Curbing graft and corruption

MANILA, Philippines - This article is written and updated to conform with the policy of the new administration — “Kung walang corrupt, walang mahirap.”

We all speak with passion and justifiable scorn about tax evasion, smuggling and graft and corruption and our desire to eliminate or minimize them, but have we really made an in-depth analysis or the root cause of causes thereof?

We speak of many ways of solving graft and corruption, tax evasion and smuggling but have we really looked in on what causes them to be able to say that our solutions fit or are tailored to the problem and would therefore successfully solve or at least dent the same?

In the case of our collection agencies where we have had a lot to say about graft and corruption and of course tax evasion and smuggling, are the solutions we so heroically perorate and do really suitable to the cause or causes of the problem to eliminate them? Or are we just directing our efforts to the oft-said “tip of the iceberg”?

Comparatively speaking, we repeatedly say and truly it is, that it takes two to tango. If so, have we thought of how to remove the desire to dance of at least one of the pair or remove the space or area where one could dance of the music to which they can dance? If there is no corrupt o corruptor or there is no tempter or seducer there can be no tax evader or smuggler.

It is clear, therefore, to eliminate tax evasion and smuggling the starting point is to solve the problem of graft and corruption. To make a genuine determination of its cause or causes and then attacking and removing them. Short of this we will not be able to arrive at the correct remedies to even minimize the existing plague that renders anemic the government coffers and consequently the services it should appropriately render to its citizens. No matter what our leaders sincerely intend to do to alleviate the plight of the citizens if this plague persists, their good intentions and whatever they are determined to do will be frustrated for lack of funds.

We also speak of very substantial losses in revenue due to widespread tax evasion and smuggling. In this connection please note that graft and corruption are directly linked and intertwined with widespread tax evasion. The latter cannot exist if graft and corruption are eliminated. In other words, there can be no tax evasion or smuggling if there are no grafters or corruptors. Stop and minimize graft and corruption and automatically revenues lost therefrom as well as those from widespread tax evasion will flow instantly to government coffers.

Therefore, to enable those concerned to apply and adapt the appropriate solution and remedies to stop or minimize revenue losses, the most sensible thing to do as an urgent priority, is to look at closely and analyze the basic causes of graft and corruption.

What are they?

It is most respectfully submitted that greed, given the opportunity for realization, breeds graft and corruption. Greed plus opportunity is the basis of graft and corruption. Absent opportunity, greed and graft and corruption cannot prosper. Greed, if present, let us face it, is very hard to expunge because, as a general rule, it is innate and better left to the realm of the religious and the moral reformists. The opportunities, however, for the realization of greed are most certainly remediable. As the Lord’s Prayer says — “Lead us not into temptation and deliver us from evil.”

Let us focus at our major revenue collection agencies (Bureau of Internal Revenue and Bureau of Customs) currently alleged as being among the most perceived bases of graft and corruption, but are also observed and admitted as places of many dedicated and honest public servants.

What are the opportunities at the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) that give rise for one’s greed (government functionary and/or the taxpayer) to materialize and prosper?

It is strongly suggested that it is contact with taxpayers and discretion given to functionaries. Contact with taxpayers gives rise to the opportunity to harass, negotiate, and socialize or fraternize with the taxpayer and thereafter fix a case for material consideration. Discretion gives opportunity for harassment, contact and settlement of a case. Poor Juan dela Cruz gets a measly 10 percent to 20 percent of what is due him and the two who surreptitiously danced the tango get 40 percent to 50 percent each of what justly belongs to Juan dela Cruz. What a pity, insofar as it affects services to the citizens and the fiscal and economic turnaround of the country.

Knowing the basic causes of the problem and its remediable factor, what then are the solutions?

No Contact and No Discretion are the most palatable solutions. However, I agree, many will say this is impossible. Alright then, instead of an absolute No, let’s settle for less contact and less discretion. These are the primary solutions or remedies, all others are merely suppletory.

Based on the above premise, we should therefore fashion or design laws and regulations and put in place equipment to minimize contact and discretion. We should lessen investigations and examinations of taxpayers to the minimum. We should abandon our present practice of examining all tax paid income tax returns. We should expand further the coverage of withholding tax. We should be very discreet in issuing Letters of Authority to examine which are perceived as equivalent to cash. We should accurately develop badges of fraud and tax evasion to confine our investigations only to those pinpointed and suspected. We should proceed without letup and with determination in completing computerization to assist in doing away with examination and confining investigation to the necessary minimum. We should fashion the computers so that the leadership would already know the minimum liability of a taxpayer subject to investigation to prevent the examiner to monkey with their findings. We should develop statistics that would provide the high and low in tax liabilities of each particular industry. We should provide complete transparency in investigation and examination procedures. We should set and strictly enforce deadlines for the validity of Letters of Authority to examine and the submission of reports of investigation and the issuance of rulings. Most important of all is clean the revenue Bureau by removing the known corrupt functionaries, including the leadership that covers and consents to their activities. Make sure also that all accountants who prepares and certifies to the income tax returns of their clients are qualified.

Statistically, the tax revenue produced from investigations or examinations is only a picayune of the total revenues collected because as previously mentioned the bulk of it goes to private pockets. It is imperative, therefore, without hesitating about loss in revenue, that we pass tax laws and administrative rules and regulations that lessen, if not entirely remove, contact and discretion on the part of government functionaries. A good example of this is the then income tax provision called the SNITS (Simplified Net Income Tax System) whereby individuals engaged in business and professionals were allowed to remove 40 percent outright from their gross income as deductions and were subjected to tax only on the 60 percent thereof. This is actually taxation based on adjusted gross income, not the pure Gross Income Taxation. The returns filed under this system may not require examination.

The exact reason why this system was eliminated from the tax code by the Comprehensive Tax Reform Act is not clear, probably it is the result of the so-called politics in Tax Reform. Statistically, when the SNITS was in effect as part of the Tax Code, it encouraged many individuals and professionals who have not been paying their correct taxes to voluntarily file and pay more. It has tremendously increased the taxpayer base. The reason is obvious — no contact, no negotiation, no temptation to cheat, nothing to provide for fixing or representation. Moreover, it removed the inconvenience of keeping receipts and documents of payments, and had eliminated the exercise of discretion. Now, we are back to the itemization of deductions and examination, which gives a lot of leeway for negotiations and discretion for not paying the correct amount of tax.

To lessen contact and eliminate discretion and increases tax collection, the SNITS instead of the Pure Gross Income Taxation should be revisited and reenacted as part of the Tax Code and should also cover corporate taxpayers, even on an optional basis. Optional, meaning, if the corporate taxpayer takes the fixed percentage as deduction (realistic rate to be determined) from gross income, tax investigation is waived; on the other hand, if it opts to claim a deduction more than the fixed percentage it must keep and produce all its records and receipts and prepare for a thorough scrutiny and investigation.

The Lateral Attrition Act, and other similar bills being broached about could be a supplement as a deterrent in minimizing graft and corruption but remember that contact and discretion are very much more profitable than what these bills, if passed into law, could offer by way of “carrot as against the stick”. We can also add to this proposal, the creation of a Criminal Tax Court to be more strictly and swiftly responsive to the criminal aspects of Tax violations.

The recent offer of BIR to give a 10 percent reward to tipsters may not also be as palatable considering the long wait for the payment of the reward which will depend on the process of finally collecting the tax. Probable tipsters, because of the long wait, might just go along and dance the tango with the corrupt wherein his gain may be more tempting and realized faster.

Also, you may sue or eliminate one tax evader each week but three or more will crop up every week if you don’t eliminate the source of corruption which are contact and discretion.

I repeat the immediate passage of tax laws and administrative rules that would minimize contact and discretion is crucial and of the utmost priority and the laws on these should be certified as urgent for congressional consideration.

It is respectfully submitted that passing more tax laws imposing new taxes and increasing old ones may not necessarily result to increased tax collection. These can even be a source of more graft and corruption. What more, they could aggravate the situation of honest taxpayers and the suffering citizens. Also, changing the form of organization without changing the Tax System and implementing and enforcing appropriate tax measures may just transfer graft and corruption from the old organization to the new one.

Considering the magnitude of revenue loss attributed thereto, minimize graft and corruption, it not entirely eradicating it, will surely result to more revenues and is therefore a much more acceptable and plausible alternative for increased or improved tax collection.

Regarding the other major collection agency of the government, the Bureau of Customs, since this is a period of modernization in equipment, in addition to the remedies already mentioned, where applicable, it should, among others, acquire modern x-ray, the contents of 20 or 40 foot container vans without opening them, like in the case of Israel and many other countries. This eliminates contact with inspectors, examiners and other Customs’ officials and facilitates the convenient and fast release of imported goods with the appropriate payment of duties and taxes paid as desired and requested by legitimate importers and businessmen. This can also assist in pinpointing the importations made by smugglers for the imposition of the correct duties and taxes.

The analysis and remedies herein mentioned and discussed can be applied to all other graft-ridden agencies of government with corresponding modifications.

There are many more ways of eliminating or lessening contact and discretion among which is transparency and the amendment and enactment of many other provisions of the Tax Code and other administrative measures. These, however, will necessitate more details, which shall require a longer dissertation and therefore not covered in this article.

To attain success in curbing graft and corruption sincere determination and political will of our highest leadership down to the Bureau Chiefs is of utmost importance and necessity, and must be exercised with unquestionable fairness and impartiality in their dealings with the bureaucracy, absent “Bata-Bata”, “Padrinos” favoritism and vindictiveness, after, of course, eliminating and removing first the corrupt in the agencies.

Remove the sources of corruption and the corrupt even if it takes this new administration its entire term in office. Indeed those in the agencies in whose shoulder rests the duty to fight graft and corruption will have to stake their lives, safety and reputation because those engaged in these nefarious gainful activities shall do everything to destroy them to protect their turf. They shall be the target of false charges by the corrupt even before the corrupt are charged of their wrongdoings. But don’t be afraid though how long the process takes. Justice shall in the end, prevail.

In conclusion, suffice it to state that contact and discretion are the root causes of graft and corruption, tax evasion and smuggling, which call for urgent and immediate remedies for their elimination or minimization so that government may receive the revenues rightfully due it to make this country financially viable in facing the challenges of this millennium and support and make successful the program of the new administration, “Kung walang corrupt, walang mahirap.”