Paying correct taxes need not be difficult

Like any responsible taxpayer, Manny Pacquiao should only count the net amount after paying taxes instead of the reported guaranteed $20 million he had earned by recently beating Timothy Bradley in the ring. This way, he stands to avoid any brush-ins later with any tax agencies, in the Philippines or whatever other country he chooses to stage his fights.

Today is deadline day for self-employed professionals to file their income tax returns, and like Manny, they will need to pay more attention to the documents they submit to the Bureau of Internal Revenue because, let’s face it, our taxman is getting tougher about paying the correct taxes.

If many years ago one could laugh off any BIR attempts to run after tax evaders and tax cheaters, the recent computerization of income records of the country’s roster of taxpayers as well as a tougher compliance system currently in place should smote fear in any wannabe offender’s hearts.

Yes, BIR commissioner Kim Henares is doing her job, and based on the high-profile campaigns she has done so far, she seems to be doing the correct things and putting to shame her critics and detractors.

Recently, the Philippine Medical Association – which launched a retaliatory campaign against BIR advertisements depicting doctors as tax cheats – waved the olive branch in the face of more statistics released by the tax agency about massive cases of incorrectly filed tax returns among doctors.

Clearly, you don’t fight city hall if you’re 100-percent not sure about the validity of your position. And faced with stats spelling out that 1 out of 4 self-employed professionals, doctors included, are not filing any income tax returns at all, the BIR campaign definitely has firm legs to stand on.

Catching up

Individuals engaged in business or practicing a profession who have no intention of filing their income tax returns today had better think twice from now on. Sooner or later, grief will come knocking on your door with a long list of tax assessments, and it may be difficult to wriggle out from any penalties, including possible garnishing of your assets.

The computerization of BIR indeed has produced a fairly accurate list of registered professionals that can easily be compared with the list of individuals who – and who don’t – declare their incomes and pay the correct amount of taxes.

And as the good commissioner points out, if all self-employed professionals were to pay the right amount of taxes, the BIR could easily double its tax collections this year, which ultimately translates to more money to build schools and roads, and pay for other social benefits that the government needs to spend on.

Getting on the right track

While the BIR has been running its shame campaigns, even to the extent of naming companies and specific individuals found delinquent in paying their taxes, it has also come up with a more positive campaign funded by the US’s Millennium Challenge Corp.

The objective is to encourage all those self-employed professionals who have not registered, to do so with the end-goal of filing their income tax returns and paying the correct amount of taxes.

Much as the RFP (for Register, File and Pay) campaign makes it seem so easy to be a bonafide law-abiding Filipino citizen when it comes to tax paying, the whole system of filing is complicated especially if you are earning a sizeable amount a year.

If it’s your first time to file and pay this year, let’s hope that you got your math correct especially if you opted to itemize your return. Going through back earnings of the past year is not going to be easy especially if your books are not in order.

The same is true for filing for tax rebates for allowable expenses like car amortizations, fuel, office rentals, office repairs, and even representation costs if you had not done this diligently during the 12 months of 2013.

Of course, you may have tried to be smart by hiring at the last minute a good accountant. Still, the onus on everything that is written on your tax return is your own responsibility, and so if you gave your accountant garbage, you can expect garbage in return. You may have a lot of explaining to do to a tax official if you ever come to that point in time.

Important tips

Needless to say, you’ll be in that cycle now of keeping track of your earnings and expenses, and it would be best to hire a responsible accountant or bookkeeper who can protect you from making a fool of yourself in the future.

Make sure that the external accountant or bookkeeper that you’ll work with has a good grasp of the existing relevant BIR rulings, and is competent to give you advice on what to do and what not to do. Remember that it’s not a sin to avoid taxes, but you could get jailed for evading or not paying the correct amount of taxes. 

If you don’t need an external consultant to help you, especially if you receive compensation that doesn’t run to eight digits or the high seven digits, it would be helpful to get one of those briefings at your nearest BIR office. Now that there’s this campaign to encourage professionals to declare income and pay taxes, there are a number of BIR personnel adept at giving advice.

Meticulously keep track of all your expenses by having them properly receipted and filed. This way, it is easy to sum these up when the time comes to sit down and write your income and expense account for the BIR.

As much as possible, do your summaries every month. This way, there’s no cramming at the beginning quarter of the year when you prepare to file your income statement. This helps in minimizing mistakes which can turn out to be costly in the end.

Lastly, and most importantly, be honest. Would this be difficult?

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.