There’s no point having high tax rates when enforcement is the real problem. That’s why the comprehensive tax reform program of the Duterte administration is a necessary evil to make our tax system simpler, fairer and more efficient.
There’s no reform without pain. We cannot change without having to sacrifice our old ways and maybe even our personal budget.
TRAIN package 1 has taught us that.
Based on the 2016 Annual Report of the Bureau of Internal Revenue (BIR), most of the country’s income tax collections from individuals are shouldered by employees whose income taxes are withheld at source. Their contribution amounts to more than P280 billion of the P340 billion in tax revenues from this sector.
On the other hand, the collection from self-employed and professionals (SEPs), despite the increase in taxpayer base by 12.31 percent and 6.86 percent, respectively, decreased by 1.18 percent from P16.012 million in 2015 to P15.82 million in 2016.
Policy reforms must be supported by administrative reforms, and the taxpaying public must be properly informed, guided and assisted to encourage voluntary compliance. Tax rates can easily be increased or decreased through legislation, same as adding new taxes. However, broadening the taxpayer base and increasing voluntary compliance require strategy, budget and collaboration. These are critical to making our tax system efficient.
If the BIR were to improve its enforcement, then it needs an increased budget to hire more technocrats and legal experts, and to invest in technology to catch up with e-commerce and prosecute big-time tax evaders.
As much as we need to intensify the audit of taxpayers, we also need to investigate and remove corrupt BIR examiners who continue to leverage on the ignorance of taxpayers and inefficiency of our tax system. How come the same companies are still being audited for three or more consecutive years despite their improving tax compliance? What’s the real reason and why burden the few taxpayers (being audited) with the increasing collection goal of the BIR?
BIR audit imposes 25 percent surcharge, interest and compromise penalty on top of the basic tax due. Businesses end up having to pay more than if they had simply complied. So, does the BIR audit improve compliance of taxpayers being audited?
Not all those who have to pay these fines and penalties for noncompliance did so intentionally.
Business owners don’t need to have malicious intent to forget filing a return, miss a deadline, or report an incorrect taxable income. They might have just thought they had paid the right dues.
With all the provisions, revenue regulations, memorandum circulars, and other legislation, it is often difficult to keep track of which taxes to pay, how to pay them, and when to pay them.
If you have an educational background dealing with taxes, good for you. Otherwise, you’d have to either start learning, or pay others to understand the laws for you.
These businesses, once found noncompliant, are subjected to heavy fines, penalties, and compromises. Their lack of intent does not excuse them, of course. After all, ignorance of the law excuses no one. Even so, something needs to be done to address this issue.
The general tax amnesty currently being reviewed in Congress can help with that problem.TRAIN’s package 1B will provide not only businesses, but every taxpayer, a fresh start.It is expected to generate about P40 billion for the government for the year, which only goes to show the expansiveness of the reform.
However, that again poses the problem that the corrupt taxpayers can just start over with their misdeeds.
So, is the tax amnesty a losing proposition? It does not have to be. That’s why requisite to an effective amnesty program is the lifting of the Bank Secrecy Law to force erring taxpayers or violators to do self-assessment and tax planning before filing for tax amnesty.
The amnesty addresses an end result, not a root cause.
Of course, that is not to say it is not a good solution—because it is—just that it should not be seen as the answer to the country’s tax woes.
What the country needs is a system that encourages honesty and integrity for both taxpayers and tax collectors.
With coming tax reforms intended to lower taxes, the government exhibits its trust in the Filipino people. In turn, as citizens, we need to do our part.
Voluntary compliance will be the key to a better system.
At the Asian Consulting Group (ACG), we are committed to helping taxpayers pay the right taxes. But paying the right taxes does not have to mean paying more taxes.
Unnecessary penalties, interest and compromises are the main cause of a taxpayer’s headache, and if taxpayers choose to be more compliant (and honest), then they can get rid of all these problems.
This is where knowledge and professional help can play a significant part.
Just because a taxpayer wishes to comply with taxes voluntarily does not mean they would be free from the burdens of taxes immediately. With the right assistance, taxpayers can save millions of pesos while helping the government collect the right taxes without unnecessary penalties and compromises.
Taxpayers who are frequently audited will now have options, either they wait and prepare for the implementation of general tax amnesty or apply their companies to the Seal of Honesty (SOH) Certification Program.
Visit www.sealofhonesty.ph for more information.
If you’re interested, you may want to know about Citizen Tax Planning (CTP) to stop a BIR audit. CTP is a game-changing strategy to help taxpayers pay the right taxes without the unnecessary penalties and compromises.
E-mail us at [email protected], for more details. You may also visit www.acg.ph.
As we always say, if we want a better Philippines, we need to be good citizens and better taxpayers.