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If the price is right

A couple of weeks ago, I received an invite from Metrobank Foundation, Inc. to attend the third Ombudsman Integrity Caravan on current issues in the war against corruption.

My instinct told me it would be the usual presentation of theory on corruption and its supposed solution. I attended anyway and proved myself wrong. After hearing former Ombudsman Simeon Marcelo (one of the distinguished reactors) say that the Sandiganbayan is the bottleneck in our justice system, it made me realize why corrupt politicians keep on winning in local and national elections.

Tax

As Fr. Albert Alejo puts it, corruption in the Philippines is family-based, school-based, fraternity-based, law school alumni-based, and even Jesuit-based. As someone who used to work in the government, I can say that, indeed, corruption is in our culture. It is a common mindset to tolerate corrupt practices for the protection of our personal and family interests.

So where does “Daang Matuwid” lead us now? I don’t question PNoy’s sincerity in fighting against corruption, but it lacks strategic options. It does not give people an alternative. We cannot stop corruption by just declaring war against it, or demanding “love of country” like what the Bureau of Internal Revenue (BIR) has been doing to address tax evasion. We need to have a strategic plan, a competitive offer with a realistic timeline, for genuine reform to take place.

Can we make our people support the much-needed reform? Probably—if the price is right. The following list of strategies seeks not to put a price tag on people, but to address their basic needs and to control their discretion on the taxpayers’ money:

Where do our taxes go? Supposedly to much-needed infrastructure such as bridges and public roads (MB file photos).

Where do our taxes go? Supposedly to much-needed infrastructure such as bridges and public roads (MB file photos).

Competitive salaries for government employees. If we increase the budget allocation to offer competitive salaries to government employees, we can demand for quality and honest work. If not, consider exempting them from income tax since withholding taxes on compensation from government agencies are often compromised due to non-remittance.

Rationalized budget for government agencies and its projects. Most infrastructure projects can be directly handled by private firms in exchange for a tax credit to remove SOP (kickback) and to collect unremitted taxes withheld by government agencies. SOP is the agreed markup ranging from 30 to 60 percent of the contract price for every approved government project. This could have been allocated to increase the basic salaries and benefits of government employees.

Low tax rates and low compliance costs for taxpayers. The Philippines imposes some of the highest taxes in Southeast Asia. Our corporate income tax is 30 percent, while Vietnam and Thailand are both at 35 percent; Indonesia and Malaysia at 25 percent; and Singapore at 17 percent. Our personal income tax is 32 percent, while Thailand’s is 37 percent; Vietnam’s, 35 percent; Indonesia’s, 30 percent; Malaysia’s, 26 percent; and Singapore at 20 percent. The VAT/sales tax in the Philippines is 12 percent; 16 percent in Vietnam; 10 percent in Indonesia; five to 10 percent in Malaysia; and seven percent in Singapore and Thailand.

In World Bank’s “Paying Taxes” report, the Philippines ranked 143rd in 2013. This means that, of the 185 countries included in the research, tax payments and compliance costs are relatively high in our country. Since government seems indifferent in legislating laws to address this—either by lowering tax rates or by automating tax administration—businesses resort to tax avoidance or tax evasion.

 

Corruption In BIR

Since I left BIR in 2010, many have tried to convince me to be a whistleblower. I have a few reasons for not seriously considering it. First, corruption in the BIR is an open secret. Second, it is a convenient choice for taxpayers to compromise—everyone is involved. Third, no one will make a formal complaint because nobody seems to be without guilt.

It is quite impossible for Commissioner Kim Henares to curb corruption in BIR since her focus is to hit the increasing tax collection goal. Although results are yet to be seen with the adoption of BIR Reform Master Plan 2013-2016 (RMO 29-2013), I am still crossing my fingers for this. The Reform Master Plan aims to increase tax revenues over time and support the Department of Finance (DOF) initiatives to detect and deter corruption within its revenue agencies. It includes two major activities: the Revenue Administration Reform Activity—like electronic tax information system, automated auditing tools and public awareness campaign—and the Revenue Integrity Protection Service (RIPS) to support the anti-graft investigation unit of DOF.

 

Online Whistleblower

Rather than becoming a whistleblower, I decided to be a tax advocate. Through our social consulting enterprise, the Abrea Consulting Group (ACG), we help taxpayers pay the right taxes to avoid unnecessary penalties and compromises. We make them understand that “paying the right taxes” does not mean “paying more taxes.” This year, we started another tax road show through our “Taxbreak” advocacy, to further increase awareness and arm taxpayers with the technical know-how in dealing with BIR compliance.

In collaboration with the Center for Strategic Reforms of the Philippines (CSR Philippines), we support all programs to empower our micro, small and medium enterprises. Part of our advocacy is to push for a genuine tax reform on three strategic areas, namely: legislative, administrative and business practice. Through the Citizen Tax Planning (CTP) Certification Program, we encourage taxpayers to increase their voluntary compliance and to pay the right taxes.

We promote our advocacy in all ways possible, including social media. We started getting support from both private and government sector. In fact, just recently, we received two communications from BIR examiners. One has resigned already while the other is still an active examiner. The latter posted an open letter in our page. I have asked permission to publish this since it has gone viral over the Internet:

 

How Corruption At The BIR Works And How It Affects Us

I am a revenue officer at the BIR and designated as tax examiner.

When the President said, “Kung walang korap, walang mahirap” and “Matuwid na daan,” my impression was that he would look into the lifestyle of government employees, especially in government agencies known to be corrupt. He would look into their bank accounts, have his administration file the corresponding cases against those found to have unexplained wealth, remove them from office, implement strict and concrete procedures to reduce, if not eradicate entirely, the corruption. And after cleaning up, he will increase the salaries of the employees of these agencies.

I was so excited at the beginning. I saw his administration making the former president, the former ombudsman, the former chief justice, and other members of the former administration accountable.

But suddenly, I felt dismayed. He stopped. I have wondered…the actions were not against corruption but against the opposition. It’s not what the people wanted. The people want to eradicate corruption from all government agencies at different levels.

The president’s term is about to end. Where are we now? We are like a car that was cleaned up and fully furnished on the outside, but the engine is a total wreck.

I saw hope when the Supreme Court deemed PDAF unconstitutional. Until now, it’s like I am dreaming. Right now, [I feel] anything can happen. As an examiner, it’s normal to audit government contractors’ records. It’s not surprising that you will find how the money for the projects is divided among COA auditor, budget officer, the accountant, and, of course, corrupt politicians.

The issue I am raising is bigger than PDAF. It’s about the corruption in the BIR. Indeed, corruption through PDAF is just the tip of the iceberg.

I would like to share how corruption works at the BIR. I want everybody to understand and feel the gravity of it. This is bigger than PDAF because the accumulated amount is enormous.

Voluntary payments, withholding taxes, and investigation of taxpayers—these are the ways the BIR collects taxes. An example of voluntary payment is the filing of an annual income tax return. This is the one we rush to pay every April 15. Withholding tax on compensation—deducted by the employers from the employees, together with the Pag-IBIG, SSS, and other deductions monthly—is an example of a withholding tax. The case of Manny Pacquiao is an example of audit of taxpayer.

Corruption transpires during the investigation of businesses by the revenue officers. Examiners, supervisors (assessment section), assistant RDO, revenue district officers (RDO), directors, and some commissioners—these are the specific revenue officers involved in the scheme. No examiners, supervisors, RDOs and directors can claim he was never involved in this scheme. Is there any policeman who has never touched a gun? Is there any fisherman who has never tasted the fresh or sea water?

Every year, the BIR conducts tax examinations to most business establishments. Initially, the BIR issues a letter of investigation.

The main source of corruption is the Letter of Authority (LA) because this is the normal way of authorizing the audit.

In the eyes of the revenue officers, LA means money. With LA, revenue officers are like stockholders of every corporation. In some cases, when a revenue officer receives an LA, he is already borrowing money for the casino because he is sure that on or before 120 days, he would have money, specifically from that LA.

LA is like a certificate of deposit. It’s like a check. It reeks of money. It is money. Revenue officers call it “the bread and butter.”

Examiners and group supervisors quarrel for LA. Each lobbies, some even make advance payment to their RDO just to get the taxpayer they desire to audit.

The LA is assigned to the examiners with a group supervisor. An examiner can have several LAs at the same time, more or less 10 LAs per examiner, depending on the number of examiners in a district. A group supervisor can have more than one group of examiners.

The transaction is straightforward and simple. The audit is conducted by the examiners. The findings are presented to the taxpayers, often with the supervisor. The taxpayer arranges schedules with the supervisors to discuss the settlement, which includes the amount to be shown on the receipt and the amount that goes to “the boys”—the bribe money.

The supervisor discusses the settlement with the RDO. If approved, the payment form is prepared and signed by the RDO, and the taxpayer pays with the bank. The taxpayer returns to the supervisor; with him are the payment form and the money for “the boys”. In some cases, the taxpayer just gives the whole amount to the examiner or supervisor and lets them pay the bank. The revenue officer will just send the original copy of the payment form to the taxpayer after payment with the bank.

The supervisor divides the money among himself, the examiners, and the RDO. The RDO divides the money given to him by the supervisor. He gives to the assistant RDO and to the director. And finally, the director distributes the money to the commissioners of his choice.

These are the common scenarios that you would see almost everyday at the BIR. There are some districts where the supervisor reports the money to the assistant RDO. The reason why the usual distribution of money is from the supervisor to the RDO and not to the assistant is because of “Bukol”. This is a common word inside the BIR which refers to the amount of money not reported by one to another.

At first, I couldn’t believe what I saw. I knew all this was illegal, but if it’s illegal, then why was it happening plainly and nobody seems to care? Regardless of age—from the youngest revenue officers to the retirees—everyone is engaged in the scheme. I see even those appearing to be religious individuals involved in the scheme. They conduct masses at the office, and they themselves are involved in this detestable scheme of corruption.

It’s very mind-twisting. I don’t know how the president can say “Matuwid na daan” when this is happening. If he knew, maybe he would not say these words. It’s confusing for an ordinary Filipino—hearing different things from his president compared to what he’s seeing.

 

Mon Abrea is the founding president of the Center for Strategic Reforms of the Philippines (CSR Philippines), a non-profit organization that champions and consolidates initiatives to empower the MSMEs. He is also the Chief Strategy Officer of the country’s first social consulting enterprise, the Abrea Consulting Group (ACG), which offers strategic finance and tax advisory services to businesses, professionals and individuals. Feedback is welcome at consult@acg.ph.

  • Pidro Palaweno

    If I have my way, I would simplify Philippine taxation:
    1. Abolish all taxes except sales tax; and
    2. Pass a law requiring: a) all, AS IN ALL, business transactions in the country be paid thru debit or credit card, no cash transactions even in the most remote part of the country; b) Prices of goods and services be tax inclusive;

    Every time the card is swiped for payment, the tax portion is credited to the government. The more one spends, the more tax he pays. No more filing of tax returns. No more LAs. No more “compromises”.

  • californiaflip

    hindi pa pingausapan yung franchise rights or bidding for revenue districts ;-)

  • David Tinsay

    When a business or tax payer is audited and it was found out that he cheated on his tax payments the only thing to do is to send him to jail. Why should the BIR accept a compromise when they cheated. That’s where corruption starts. Do away with compromise/settlement.

  • nbi agent

    our government is like a monkeys, hear nothing, see nothing and say nothing. as far as i know, according to businessmen, BIR under Pnoy is the most corrupt than any previous ad ministration. bravo Mon for writing this article, hope there will be more people in media like you.

  • James Bato

    Who would disagree to this article? This is the strategy. I am seeing though that the initiative would still be coming from the GOVERNMENT itself. This may lack in action. PRIVATE individuals and entities should act on this. Strategise that the action would greatly come from private sectors. Yes, one is paying the right taxes! These strategies should be implemented simultaneously. Right taxes may not be paid if the tax payers know “the works.” “The works” may stay if the perpetrators have something to look forward to.

    Therefore, pay the right cheese and do something to try to put the cheese somewhere else that there will be no additional cheese requests and the rats may change their homes because they’ll have better cheese.

    If the CHEESE is right. Move the cheese.

  • Arphi

    Kung ang gagawin katulad ng ginagawa sa Amerka na puro online ang pagbabayad /transaction ay mababawasan ang corruption sa atin pamahalaan,makakatipid pa sa ORAS ng byahe,gasolina at di ka matraffic sa daan.Lahat ay higpitan ng pagbibigay ng RESIBO,may SURPRISE check up sa mga establishimento kung nagbibigay sila ng RESIBO.

  • Benedick Chanas

    Good article and insights. A lot of great minds in the Philippines and yet as what the author mentioned, the problem of corruption is part of the Filipino culture… we need to have culture revolution – but how to have this culture change be implemented massively? It is not easy to do actually, many small businessmen tried to abide with the law but it is really difficult to get things done immediately because people in the government offices intentionally delaying applications, transactions for the purpose of getting something before finally processing applications, permits, etc.