BIR resisting reforms

(Conclusion)

Businesswoman Linda Tan (not her real name) says she simply wanted "to sin no more," although she also admits that her new accountant at that time refused to have anything to do with any illegal deal.

Whatever the real reason, Tan's company in 1997 suddenly decided it would finally start paying the right amount of taxes, after years of paying off revenue auditors assigned to scrutinize its books.

But first, it wanted to contest an assessment of P2 million in tax liabilities for the year 1995. This figure was already a "compromise" of sorts offered by a group of auditors from the tax fraud division of the Bureau of Internal Revenue (BIR).

The original assessment - computed by hand on a piece of ruled paper - had been P4.3 million. A million was later lopped off from the amount following a fierce protest by Tan's firm, after which the assessment was reduced some more when Tan and her staff still refused to budge.

On the advice of her accountant, Tan sought the help of then BIR Commissioner Liwayway Vinzons-Chato. Tan says she merely wanted a fair assessment of her company's tax deficiencies. Yet she knew it was a "suicidal" move, as she and her company would be exposing their past wrongdoing in the process. But, she says, "We just wanted to start anew."

It helped that the Voluntary Assessment Program (VAP) was in place at the time. The VAP allowed taxpayers to voluntarily file amended tax returns to correct the declared income and tax in return for the removal of surcharges, penalties, and in some instances, interest on the additional tax. In the case of Tan's company, the assessment was reduced to a little over P652,000. Tan says that no negotiation of the kind she had on many occasions with corrupt examiners ever took place at Chato's office.

Despite what cynics think, Tan the honest taxpayer is actually not that much of a rarity. An accountant-cum-lawyer who has handled numerous tax-related cases says that he personally knows of business taxpayers who make an effort to pay the right taxes even in the face of offers from tax examiners to reduce their tax dues in exchange for a bribe. But the problem, he says, is that too many people inside the bureau resist any reforms that could encourage taxpayer confidence in the BIR.

Indeed, unscrupulous BIR personnel have somehow managed to stonewall attempts to computerize the agency, streamline its operations and professionalize its ranks. This in turn has left the honest bureau personnel demoralized and desperate -- and many taxpayers angry and frustrated.

Consider what has become of the BIR's much-ballyhooed five-year tax computerization project (TCP), which was funded by the World Bank to the tune of $42 million.

By the BIR's own definition, the TCP is a five-year modernization project that aims to provide BIR "with integrated national taxation administration systems, operations and trained personnel" that will enable the bureau "to become an efficient and more modern revenue agency."

The project kicked off in 1993 and was supposed to have ended in December 1999.

In its July 1999 Progress and Benefits Report on the TCP, the bureau claimed that its integrated tax system (ITS) had already "automated many crucial tasks, particularly those related to case generation and resolution." As such, it said, the ITS had eliminated human discretion in the performance of these tasks.

Furthermore, said the report, the ITS had enhanced monitoring of personnel actions, with "an audit trail facility where it can trace the history of transactions made by all BIR personnel."

But BIR insiders and observers alike belie this claim. In truth, even the selection of companies for audit is still processed manually, making it highly subjective and open to abuse. Several examiners also say that the TCP has yet to support an automated audit system.

Under the original plan, the TCP was supposed to cover 13 applications. But project manager Tess Yuyek of Andersen Consulting, which developed the system for the BIR, says changes have been made since. By November 1999, only seven applications -- albeit all of them core -- had been "rolled out."

According to Chato, what the BIR "did not roll out were the ones that would allow for integration and transparency," such as auditing. A US consultant based in the Philippines also confirms that a computerized audit system "is one of the functionalities that fell by the wayside," so that the selection of taxpayers to audit is still based on "personal judgment."

Another foreign consultant says this "allows them (the examiners) more discretion" and greater opportunity "to cover their tracks."

Given such a situation, some tax experts argue that offering tax amnesties may not exactly be that viable as a means of encouraging people to come clean with their taxes.

In an article published in 1998 in the Staff Memos: Policies and Issues Perspective publication of the University of Asia and the Pacific, tax adviser Victor Abola pointed out: "A tax amnesty may work only when it is viewed to be the beginning of a real change in tax administration. Because if tax evaders perceive a change that will result in a higher probability of detection, and large penalties, there would be a greater incentive to avail of the amnesty and start afresh."

Abola says that more than gimmickry, what the country needs are significant changes in tax administration, or better yet, drastic measures.

One such measure may be for the BIR to finally yield itself to a revenue scrutiny by the Commission on Audit (COA), since some of the major issues plaguing the bureau today are the numerous complaints on tax assessments and the concomitant irregularities being perpetuated by some taxpayers and auditors.

In January 1995, COA passed Resolution No. 95-208 asserting its power to audit no longer just the expenditures but also the revenues of all government agencies. The resolution was based on the observation that since the BIR uses the cash-basis accounting system (where income is recognized only when collected), its tax assessments are not recorded in the books of accounts.

According to the COA circular prescribing the accounting and auditing guidelines and procedures on the recording of the BIR tax assessments, this practice "does not leave an audit trail for the proper verification, monitoring and disposition of the assessment."

In the June 1999 issue of its publication Policy Brief, the Congressional Planning and Budget Office (CPBO) also observed that a revenue audit would ensure that taxes are property "assessed, collected, and accounted for." Why, it said, even the International Organization of Supreme Audit Institutions has increasingly emphasized the importance of a revenue audit.

The Bureau of Customs, another agency perceived to be ridden with graft and corruption, had agreed to the COA proposal. But the BIR had strongly opposed the resolution; in May 1995, the bureau successfully obtained from the Supreme Court a temporary restraining order that prevented the COA from enforcing it.

The bureau argued that tax collection was the sole prerogative of the Executive Branch through the BIR. It also said that the plan violated the National Internal Revenue Code, which guarantees the secrecy of tax returns. Chato, who had flatly rejected the proposal of COA during her term, explains her position at the time by saying, "What assurance do we have that COA would not also be corrupted?"

Former COA Commissioner Sofronio Ursal, who was the proponent of the resolution, for his part says that the COA would not audit the taxpayer, but would review the procedures followed by the assessing and collecting officers of BIR. The commission will not even talk to the taxpayer directly or indirectly to preclude any harassment or multiple investigations, he says.

The main question that COA wants to address in the conduct of the review audit, Ursal says, is whether BIR personnel are exercising their discretion within limits.

Apparently convinced of the need for COA to conduct a review audit on BIR, President Estrada on October 30, 1998 issued Executive Order No. 38 directing the finance department and the BIR to coordinate with the commission to adopt measures that will facilitate the audit of assessments, revenues and receipts at the bureau. As though taking its cue from the President's action, the Supreme Court lifted the TRO on Jan. 19, 1999. Yet, more than a year later, the review audit has yet to commence.

In the absence of this review, however, there is another measure that could provide checks and balances on the BIR's tax administration system, particularly the conduct of tax audits: the activation of a fully functional congressional oversight committee, which the Tax Reform Act of 1997 (RA 8424) requires.

This committee has the power to require the BIR to submit vital records like industry audits, collection performance data, and status reports on criminal cases initiated against individuals. As the CPBO describes it, "The oversight function stipulated in RA 8424 is an attempt by Congress to make a more conscious effort to monitor and ensure the proper implementation of tax reforms/programs."

RA 8424 also obligates the BIR to provide a semestral report on its power to compromise to the chairs of the Committee on Ways and Means of both chambers of Congress. But as late as last June, the CPBO says the BIR had yet to submit any such reports. To think that by then two years had already gone by since the passage of the law.

In the face of all these, there are still some optimists who hope that newly appointed BIR chief Dakila Fonacier will implement needed reforms in the revenue agency.

At the very least, Fonacier has been said to be thinking of tapping the services of action star and presidential buddy Fernando Poe Jr. for a campaign aimed at greater voluntary tax compliance.

But while Poe has a good public image, perhaps the new BIR chief should instead seek help among the likes of businessman Antonio Sebastian, who is determined not only to pay the right amount of tax he owes the government, but also to take on any revenue officer who attempts to dissuade him from doing so.

Several years ago, in fact, the Makati-based Sebastian caused the apprehension of an extorting examiner by the operatives of the National Bureau of Investigation.

After going through the records of Sebastian's company, the auditor had declared that the businessman owed the BIR P.5 million in tax liabilities. He offered to "sort it out" for Sebastian for a sum of P250,000.

"I knew I've always paid the taxes," says Sebastian. But he pretended to accept the deal so he could have the auditor trapped.

Sebastian got his wish. Soon after he handed the BIR examiner the money -- which had been drizzled with ultraviolet powder -- in a five-star hotel, NBI agents stepped in to take the auditor in custody.

Sebastian says he has not forgotten the name of the man: Euripides Regala, who was convicted after seven hearings at the Sandiganbayan and handed a 20-year sentence. But Sebastian says Regala managed to post bail, thanks to the revenue examiners' association, which raised the bail bond for the beleaguered examiner.

"They're a bunch of crooks," snaps Sebastian, referring to Regala's helpful colleagues. "Why would they pay the bond of a fellow thief?"

But Sebastian refuses to give up. Together with a few fellow businessmen, he has organized the Bigay sa Bayan Foundation, which aims not only to entrap corrupt BIR officials but also to educate people of their rights so they would not fall prey to corrupt government personnel.

Meanwhile, another group, the Fellowship of Christians in Government (FOCIG), has been seeking permission from the BIR to set up a service desk for taxpayers in revenue district offices. The Desk, which would be manned by duly designated CPAs and lawyers, would evaluate the tax returns of taxpayers who want to pay the correct amount of taxes to the government.

Its draft Memorandum of Agreement (MOA) submitted to the bureau says FOCIG will stamp all tax returns evaluated through its Desk and assist the taxpayer in making the payment at any bank of his or her choice or with the authorized collection officer within the district.

FOCIG chair Niels Riconalla says they had submitted the draft document to then BIR Commissioner, Beethoven Rualo, but got no response. They submitted it again after Fonacier took over. Up to now, they are still waiting for a reply.