With the vast powers of the tax authorities to exact compliance, impose loss of sleep through earth-shaking assessments, and make you pay dearly for your actual sins, chances are you will break and they will win.
Back to earth though – against that vast power, taxpayers have remedies, and the BIR, more often than not, respects taxpayer rights. Investigated cases can get prolonged sometimes through taxpayer tactics, and that is, if taxpayers get investigated for a tax year, or if they get investigated at all.
Admittedly, a number of tax examiners do their work with a laid-back attitude, but many also do theirs with a passion, sometimes as if on a mission. Their findings, while partly contestable, are partly also quite meritorious. Neither side is too quick to succumb so cases sometimes get to the courts and the battle resumes there.
All the uncertainties – financial, psychological, emotional, or otherwise – could all end in one go by availing of a tax amnesty, guilty or not. The amnesty fee is supposed to be way cheaper than your deficiency tax exposure.
Both versions of the amnesty bill passed separately by the House and the Senate are almost similar and are election-friendly legislations. They do not impose burdens, and they will produce abrupt windfall that will be useful for the country’s Build Build Build program. The House and the Senate are now reconciling on the versions’ variances. Here’s what you should know about whether or not you should avail of the amnesty.
1. Avail of the general tax amnesty and all your pending tax cases, as well as undiscovered sins of the past, will be wiped out.
It’s two percent based on gross assets as of Dec. 31, 2017, per House version; or five percent based on net assets following the Senate version. Everyone is qualified to avail of the general tax amnesty except those with pending criminal tax cases. (Those with graft cases also don’t qualify so the likes of Mrs. Marcos cannot avail of it.) All pending tax cases will be considered closed for 2017 and prior years. The House version is currently too generous as general tax amnesty appears to wipe out even tax cases that are final and executory. I think for those that are final and executory, the Tax Code provisions should be allowed to play out and the BIR should be simply allowed to collect on these finished cases.
2. If you have a tax fraud case in court, you can close the case by paying half of the basic taxes assessed.
Criminal liability can be obliterated in a tax amnesty. And it can be settled by paying 50 percent to 60 percent of the basic tax (depending on how the two houses reconcile this point).Those which are subject to final and executory judgments can also be settled by paying 40-60 percent of the basic tax rates. On the part of the BIR, there is reason to speed up collection enforcement before the amnesty takes effect. On the part of taxpayers with delinquent accounts, they want the amnesty law to overtake the enforcement of collection so they can get a big discount.
3. Estate tax amnesty is available but banks and the register of deeds should be fully advised not to ask the usual documents.
Heirs complain that while TRAIN 1 has allowed them to withdraw money belonging to the decedent from the banks by simply suffering a six percent final withholding tax, it has not been that simple for all. Some banks still require an extrajudicial settlement of the estate registered with the register of deeds (RD).The RD on the other hand requires proof of filing of return and payment of estate tax before registering the extrajudicial settlement.
To give life to the new law, the BIR should issue a circular to the banks and the RDs on what are no longer requirements. And this should also be done by the BIR for the estate tax amnesty implementation to allow for successful transition of the title of properties to the heirs.
4. The waiver of bank secrecy is not a requirement to avail of the amnesty.
It was the most contentious requirement holding up the passage of the amnesty bills. For me, it was also the most important. Without fear of being found out on what one’s real assets are, to rampantly commit underdeclaration while waiting for the next tax amnesty truly becomes a viable tax planning scheme. The bills say the amnesty availment can be set aside if, in the supporting statement of assets and liabilities, there is underdeclaration of more than 30 percent. But the BIR only has limited time to validate this (one year only in the House version) and the BIR can initiate action mostly from third party sources. With a high probability of filing without being checked on what was filed, will those who avail under these circumstances be really expected to broaden the tax base?
5. If you feel the amnesty rates are too onerous, the amnesty is probably not for you.
The amnesty bill has a specific market and it will not satisfy everyone. Many would say they just want to buy peace but they have nothing to hide. This may be true, but this also should be one’s source of level of comfort. Even without amnesty, compliance will always be a defense, if being compliant is the truth. As a global news network would say, they won’t succeed calling it a banana if in truth, it’s an apple.
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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the chairman of the Tax Committee, and the vice chairman of EMERGE (Educated Marginalized Entrepreneurs Resource Generation) program, of the Management Association of the Philippines (MAP). Email your comments and questions to aseasyasABC@ph.pwc.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.