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Crime does pay?

Lauren Hill, Grammy-awarded singer; Wesley Snipes of Blade (the vampire superhero film) fame; Richard Hatch, first winner of the reality show Survivor; Pete Rose, baseball icon. They are all celebrities and they have one other thing in common: they served prison time for tax evasion.

The US government’s use of tax fraud cases with efficient and maximum effect was unheard of, until it was employed to bring down gangster Al Capone. For the many dark, organized crimes attributed to him that always seemed to lack surviving witnesses, tax fraud was easier to prove. All they needed was the ledger, the accountant, and that he did not declare the money he made in his tax return.

There are many legitimate businessmen in the US who were jailed for tax evasion, too. One of them was a telco executive who received a prison term of almost 10 years and was asked to pay hundreds of millions of dollars in deficiency taxes. It was reported as the biggest tax fraud case in America a full decade ago. His was not a simple non-declaration, but a more of a deliberate yet false scheme of using tax haven territories, different aliases and different shell companies.

The common schemes in the country are not as complex; usually there’s simple underdeclaration, misclassification, or use of false documents. Guess how many celebrities or popular personalities in our country, who were implicated in tax fraud cases, went to jail – so far, none.

Our sights are particularly trained on tax fraud this Sunday, perhaps due to the headline-hugging multi-billion tax fraud case allegedly committed by a local cigarette manufacturer. It allegedly used the traditional underdeclaration of import values and brazen methods such as fake documentary stamp tax.

The public has a legitimate vested interest in tax fraud cases, especially gargantuan ones because, believe it or not, they share in the cost of these unpaid taxes.

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Look no further than the tax reform package that is to be passed. We all need to put in our share, true. A critical part of that package, one that is supposed to fund the country’s infrastructure aspirations, is the increase in diesel tax. Now that will be felt, especially by the lowest or meager income earners who are indirectly taxed by the prices of fuel, electricity, food and household goods.

Politically, it certainly is the wrong message for the government to tax the poorest of the poor and let billionaire tax cheats off the hook. When the product involved is one that poses a real health risk (and possible costly hospitalization), tax revenue is the consolation, at least. So if tax payments are indeed evaded, that becomes doubly wrong.

That no one in the country had gone to jail yet because of tax fraud must be quite emboldening for some. From the point of law, however, it must be remembered that tax fraud is a crime. To be found guilty of it, the government must present proof beyond reasonable doubt. When doubt is present, there can be no crime. The liability becomes civil, and the worst that can happen is that the guilty party pays up – but no jail time.

The Tax Code itself tried to address this issue of evidence. It is provided that if there is 30-percent underdeclaration, then there is prima facie evidence of fraud. When this underdeclaration is not voluntarily made known to, or hidden from, the Bureau of Internal Revenue (BIR) during a tax examination, it can become clear that fraud was intended. So, how can huge sums of settlement breaching the 30-percent threshold not result in tax fraud? We are not privy to those cases.

Curiously, the president said in this alleged tax fraud case that if the erring taxpayer pays billions, which is multiple times their actual liability, all will be forgotten. If the BIR is authorized to compromise a tax case, surely the president can as well.

The power to compromise though is based on law that only allows for two instances were compromise settlements are possible: (1) doubtful validity of the assessment, and (2) financial incapacity. When there is actual tax fraud, there is no doubt on the validity of the assessment. When the enterprise is profitable, there is no financial incapacity. So tax fraud cannot be compromised, and neither can the criminal liability arising from it.

It seems tax fraud is the President’s next test of leadership.

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He also chairs the Tax Committee of the Management Association of the Philippines (MAP). Email your comments and questions to This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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