Forgiveness and redemption

(First of three parts) These are the main themes of the Lenten season, which ended last Sunday. As our parish priest discoursed on the virtue of compassion, my mind wandered to the general tax amnesty bill (House Bill No. 2933, as amended by the Senate) that awaits the President’s signature. It was also during the Lenten season that the President signed into law Republic Act No. 9399, which forgives past unpaid taxes of registered business enterprises in the special economic zones of Clark, Poro Point, John Hay, and Morong. As the priest reminded us that the quality of mercy is not strained it occurred to me that the BIR itself had extended once again Revenue Regulation Nos. 15-2006 and 18-2006 until June 29, 2007. These regulations condone a host of penalties and interest surcharges on prior years’ unpaid taxes as well as bestow on an availing taxpayer "last priority in audit" status. Clearly, government has been outdoing itself in the mercy department.

A tax amnesty, as its name implies, is a forgiveness by order of congress, and implemented by the executive arm of government, of taxpayers’ past due taxes. It is, as succinctly put by the Supreme Court, a general pardon to taxpayers who want to start a clean slate.

From government’s standpoint a tax amnesty program that is well-designed and properly implemented has its benefits.

First, a tax amnesty can be an effective tool to encourage the citizenry to comply with tax laws. Government should implement it with the view to collecting more revenues without the tedious process of identifying, pursuing, and collecting from errant taxpayers. Of course, from the cautious vantage of fiscal policymakers the revenue collected from tax amnesty programs are non-recurrent as tax amnesties are supposed to be one-time affairs to be offered only once in a proverbial blue moon. If my facts are correct, the last legislated tax amnesty was in August 1986 when, using her emergency legislative powers, President Aquino issued Executive Order No. 42, which proclaimed a one-time real property tax amnesty.

Second, and more importantly, a tax amnesty’s main goal should be long term: it should add more taxpayers to the tax rolls, resulting in a widening of the taxpayers’ base and, ultimately, strengthening government’s finances. Accomplishing this results in a more equitable distribution of the tax burden among the populace. Remember that taxpayers who faithfully pay their taxes subsidize those who do not.

Third, from an administrative perspective a good amnesty program can actually establish a baseline of how much taxpayers from various tax brackets should be paying. Tax authorities can obtain this information from availing taxpayers and measure similarly-situated taxpayers against the numbers provided by the amnesty.

On the other hand, tax amnesties (whether legislated or the administrative variety) must be implemented sparingly. Their indiscriminate use will only breed cynicism among the public that government is not serious about tax collection and that a tax amnesty lurks around the corner to be taken advantage of by tax evaders, creating further injustice to the faithful taxpayer.

H.B. No. 2933, ("the HB" for brevity) was passed by both houses of Congress on February of this year though, I understand, it has yet to be formally transmitted to the president for approval. One well-placed source said that while the DOF will not oppose its passage, the Secretary of Finance has asked Congress to withhold the transmittal until after April 16, 2007, which is the last day of income tax filing and payments for corporations on a calendar year basis and for individuals. This is so as not to dampen the enthusiasm of the public to pay their taxes on the run up to that important day.

The HB is a general amnesty. Section 1 states the coverage to be ALL internal revenue taxes "for taxable years 2005 and prior years, with or without assessments duly issued therefore, that have remained unpaid as of Dec. 31, 2005". These are: income tax, estate and donor’s tax, VAT, percentage taxes, excise, and documentary stamp taxes (not covered are withholding taxes with respect to withholding tax agents).

The HB’s requirements to avail of the amnesty are straightforward. These are the filing with the BIR of a notice and tax amnesty return; a Statement of Assets and Liabilities as of Dec. 31, 2005; and the payment of the applicable amnesty tax. All these must be accomplished within six months from the effectivity of the HB’s rules and regulations. As to the amnesty tax, it is the higher figure of five percent of the taxpayer’s declared net worth or an amount ranging from P50,000 to P500,000, depending on whether the taxpayer is an individual, a corporation (and in the case of corporations, is based on its subscribed capital), or a foundation or cooperative.

In return the taxpayer shall be immune from payment of all taxes, interest surcharges and penalties, unless it is later discovered, that he had understated his net worth to the extent of 30 percent or more of his true net worth.

One unusual feature of the proposed law is contained in Section 14 which authorizes the Commissioner of Internal Revenue to prepare a list of all taxpayers, their gross income, and amount of income taxes paid for the immediately preceding taxable year and publish this in at least two newspapers. While this may be meant to expose tax cheats to the public one wonders if it may drive a good segment of taxpayers underground and, once again, out of the taxman’s sight.

Finally, the proposed amnesty law is envisioned to be The Amnesty to End All Amnesties. The HB’s Section 11 places a moratorium on future amnesties, including any administrative amnesties of the BIR. We will just have to wait for the IRR and see how this provision will be implemented — as the old saw goes, the Devil is in the details. Happy Easter! (To be continued)

(Emmanuel P. Bonoan is chief operating officer and vice chairman for Tax & Corporate Services of Manabat Sanagustin & Co., CPAs, a member firm of KPMG International, a Swiss Cooperative. Mr. Bonoan is a former Undersecretary of the Department of Finance. This article is for general information only and is not intended to be, nor is it a substitute for, informed professional advice. While due care was exercised to ensure the quality of the information contained in this article, readers should carefully evaluate its accuracy, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances. For comments or inquiries, please email [email protected] or [email protected].)