Poor tax collection costs government P64 billion last year

Poor tax collection efforts last year resulted in government losing P63.853 billion from tax leakages or uncollected taxes, Finance Secretary Alberto Romulo said yesterday.

Romulo, who leads the government panel negotiating with the International Monetary Fund (IMF) for a post-program framework to monitor the economy for the next two years, admitted to the IMF team yesterday that its efforts to implement revenue enhancement measures "will be difficult to achieve" given the circumstances.

Last year, tax leakages from specific taxes on cigarettes stood at P1.3 billion as the Bureau of Internal Revenue (BIR) could not monitor the actual volume which is the basis for specific taxes.

Government also lost P463 million from uncollected beer taxes and P1.33 billion in fringe benefit taxes.

A huge chunk of the tax leakages came from uncollected value added tax which last year totaled P45 billion.

Romulo said that the ratio of input to output in VAT is 81 percent, "so we don’t know if BIR actually collected this or companies just used it and claimed it to escape paying proper taxes."

Another source of tax leakage was in minimum corporate income taxes (MCIT) where some P4.26 billion was not collected.

Romulo said he suspects banks of incorrectly stating MCIT which they withhold on all deposits.

This does not even include interest income banks collect on government securities holdings of their clients. The tax leakages from interest income was P11 billion.

Romulo admitted the government was having a hard time auditing the aggregate amount of tax withheld because of tight bank secrecy rules.

Government also forfeited P500 million in taxes from the implementation of the Agriculture Fisheries Modernization Act.

Still, Romulo said the BIR will still conduct an audit of individual banks to find out how they actually collected.

Making matters worse for government, according to Romulo, is its inability to implement revenue enhancement measures which were approved as early as 1997.