BIR campaign makes sense

I wouldn’t call it a shame campaign. It really is more of a transparency campaign. And it is something that should be supported by all taxpayers who are now carrying the brunt of supporting our government.

I am sure all of us feel bad about paying our taxes. It is not only because we see our politicians waste government funds and line their pockets with our hard earned money. It is also because we know the very rich do not carry their rightful share of the tax burden.

It should be easy to say that a well connected taipan with his army of topnotch accountants and tax lawyers would be able to avoid if not evade taxes that you and I have no choice but to pay. Even with everything being legal, most of the one percent comprising our ruling elite pay less than the rest of us in proportion to income earned.

But paying taxes is something we have to live with. I have met Filipino taxpayers in other countries who pay even higher percentages of their income in taxes but they are not complaining. They get excellent health care, fantastic infrastructure and a system of justice that works. Government is able to protect the personal security of taxpayers. We get extremely little, if any, of those sorts of things for the taxes we pay.

Let us not get into the justness of the current tax structure because even in the US, that is problematic. Let us just talk of tax compliance which is the objective of the current BIR campaign.

 Our system is based on personal declaration. The BIR doesn’t have the manpower to go after every taxpayer and scrutinize every return. Even with their computers, having one’s tax return examined thoroughly is a game of chance. But with Big Data Analytics, the BIR can now say what groups of taxpayers, e.g. doctors or lawyers and other professionals who are grossly underpaying.

That makes it important for the BIR to always show it is enforcing the tax laws without fear or favor. In that sense, it had been a long while since we had a BIR Chief like Ms. Henares who seems to have been able to keep herself clean.

The pressure on Ms. Henares is intense and never ceasing. She is constantly under pressure to show that the FAT CATS get no special treatment. If one luxury car dealer ends up paying a billion pesos in deficiency taxes, other luxury car dealers ought to be examined for similar liability. No tobacco company is mighty enough to escape her scrutiny.

The way I see it, the so called shame campaign directed at some professionals is really nothing more than laying the cards on the table. Now that BIR is able to use Analytics to mine Big Data, we are being told the dirty story about the tax paying habits of some of our countrymen.

About this time last year, I wrote a column on my conversation with Finance Secretary Cesar Purisima and how he is mining Big Data to uncover those who have not paid their rightful share in taxes. Sec. Purisima said he has put up a special geek squad working in a DOF backroom collating and analyzing data from various government agencies as well as private sources.

Thus, Sec. Purisima told me, when he visited the BIR District office responsible for the Binondo Chinatown area, he had with him among others, data from the Bangko Sentral on bank deposits in the area. As he sat down with the BIR District head, Sec. Purisima confronted him with the fact that bank deposits in Binondo have increased which seems to indicate improved business activity. So why is the tax collection not keeping up with the pace?

His geek squad is currently building capacity to do data triangulation – using third party information to validate data from BIR and BOC –  down to the smallest administrative unit.  They are also building capacity for more advanced statistical software to compare larger data sets to help track smuggling and tax evasion.

Sec. Purisima said they are now reconciling trade statistics, and cross checking records from LGUs, DTI, PRC and other regulatory agencies. They are also now starting to use third-party data from AC Nielsen, NSO, BSP, SEC (or other relevant private companies and government offices) to capture major industry and commodity data and compare these with tax collection data. 

Sec. Purisima is determined to improve on our tax effort now at 12.8 percent and bring this up to 16 percent. To do this, they have to focus on the taxpaying habits of the self employed and professionals. This is the context of that so called “shame” campaign of the BIR that started out with doctors.

It is not just doctors. They are looking into income tax paid by other self-employed individuals. Between 2011 and 2012, the share of this sector to total individual income taxes paid decreased to about 6.5 percent, from over eight percent the previous year. This is unbelievable, he said, because we can all see this sector has never had it so good.

There were over 404,000 professionals/self employed who filed an average income tax payment of P33,000 the other year. “I want to increase that to 1.8 million filers and we’re basing this on data from the Professional Regulation Commission that there are over two million practicing professions in its database.

“The NSO says there are over three million of them and the SSS has over 600,000 voluntary registrants who declare themselves as self-employed. We want to increase the average annual tax payment from P33,000 to P200,000 minimum which is reasonable as this means a monthly income of just around P50,000. If we’re able to increase the 400,000 tax filers to 1.5 million and the average payment to P200,000, that’s P300 billion. At our current GDP, that’s three percent of GDP.”

Sec. Purisima said that during his visits to the regions, he asks the RDO heads to name their top 20 taxpayers in each of the different categories. “And even they are shocked when they see lawyers paying P200, doctors P400 a year. This is ridiculous.”

I like how the BIR is letting us in on the dark dirty secrets of many individual and corporate taxpayers. In the past, everything was just between the tax accountants and the BIR examiners. Now, when the stark reality of the numbers are publicly shown, the BIR hopes to get the support of all of us oppressed small taxpayers in getting the biggies to pay up.

For example, in the latest ad of the BIR which was about corporate taxpayers, we are told that only 39 of the top 100 companies in the SEC list of biggest corporations are part of the BIR’s Top 500 Non-Individual Taxpayers for 2012. The SEC ranking was based on the amount of revenue generated in 2012, whereas the BIR looked into the income tax returns of the companies in drawing up the list. Why are the biggest corporate revenue earners not among the biggest taxpayers?

Indeed, there is no hiding from Big Data. Everything will now be exposed to the light of day. For too long, death was the only certainty for the rich because they had good accountants. Hopefully, everyone is or will soon be like every one of us… taxes will be certain for them too.

I think the ultimate objective of the BIR ads is to make it a matter of pride to be included among the top taxpayers. For example, I like the reaction of Andrew Tan when he protested last year the BIR list which showed Kris Aquino paying more taxes than him.

Because of Mr Tan’s protests, we found out that yun pala, most of the taxes he paid were in the form of the 10 percent tax on dividend earnings not the 32 percent tax on salaries and other income individuals like us and Kris Aquino pay. Last year too, I was in the room when Oscar Lopez protested his non inclusion in the list of top taxpayers and called for his accountants. They checked and found out the BIR made a mistake in not including Mr. Lopez.

I hope all the other big guys in business, the Makati Business Club types will likewise feel it an honor to be in the BIR top taxpayers list. The Ayalas, JAZA and brother Fernando, are conspicuously absent in the list. I am sure they paid their taxes but in a less transparent way through layers of special corporations. They must stand up and be counted.

There are only two ways everyone can be made tax conscious. One, is to make everyone feel everyone is carrying his just share of the burden. Two, is for government to show the money is being used productively to serve the people.

That’s what that “shame” campaign is all about. It is wrong to call it such because its objective is to make everyone proud to be a diligent taxpayer.

Boo Chanco’s e-mail address is [email protected]., Follow him on Twitter @boochanco