Government has been losing as much as P106 billion in individual income tax revenues each year due to poor compliance by wealthy self-employed people, particularly own-account professionals as well as those running single proprietor business establishments, Negros Oriental Rep. Herminio Teves said.
"We have studies indicating that government has been collecting only 47 centavos out of every peso in income taxes owed by self-employed individuals," said Teves, House ways and means committee senior vice chairman.
Teves urged the Bureau of Internal Revenue (BIR) to crack down on affluent self-employed individuals, saying rigorous tax enforcement is crucially important to building up compliance.
"Stronger enforcement is absolutely imperative. Compliance by the self-employed will improve significantly once government raises the risk of them getting caught if they do not report taxable income," Teves stressed.
The BIR collected an aggregate of
P96.7-billion worth of personal income taxes from a total of 485,748 individuals in 2004.
Teves said 291,601 self-employed individuals paid only
P12.41 billion in income taxes, or a measly 12.9 percent of the P96.7 billion. He said 194,147 compensation earners or salaried employees assumed the bulk of individual income taxes — P84.29 billion or 87.1 percent.
"Nearly 100 percent of the individual income tax leakage may be attributed to the self-employed. There is no problem with salaried workers because a large portion of their taxes is already withheld at source by the employer," he pointed out.
The Philippine Institute of Development Studies estimates the annual personal income tax leakage at
P105.74 billion. This implies that government has been collecting only 47 percent of the full potential taxes owed by the self-employed, Teves said.
The Departments of Finance estimates the annual uncollected personal income taxes at
P98.95 billion.
To put in check rampant tax avoidance by the self-employed, Teves said the BIR should work closely with local governments. He said the BIR should be data mining with local treasurers and assessors.
Teves said the BIR could track down evasive self-employed individuals by scrutinizing their locally reported sales and incomes, as well as the assessed values of their properties.
"For instance, a self-employed individual who has never paid income taxes might have a record with the city assessors office showing that he recently acquired real property worth millions of pesos. The BIR can then run after that individual for not reporting taxable income," Teves said.
"The assessors office is a gold mine of data on indicative personal wealth. This is because no individual can get a title to a real property without going through the assessors office and paying local taxes," he added.
