISSUES
Although it is generally recognized that tax incentives play an important role in encouraging investment initiatives for the attainment of development goals, many difficult and delicate administrative problems are connected with its implementation. There are also some objections in its relative effectiveness to stimulate investment initiatives.
There are some apprehensions in the use of tax credit as a scheme for fiscal incentive promotion. Recipients of tax credit do not find practical use for paying tax liabilities since they do not usually yield profitable returns during the first few years of operation. To avert this eventuality, tax credit may be transferred but is limited only to another BOI- registered firm. However, this may also be futile when there is no BOI-registered enterprise with substantial tax liabilities to warrant full transfer of tax credit.
The same premise holds true with other incentives as the income tax holiday. Inasmuch as the exemption period is limited in duration and since manufacturing enterprises commonly realize losses or insubstantial profits during the early years of operation, the ITH does not give the much needed relief.
Countries compete with each other in attracting investments to make their industries more competitive, so there is a tendency to grant overly generous incentives. Hence, the Philippines has little choice but to give equivalent or better incentives to whatever competitors are offering. Also, where one group of taxpayers is given tax preferred status, it is often difficult to refuse similar treatment to other taxpayers who consider themselves to be similarly situated. Instead of correcting irrationalities or unfair preferences among taxpayer groups, it is politically easier simply to expand the preferences by providing incentives. This results to leakages and/or abuses as it may favor certain sectors which should not be favored at all.
Administrative rigidities pose another problem, not only with the different types of concessions but also among tax administrators. There is too much time and paper work in the availment of such privileges. The registered firms generally have to apply with their respective administering agencies for each and every incentive they wish to avail of during the allowable period. For example, for tax and duty-free importations, an evaluation is needed as to whether the importation arises from a registered activity or not before a certificate of eligibility for incentives is issued. Aside from BOI, other government agencies involved in the actual processing of the application for incentive availment (depending on the type of incentive involved) are Bureau of Internal Revenue (BIR), Bureau of Customs (BOC), PEZA, etc. Documentary requirements are so over-whelming as to entail too much time and expense on the part of the applicant.
More often, employees concerned lack the proper training and knowledge in handling tax incentive information dissemination. There is also lack of coordination among the various government agencies in the formulation and in the implementation of policies and guidelines.
The rationalized structure of Executive Order 226 offers more or less similar types on incentives as other ASEAN countries do but we have yet to exert more effort in attracting investors. Studies have shown that other than the grant of fiscal incentives, other factors such as political stability, peace and order situation, telecommunications provisions, power and water crisis, and adequacy of infrastructures influence the flow of investments. It is the economic and political environment that literally draws investors to any investment center.
The above situation is very apparent in the Less Developed Areas (LDAs), especially the Autonomous Region in Muslim Mindanao where investors were not attracted even with the additional incentives offered mainly because of unstable peace and order situation. Also, infrastructure facilities and services are relatively insufficient and vital information cannot be immediately reached due to lack of communication facilities. Per BOI-approved project cost by region for the period 1990 until October, 1997, investments in ARMM remained almost stagnant at P 30 million as compared with the investments in Region 4 of P303 billion.
It should be realized that really large scale investments will not occur until the fundamental environment is stable, predictable and supportive.
IV. NECESSITY FOR TAX INCENTIVES
The adoption of tax incentives for the purpose of encouraging industrial investment was based on the premise that conferral of tax benefits will stimulate domestic or foreign investors either to initiate activities that would not have been undertaken or to expand their investments in already existing enterprises. It makes the investments more attractive since they allow rapid recovery of capital and higher rate of return. It also encourages reinvestment by making available to the taxpayer more funds that would not otherwise be available. It is also used as a mechanism for diverting the flow of investments away from activities with insignificant or no development merit into activities which are important to development.
These principles were used by the Philippine government in the formulation of the 1998 Investment Priorities Plan (IPP). Tax incentives were used as a tool in the pursuit of sustainable development to bring the benefits of economic progress down to the common masses through the promotion of preferred investment activities that enhance the delivery of basic social services and uplift the welfare of general population. They were also used as instrument to continue the inflow of investments and create employment opportunities in strategic countryside areas, particularly the Zone of Peace and Development (ZOPAD) in Southern Regions to realize earlier the twin goals of peace and development.
However, the promotion of tax incentives requires some yielding of revenues, some sacrifice in the basic fairness of the taxing system and a careful balancing of the potential gains of incentives against the revenue and equity consequences of their adoption. One has to discover whether additional profit taxes resulting from investments induced by tax incentives will be sufficient to offset the tax losses associated with giving the incentives.
Revenue loss is the reduction in taxes paid when incentives are granted, assuming that none of these funds are used by firms to increase investment outlays. Revenue gain is the addition of profit taxes that arises because some portion of the extra funds available to firms as a result of incentives is in fact devoted to new investment expenditures that in turn generate taxable profits. Full recovery would be achieved when gains equal losses, or where the ratio equals unity.
The possible government revenue loss must be weighed against the other benefits (generation of employment opportunities, transfer of technologies, etc. ) an investor brings in to the country and against the total loss if the investor decides not to invest at all. Whether benefits reduced government revenues need a much more in depth research than what has been done so far. The loss has no direct correlation to incentives offered, the concern should be whether the activity would happen at all if the incentives did not exist. There will be no government revenues from an investment that does not materialize.
While fiscal incentives promote undertakings in declared areas of opportunities, it is difficult to determine just to what extent the rationalized incentive structure can influence or promote investment decisions. It is obvious to say that the investment incentives tend to make the country attractive as an investment center.
Promotion is one of several strategies available to attract and stimulate trade and investments. Image building technique is used to accelerate information dissemination through advertising, seminars, participation in trade exhibitions and conduct of general investment missions. The thrust of this strategy is to convert the country’s negative image to a positive image and to place the Philippines in a desirable investment location.
The Philippines has come a long way from where we were less than a decade ago when we were referred to as the "sick man of Asia". The country generated total investments of P503.9 Billion in 1997 or 366% increase in investments over the same period of previous year based on the Report of Total Project Cost of BOI approved projects.
As a demonstration or proof of commitment of the government to provide a macroeconomic environment that would encourage investments, the government instituted reforms to allow wider participation of foreign investments in nearly every aspect of the economy. Some of the major reforms are: deregulation of oil industry; privatization of government-owned and controlled corporations; liberalization of foreign exchange regulations; liberalization of banking, telecommunication, shipping, airline industries; ratification of the Uruguay Round of the General Agreement on Tariffs and Trade; and enactment of the Comprehensive Tax Reform Program. With liberalized policy environment for foreign investments, the Philippines presents tremendous opportunities to foreign investors.
In conclusion, with the major reforms, policies and programs already in place, the investment climate in the Philippines continues to be attractive and promising. The Philippines is offering to foreign investors, not just a temporary haven, but a home in which to stay, grow and prosper.
By: Consuelo N. Pilac
The Y2K fiasco, associated with the coming of the new millennium, is considered as one of the costliest peacetime blunders in the history of human endeavor. Now that people around the world rely heavily on computers, IT specialists had scrambled for a quick fix to a major life disruption feared with the coming of the year 2000. The result of the conventions used in programming in the earlier years have backfired and this phenomenon is popularly known as the Y2K bug of millennium bug.
What really is Y2K? Is the Philippines prepared for it?Are there remedies to this? These questions have been raised for the past years, and the Filipinos are caught in a dilemma wherein no answer is available. Awareness of the people regarding this was only given emphasis with the turn of the century.
What is Y2K?
Y2K is an acronym for the Year 2000; where the letter "Y" stands for the word year, the number "2" stands for itself and "K" stands for the prefix kilo – which means "thousand" in the metric system. The term "millenium bug" has been widely used to refer to Y2K. This refers to the inability of computer software, hardware and embedded systems to read the year 2000 due to early practices in the programming of computers. Embedded systems refer to processor chips containing programmed instructions which perform control, protection and monitoring functions. In simpler terms, the Y2K bug or millenium bug is defined as the inability of computer programs to correctly interpret the century from a date that has only 2 digits.
A nagging issue among Y2K experts is whether the feared computer bug is an honest mistake, or was a result of irresponsibility and negligence that would eventually lead to major disruptions in living conditions four decades after the incident.
What caused the Y2K problem?
The Y2K problem occurred because programmers in the '50s and '60s, intentionally dropped the last two digits of the year data. It was when computer memory and processing power are costly. With their desire for efficient storing and computer manipulation of dates, they used to record years using only the last two digits of the year rather than four to save in disk space - thus "99" would need two numbers less than "1999". As a result, the system will not be able to distinguish "2000" from "1900" after December 31, 1999. Since both will be represented as "00", this will confuse all date related computations and may produce misleading or inaccurate reports.
What are the effects of the Y2K bug?
Unfortunately, the programmers did not foresee the innovation's effect at the turn of the millenium, when the year 2000 would be recorded "00". Thus, 00 minus 99 would be -99, a figure that would confuse computers. There had been studies that if Y2K bug is not fixed, it will cause damage through the generation of erroneous data which may lead to system failures. Furthermore, experts say that the Y2K bug can create problems for those who heavily depend on accurate dates and information records and this includes the Bureau of Internal Revenue. Due to the possibility of miscalculations, there is a risk that critical information would be lost or corrupted and that communication systems or electronic devices equipped with "embedded" microprocessors with data processing in their codes, may fail to operate reliably or even fail to operate entirely.
Just like any other countries, the Philippines is not an exempted from the disastrous effects of the Y2K bug (i.e. disruption in transportation and commerce and downing communication systems and electrical grids). Problems are not only confined to January 1, 2000, because breakdowns are expected to occur for at least 18 months, says Jim Erickson of Time Magazine. The bug’s prevalence is the crisis itself. While private offices and government agencies are busy preparing for any Y2K-related eventuality, the Information Systems Group (ISG) of the Bureau of Internal Revenue also had undertaken measures to counter the expected impact of the Y2K bug.
Although the Bureau's IT hardware is considered Y2K compliant, precautions were still taken by the BIR. Thus, mission critical systems using date-related computations were remediated and tested. An example of this is the computation of penalties and interests for delinquent taxpayers.
What had been done to counter the Y2K problem?
In anticipation of the millenium problem, the Bureau formed a Y2K Task Force headed by the Assistant Commissioner of the Information Systems Development Service and composed mainly of ISG personnel. The objective of the Task force is to ensure that the BIR is Y2K ready, in compliance with Executive Order Number 9 and 14, which directed all concerned government institutions to ensure the millenium compliance of their computer-based systems. In order to support the Task Force, a sub-committee was formed to serve as a working group. Likewise, an Ad-Hoc Committee on Contingency Planning was also created, composed of personnel from the Bureau's Operations Group, to formulate back-up procedures in case a Y2K- related disruption arises. In order to inform the taxpaying public and the BIR employees about the initiatives undertaken by the Bureau to counter the ill effects of the Y2k bug, the Y2K Task Force also coordinated with the Bureau's Public Information and Education Division and frontline offices in order to assure taxpayers of the integrity of the Bureau's database after December 31, 1999.
The Bureau was also able to submit to the Y2K Commission the Y2K readiness disclosure last September 9, 1999 which was advertised per Commission Clearance Certificate No. 092299-034. As part of the requirements of Republic Act 8747, the BIR's Y2K readiness disclosure was validated by a third Party validator, Gedunken Corporation, duly accredited by the Y2K Commission. Readiness validation was based on Contingency Planning, Quality Assurance Approach, Testing Methodology, and Change Management Approach. Gedunken Corporation also mentioned in their validation report that the Bureau's hardware and software are compliant as well as its remediation strategy and workplan.
Although the Bureau's entire Contingency Plan is evaluated comprehensive, the validator suggested that, "It is advisable that all Y2K contingency plans be combined in one manual. Since regional offices' responsibilities are limited to a certain scope, the operations manual for Y2K contingencies for these offices should be defined. Whereas the IT main office should keep all plans for the entire organization, including the Commissioner of the Internal Revenue's office, the participating departments or offices should be given access only to what pertains to them. After these plans are combined into one coherent Y2K manual, they may correspondingly be circulated immediately to the staff concerned".
Finally, the BIR had successfully executed a Y2K Contingency Plan Simulation test last September 15, 1999 at RDO 39-South, Quezon City, using the Registration System. Representatives from the Y2K Commission, DOF, BOC, BTr, SSS, GSIS and the Insurance Commission were present during the simulation test.
To date, there had been no reports of any malfunction in the Bureau's systems. Mission critical systems are up and running. This only proves that the remediation strategy implemented are effective.
So, if anyone would ask: "Is the BIR prepared for the Y2K bug?" The answer would be a resounding YES!
BIR ORGANIZATIONAL RESTRUCTURING
On November 3, 1999, Executive Order (EO) No. 175 was approved and signed by President Joseph Estrada ordering the organizational restructuring of the Bureau of Internal Revenue (BIR). The primary objective of the EO is to "reinforce the tax administration and enforcement capabilities" of the BIR through the strengthening and refinement of the core operational functions such as collection, assessment and enforcement, including regulatory functions relative to excise tax administration. The salient features of the EO are the following:
- Improvement in the monitoring and administrative control of large taxpayers through the establishment of:
- Large Taxpayers Service (LTS) in the National Office
- Large Taxpayers Division (LTD) in Regional Offices with identified large taxpayers
- Centralized monitoring and service to excise taxpayers through the establishment of Excise Taxpayers Service in the National Office.
- Improvement in the collection of accounts receivable with the re-establishment of Collection Enforcement Division under the Collection Service.
- Improvement in the monitoring of availments of tax exemptions/incentives through the establishment of Audit Information, Tax Exemption and Incentives Division.
- Optimum utilization of resources with the consolidation of Financial Service and Administrative Service.
Hereunder is the complete text of EO No. 175.
Organizational Restructuring of the Bureau of Internal Revenue to Improve Administrative Control Over Certain Categories of Taxpayers.
WHEREAS, increased revenue collection is urgently needed to finance vital economic and developmental programs of the government and, to attain fiscal stability in the midst of the current Asia's economic crisis;
WHEREAS, pursuant to these goals, a further streamlining of the organizational structure of the Bureau of Internal Revenue is in order to reinforce the tax administration and enforcement capabilities of the Bureau;
WHEREAS, certain deficiencies in the structure of the Bureau under Executive Order No. 430 require further strengthening and refinement through a focus on core operational functions such as collection, assessment and enforcement, including regulatory functions relative to excise tax administration;
WHEREAS, there is a need for a well-defined institutional structure for dealing with large taxpayers in order to strengthen control over large taxpayers;
WHEREAS, this streamlining of the organizational structure of the Bureau is intended to truly transform the Bureau into an effective and efficient revenue collecting agency;
WHEREAS, Section 3, Article of XVIII of the Philippine Constitution, grants the President of the Philippines the continuing authority to reorganize the national government, which includes the power to group, consolidate bureaus and agencies, to abolish offices, to transfer functions, to create and classify functions, services and activities; and which authority was upheld by the Supreme Court in G.R. No. 112745 relative to Presidential Decree Nos. 1416 and 1792, [October 16, 1997];
WHEREAS, under Section 78 of the General Provisions of Republic Act No. 8522 or the General Appropriations Act, FY 1998, organizational changes may be authorized when the President of the Philippines so directs;
WHEREAS, under Section 20, Book III of the Revised Administrative Code of 1987, the President is empowered to exercise such other powers and functions vested in him which are provided for under the laws;
NOW, THEREFORE, I, JOSEPH EJERCITO ESTRADA, President of the Republic of the Philippines, by virtue of the power vested in me by law, do hereby order:
SECTION 1. Organizational Structure. The organizational structure of the BIR shall be as follows:
- The National Office shall develop and formulate broad national tax administration policies and programs, for efficient and effective implementation of internal revenue laws and regulations and establish general direction, guidance and control of the entire operations of the internal revenue service.
1.1 The f ollowing Services shall be placed directly under the Office of the
- The Enforcement Service, which shall be headed by an Assistant Commissioner, shall be composed of two (2) divisions namely: Tax Fraud Division and Policy Cases Division.
- The Policy and Planning Service, which shall be headed by an Assistant Commissioner, shall be composed of four (4) divisions namely: Planning Division, Management Division, Statistics Division and Corporate Communications Division.
- The Large Taxpayers Service, which shall be headed by an Assistant Commissioner, shall be composed of five (5) divisions in the National Office namely: Large Taxpayers Assistance Division, Large Taxpayers Collection and Enforcement Division, Large Taxpayers Assessment Division, Large Taxpayers Programs Division and Large Taxpayers Document Processing and Quality Assurance Division. Likewise, Large Taxpayers Division under the direct supervision of Large Taxpayers Service shall be established in Regional Offices with identified Large Taxpayers.
- The Operations Group, which shall be supervised by a Deputy Commissioner, shall be composed of the following services:
- The Taxpayer Assistance Service, which shall be headed by an Assistant Commissioner, shall be composed of two (2) divisions namely: Taxpayer Information and Education Division and Taxpayer Service Programs and Monitoring Division.
- The Assessment Service, which shall be headed by an Assistant Commissioner, shall be composed of three (3) divisions namely: Assessment Programs Division, Audit Information, Tax Exemption and Incentives Division and Asset Valuation Division.
- The Collection Service, which shall be headed by an Assistant Commissioner, shall be composed of four (4) divisions namely: Collection Programs Division, Withholding Tax Division, Revenue Accounting Division and Collection Enforcement Division.
- The Excise Taxpayers Service, which shall be headed by an Assistant Commissioner, shall be composed of four (4) divisions namely: Excise Taxpayers Assistance Division, Excise Taxpayers Operations Division, Excise Taxpayers Programs Division and Excise Taxpayers Document Processing and Quality Assurance Division.
- The Legal and Inspection Group, which shall be supervised by a Deputy Commissioner, shall be composed of the following Services:
- The Legal Service, which shall be headed by an Assistant Commissioner, shall be composed of five (5) divisions namely: Law Division, Appellate Division, Litigation Division, Prosecution Division and International Tax Affairs Division.
- The Inspection Service, which shall be headed by an Assistant Commissioner, is hereby re-established. It shall be composed of three (3) divisions namely: Internal Security Division, Internal Audit Division and Personnel Inquiry Division.
- The Information Systems Group, which shall be supervised by a Deputy Commissioner, shall perform such functions to support the Bureau’s operations. It shall be composed of the following Services:
- The Information Systems Operations Service, which shall be headed by an Assistant Commissioner, shall be composed of two (2) divisions namely: Systems Operations Division and Systems Support Division.
- The Information Planning and Quality Service, which shall be headed by an Assistant Commissioner, shall be composed of three (3) divisions namely: Security Management Division, Quality Assurance Division and Systems Standards and Technology Management Division.
- The Information Systems Development Service, which shall be headed by an Assistant Commissioner, shall be composed of two (2) divisions namely: Systems Development Division and Systems Maintenance and Support Division.
- The Resource Management Group, which shall be supervised by a Deputy Commissioner, shall perform such functions to support the Bureau’s operations. It shall be composed of the following Services:
- The Human Resource Development Service, which shall be headed by an Assistant Commissioner, shall be composed of four (4) divisions namely: Personnel Division, Training Management Division, Training Delivery Division and Medical, Dental and Welfare Division.
- The Financial and Administrative Service, which shall be headed by an Assistant Commissioner, shall be composed of six (6) divisions namely: Budget Division, General Services Division, Accounting Division, Procurement Division, Accountable Forms Division and Records Management Division.
- The Regional Offices (ROs) shall execute and implement the national policies and programs prescribed by the National Office for the enforcement of the internal revenue laws of the Philippines. The ROs shall report to the Deputy Commissioner for Operations Group.
- Each RO shall be headed by a Regional Director and shall have supervision and control over all divisions namely: Assessment Division, Collection Division, Legal Division, Finance Division, Administrative Division, Special Investigation Division and Revenue District Offices (RDOs) within the Region. The RO shall be responsible for directing and coordinating their operations.
- The RDOs shall have supervision and control over the sections within the District.
- The Revenue Data Centers (RDCs) shall be responsible for the operation, management, security and maintenance of the distributed information systems and ensuring the integrity of payment data transaction upload to the Integrated Tax System (ITS) database. The RDCs shall report to the Deputy Commissioner for Information Systems Group and shall coordinate with the Regional Directors of the revenue regions and Revenue District Officers of the district offices that they service. Each RDC shall be headed by a Revenue Data Center Head equivalent to the rank of a Director I. It shall be composed of two (2) division namely: Facilities Management Division and Computer Operations, Network and Engineering Division.
SECTION 2. Appointment of Officials and Personnel. All Deputy Commissioners, Assistant Commissioners, Regional Directors, Revenue Data Center Heads and other holders of Director I position shall be appointed by the President, upon the recommendation of the Commissioner, and approval of the Secretary of Finance. All other personnel appointments shall be made by the Secretary of Finance, based on but not restricted to the recommendation made by the Commissioner.
SECTION 3. Redeployment of Personnel. The Redeployment of officials and other personnel on the basis of the structural realignment embodied in this Executive Order shall not result in the diminution in rank and compensation of existing personnel and shall take into account pertinent Civil Service laws and rules.
On the basis of the organizational changes in this Executive Order, the Commissioner shall, upon approval of the Secretary of Finance, submit to the Department of Budget and Management (DBM) for evaluation and final approval the resultant staffing pattern of the BIR.
SECTION 4. Implementing Authority. With the approval of the Secretary of Finance, the Commissioner is hereby authorized to determine the number of Regional Offices, Revenue Data Centers and Revenue District Offices consistent with the requirements of the Computerized Integrated Tax System (CITS) and the principles of economy, efficiency and effectiveness. The Commissioner is likewise authorized to organize such units under the Services and Offices authorized under this Executive Order, subject to DBM evaluation.
SECTION 5. Transfer of Presidential Appointees. The Commissioner of Internal Revenue is hereby authorized, with the approval of the Secretary of Finance, to transfer and assign appointees of the President to positions or assignments of equivalent rank in the Bureau if the exigencies of the service so require.
SECTION 6. Implementing Rules and Regulations. The Commissioner, with the approval of the Secretary of Finance, shall issue the rules and regulations and other issuances as may be necessary to ensure the effective implementation of the provisions of this Executive Order.
SECTION 7. Effectivity. This Executive Order shall take effect immediately.
DONE in the City of Manila, this 3rd day of November in the year of Our Lord, Nineteen Hundred and Ninety-Nine.
JOSEPH E. ESTRADA
By the President:
RONALDO B. ZAMORA