“Sharing information for tax collection” by Fabian K. Delos Santos (February 7, 2011)
SUITS THE C-SUITE By Fabian K. Delos Santos
Business World (02/07/2011)
As technology advances, sharing information has never been easier.
File-sharing Web sites abound, allowing users to access and manipulate software, music files, photos and other forms of data. Popular social Web sites allow users to share information in ways incomprehensible just a decade ago.
Sharing information is a phenomenon that benefits both the general public and the government. While a shared information system keeps one updated on news, trends and events, government agencies are using this system to effectively exercise greater vigilance, collaboration and open information exchange, in the pursuit of efficiency. One clear example is the initiative to raise tax revenues, notably by concentrating efforts on taxpayers who refuse to pay the right taxes.
The Bureau of Internal Revenue (BIR)’s Reconciliation for Listing and Enforcement (RELIEF) System and Integrated Tax System (ITS) have worked wonders for the bureau. The BIR is able to generate data that could, at the very least, indicate possible sales under-declarations made by taxpayers on a third — party matching basis.
The BIR’s matching system is fairly simple: the bureau compares the declarations of the supplier and the customer, looking at their respective income, value-added tax, withholding tax and other tax returns. For example, if a supplier’s reported sales to a purchaser is less than that purchaser’s reported purchases from that supplier, the purchaser will be asked to explain the seemingly over-declared purchases. If the purchaser manages to prove the correctness of the amount of his purchases, then the BIR now has significant evidence to go after the supplier. Of course, this could go the other way if the supplier involuntarily shares information with the BIR that can be used to pursue the purchaser. This becomes a matter of inadvertently pointing a finger at the erring party.
The BIR issues a Letter Notice (LN) based on under-declarations discovered through the RELIEF and ITS. This LN is the basis of authority for the BIR to assess a taxpayer. The LN is equivalent to the Letter of Authority (LoA), and its issuance prevents a taxpayer from amending his returns covered by the said LN.
What sets the LN apart from the LoA is that the former is an issue-based assessment. This means that the investigation will cover only specific discrepancies discovered under the third-party information matching system.
This is the reason why, even after the settlement of any valid assessment for deficiency taxes listed in the LN, the BIR is not precluded from issuing an LoA covering all internal taxes to the same taxpayer for the same year as that of the LN.
Neither is the BIR limited to nor by the information obtained from its own system. The BIR acquires information from other government agencies to verify relevant information such as a taxpayer’s costs and volume of production, receipts or sales and gross incomes of a taxpayer, as well as the names, addresses and financial statements of corporations, mutual fund companies, insurance companies, regional operating headquarters of multinational companies, joint accounts, associations, joint ventures or consortia and registered partnerships, and their members.
The power of the BIR to access this information is provided for under Section 5 of the Tax Code, wherein the BIR Commissioner may regularly obtain from any office or officer of the national government or local government units, government agencies and its instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned and -controlled corporations, any information relevant to ascertaining the correctness of any return; or even if no return is made, in determining the liability of any person for any internal revenue tax, in the collection of any such liability or in evaluating tax compliance.
Of late, the BIR has been increasing its information-sharing activities with various agencies, such as the Bureau of Customs, Land Registration Authority, Insurance Commission and the Land Transportation Office. This means that any information that may have been provided to these or other government agencies, intentionally or inadvertently, will be accessible to the BIR and may result in the issuance of an LN (or LoA, as the case may be) when certain discrepancies are identified in the said information accessed and the declarations made in tax returns filed.
LN verification is a form of no-contract audit but taxpayers must not take it lightly. Under existing BIR rules, if the discrepancy stated in the LN is at least 30% and the taxpayer fails to contest the same, the BIR may institute closure proceedings according to the policies and procedures prescribed under Revenue Memorandum Order 31-2002.
Furthermore, the BIR recently obtained P400 million under the “e-Government Fund” to establish the Assets Information Management Program (AIM-P), which will be utilized initially as a system to check the information being shared among the said government agencies against the information already obtained by the BIR under the one-time amnesty program conducted in 2007. The AIM-P will then be used to provide a system for the BIR to easily evaluate (and compare) a taxpayer’s income payments, based on the number and value of the taxpayer’s assets currently registered with other government agencies.
With the new administration’s emphasis on increased transparency and accountability, there is greater focus in government to raise tax revenue collection without having to impose new taxes. And the key to this goal is information.
As responsible taxpayers, we must take steps to be consistent and truthful in our income reporting and — for our own protection — check if the people we deal with are doing the same.
(Fabian K. Delos Santos is a Partner of SGV & Co.)
This article was originally published in the BusinessWorld newspaper. It is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.