BIR, DOF warn small “tax evaders” but lawmakers say “go after big fish”

Mar. 23, 2013

“That’s the trouble with the BIR.  Ang gagmay ang ginagukod (They run against the poor people).  Ngano dili nila gukdon ang dagko sama nila Lucio Tan? (Why don’t they run after the big tax evaders like Lucio Tan?)” – Rep. Luz Ilagan

Davao Today

DAVAO CITY, Philippines – Are you self-employed, a small business owner or a professional who “cheat” your way in tax filing just to pay lower taxes?

Then the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) are declaring war against you.

Both departments issued the warning this week noting the “ridiculous” tax payments they have observed across the regions and professions.

DOF Secretary Cesar Purisima, in a statement, said that there are professionals who are paying “extremely low” taxes.  He cited that some doctors in Pangasinan are paying only PHP 800, some lawyers in Mindoro are paying only PHP 121, some media practitioners in Quezon City are paying only PHP 400 and some businessmen in Cagayan de Oro are paying only PHP 1,000 — annually.

The amount these professionals are paying, according to Purisima, implies that they are earning less than minimum wage earners.

While tax payments from self-employed and professionals (SEPs) increased to PHP 1 billion in 2010 to 2012, Purisima said this sector “constitutes only 6.8% of total individual income taxes,” a percentage that is way below the 81.5 percent share of those whose taxes are automatically deducted from their salaries.

But Gabriela Women’s Party Representative came to the defense of the SEPs.

Go after the Big Fish

“That’s the trouble with the BIR.  Ang gagmay ang ginagukod (They run against the poor people).  Ngano dili nila gukdon ang dagko sama nila Lucio Tan? (Why don’t they run after the big tax evaders like Lucio Tan?),” she told

Lucio Tan, a cigarette and beer tycoon, has been facing tax evasion cases particularly from his Fortune Tobacco Corp.-Philip Morris Fortune Tobacco Corp. (FTC-PMFTC), Allied Banking Corp. (ABC) and Asia Brewery Inc. (ABI) companies.

Danilo Pacaña, former Regional Auditor of Tan’s ABC, has filed tax evasion charges worth PHP 1.2 Trillion against Tan’s companies in 2011.  Based on news reports, Pacaña claimed that FTC-PMFTC and ABI used 27 dummy marketing companies to declare lesser actual sales and therefore reduced their taxes.  Tan’s ABC also had an outstanding obligations worth a total of PHP 213 Million from 1979-1987, Pacaña alleged.

Former Chief Justice Renato Corona was also charged with PHP 120 Million tax evasion case while Silka Papaya Soap allegedly evaded PHP 1.5 Billion of taxes.

Ilagan said that if BIR was able to make Tan pay his dues, it would have solved the BIR’s collection problem with billions worth of taxes.

Sayon sa ila (BIR) ang manghulga sa gagmay nga professionals.  Pero pila ang big fish nga ilang gipalusot (The BIR easily threatens the poor professionals but it has allowed big fish to evade from their taxes),” the militant lawmaker said.

Meanwhile, Davao City Councilor lawyer Leah Librado-Yap said “If the Aquino administration is true to its anti-corruption campaign, it should go after big tax evaders.”

In 2009, tax collections from SEPs made up about eight percent of all individual income tax collections.

Tax compliance in the SEP categories is said to have been poor because of “fraudulent business expense deductions, failures to file income tax returns, and inconsistent issuance of official receipts.”

There are currently 1.8 Million registered SEPs, BIR records say.  About 402,934 self-employed, business and professionals taxpayers are paying an average of PHP 33,441, an amount that, according to Purisima, would imply that they only have a monthly income of PHP 23,647.

“It is unbelievable considering the lifestyles of most entrepreneurs and professionals,” he said.

There are currently two million active professionals registered in the Professional Regulatory Commission (PRC) while there are 816,759 micro, small and medium enterprises registered in the Department of Trade and Industry (DTI).

The DOF and BIR aim to expand the number of taxpayers to 1.8 Million, although they noted that the number is just “conservative.”  By this, they expect to improve the average payment to PHP 200,000 which would result in collection revenue of PHP 360 billion.  The move is also to meet the objective of raising the country’s tax effort by two percent come 2016.

“It is imperative that we broaden the tax base.  In our survey of a prominent business association, we discovered that 23% of their members had no TIN, and 50% did not file returns.  There is still a lot of room for improvement,” BIR Commissioner Kim Henares said.

Henares said that they are comparing their list of professionals and self-employed with that from the PRC, DTI and the local government units.

“We are prioritizing the audit of those with ridiculously low income tax payments.  Don’t wait for the BIR to catch you.  Pay the correct taxes now so you can spare yourself from criminal charges, and contribute to our country’s progress,” Henares said.

Librado-Yap suggested the government to find alternative fiscal solutions to raise the country’s revenue instead of passing the burden to the public through ineffective proposed tax schemes, among others.

Alternative solutions

Librado-Yap told that the Aquino government is losing its potential revenue per year due to fiscal incentives it had given to big and foreign investors.

Citing independent think-tank Ibon Foundation’s estimates, the government incurred revenue losses of PHP 200 Billion in 2010 because of tariff reduction and huge incentives given to foreign investors.  Revenues lost to the Japan Economic Partnership Agreement, for example, were estimated at PHP 12.5 billion in 2009 after the agreement was ratified in 2008.

Librado-Yap also echoed Ibon’s recommendation that the Bureau of Customs (BOC) should increase the tariffs imposed to agricultural and industrial imports, saying this will help contribute in the additional revenues.

Since 1996, Ibon said, after World Trade Organization agreements came into force, the BOC tax to GDP (gross domestic product) ratio has decreased from 4.8 percent to 2.9 percent in 2009.

Librado-Yap also added that leakages in the tax collection system must be fixed, emphasizing that “ordinary people like workers, professionals and minimum wage earners” comprise a sizable amount of the country’s revenues.

But Henares said that under the Aquino administration, “fiscal performance has greatly improved” through the tax and revenue efforts.  Citing DBM data, Henares said the budgets of key agencies have gained record increases with DepEd by 45%, DOH by 77%, DPWH by 25% and DSWD by 267%.

“There’s no more excuse to not pay taxes.  Under President Aquino, we have shown the blessings that come from taxes. Dahil sa daang matuwid, buwenas na ang buwis, hindi na buwisit (Taxes now redound to blessings, no longer just a burden),” Henares said.

In its website, BIR said that it is “ committed to collect taxes for nation-building.”

But of the PHP 2.006 Trillion budget in 2013, the Aquino government only allotted PHP 53.8 billion for public health which is only a little more than 15 percent of the PHP 333.9 billion allocated for foreign debt servicing.

The Department of Health was allotted PHP 40.9 B and the State Universities and Colleges with PHP 34.9 B compared to the Department of National Defense’s PHP 121.1B and Department of Public Works and Highways’s  PHP 152.9B.  (Marilou Aguirre-Tuburan/

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