MAPping the Future

While tax administration is crucial in improving tax collections, an efficient tax system requires a whole government approach. Equally important in addressing tax evasion and smuggling is eradicating graft and corruption in all government agencies and its instrumentalities. Studies show that corruption and governance has a positive and significant impact on tax revenue collections for developing countries like the Philippines.

 

The taxpayers need to know (and see) where taxes are going.

 

The government needs to offer value for taxpayers’ money, better public services, and to uphold transparency and accountability especially during the pandemic and economic crisis that resulted in more than P12 trillion national debt.

 

The approved national budget for 2022 amounting to P5.5 trillion is more than enough to fund the full digitalization of all government agencies, both local and national, the economic recovery programs including more tax relief measures, incentives and interest-free financing especially for micro and SMEs to help them bounce back from losses and debts, and to provide more fundings to develop the country-side and encourage more investors and businesses to relocate and operate outside Metro Manila.

 

Tax evasion and corruption

 

Needless to say, good governance is necessary to put a stop to almost P1 trillion losses due to corruption and unused budget annually. This taxpayers’ money can significantly help thousands of our poor farmers, fisherfolks, poultry raisers and almost a million micro entrepreneurs or 88.77% of total registered MSMEs in the country.

 

To do so, we need to elect good leaders who will have the moral ascendancy to govern and collect taxes, especially from tax evaders, smugglers and corrupt government officials and political dynasties who continue to amass wealth illegally. Corruption cannot and should not be viewed in isolation, as it is an indispensable, integral and critical issue of good governance and public trust which are fundamental drivers of revenue collections.

 

Undeniably, tax evasion and corruption in government significantly reduces tax collections and seriously hurt economic development. Thus, making it more difficult to achieve inclusive growth.

 

Now more than ever, the Commission on Audit (COA) plays an important role as it has the power, authority and duty to examine, audit and settle all accounts pertaining to revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government owned or controlled corporations.

 

A COA report must have an unqualified opinion to reassure the taxpaying public that government funds are being spent efficiently and judiciously, free from graft and corruption.

 

Unfortunately, the recent COA reports of some government agencies including the Procurement Service-Department of Budget and Management (PS-DBM) are quite the opposite of what we expect especially during the pandemic. The alleged overpricing in the procurement of medical supplies by PS-DBM led to the Senate Blue Ribbon Committee to further investigate it, which later on exposed possible tax evasion of Pharmally Pharmaceutical Corporation. Pharmally bagged P8.68 billion worth of contract in 2020 despite being newly registered on September 4, 2019 with P625,000 paid-up capital.

 

Unless otherwise exempted, income derived from all sources is subject to income tax. And while tax evasion is also considered to be a corrupt behavior itself, those who are involved in graft and corruption will more likely evade from paying taxes.

 

Moral ascendancy 

 

Section 253 of the National Internal Revenue Code (NIRC) of 1997 provides the perpetual disqualification from holding any public office, to vote and to participate in an election for public officer or employee in addition to the maximum penalty prescribed for the offense.

 

Section 254 was amended by TRAIN law increasing the punishment for tax evasion to a fine not less than Five hundred thousand pesos (P500,000) but not more than Ten million pesos (P10,000,000) and suffer imprisonment of not less than six (6) years but not more than Ten (10) years.

 

Clearly, violation of our tax code is a criminal offense.

 

In view of the ongoing campaign for the May 9 election, the Bureau of Internal Revenue (BIR) issued RMC 22-2022 reminding all individual candidates, political parties/party list groups to register, issue receipts and withhold 5% on income payments or campaign expenditures. Further, it reiterated that any unutilized or excess campaign funds will be subject to income tax.

 

The more important question is whether other political candidates declared their excess campaign funds in the past elections and consequently, paid the income tax due?

 

Under Section 253 of the tax code, “if he is a public officer or employee, the maximum penalty prescribed for the offense shall be imposed and, in addition, he shall be dismissed from the public service and perpetually disqualified from holding any public office, to vote and to participate in any election.”

 

We need to raise the bar of integrity, transparency and accountability among our government leaders and political candidates alike. At the very least, they have to be honest taxpayers themselves to set a good example to our taxpaying public. Otherwise, they will lose their moral ascendancy to collect taxes.

 

Public office is a public trust. As public servants, they have to declare with all honesty correct information on their Statement of Assets, Liabilities and Net Worth (SALN) and Statement of Campaign Contributions and Expenditures (SOCE), and pay corresponding taxes on their income or increase in assets.

 

New or higher taxes

 

The next administration must continue and financially support the modernization and digital transformation of the Bureau of Internal Revenue (BIR) as the primary collection agency contributing to almost 80% of the total government revenues.

 

As we laud the unprecedented performance of the BIR in surpassing its collection targets for two consecutive years, we also support the recommendation of Commissioner Billy Dulay to increase the salaries of our revenue officials and employees making it at least competitive compared to other branches and agencies of the government like the judiciary, COA, BSP and others.

 

With the 16-year high of 60.5 debt-to-GDP ratio, new or higher taxes like digital tax, carbon tax, wealth tax, in addition to POGO tax, excise tax and eSabong tax are being proposed among other pending tax bills in Congress.

 

But before imposing new taxes, Congress must significantly increase the budget of the BIR to better equip the agency with enough tax experts, IT geeks and lawyers to run after big time tax evaders including those generating significant income in the digital economy.

 

Further, instead of a wealth tax and other new taxes, the next administration must seriously consider passing the General Tax Amnesty and lifting the bank secrecy law to collect more taxes especially on tax evasion cases.

 

Fair and equitable

 

The Comprehensive Tax Reform Program of the Duterte administration enacted landmark legislation to make our tax system simpler, fairer and more efficient. But was it enough?

 

With the emergence of the digital economy, broadening the tax base becomes more challenging as online transactions can hardly be audited unless tax administration will have full access to various fintech platforms, e-wallets and digital accounts where funds are directly transferred.

According to the World Bank, “making it easier to pay taxes improves competitiveness. Overly complicated tax systems are associated with high levels of tax evasion, large informal sectors, more corruption, and less investment. Modern tax systems should seek to optimize tax collections while minimizing the burden on taxpayers to comply with tax laws.”

 

There is a need to ensure that the tax system is fair and equitable whether transactions are done through traditional means, physical store or digital platforms.  As reiterated by the World Bank, fairness considerations include the relative taxation of the poor and the rich; corporate and individual taxpayers; cities and rural areas; formal and informal sectors, labor and investment income; and the older and the younger generations.

 

Introducing a flat tax system is also an option. This will further simplify compliance and lower its costs especially for micro and small businesses.

 

In the end, good governance will likely increase tax collections.

 

 

 

(This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.  The author is Member of the MAP Ease of Doing Business Committee, Founding Chair and Senior Tax Advisor of Asian Consulting Group and Co-Chair of Paying Taxes – EODB Task Force. He is Trustee of Center for Strategic Reforms of the Philippines – the advocacy partner of the BIR, Department of Trade and Industry (DTI), and Anti-Red Tape Authority (ARTA) on ease of doing business and tax reform.