MANILA, Philippines — The Bureau of Internal Revenue (BIR) and tax experts have expressed approval for having the country’s bank secrecy laws reviewed, saying amendments can significantly improve the agency’s investigative and enforcement capabilities.
“I believe there is merit in revisiting our bank secrecy laws, particularly to address tax evasion, illicit financial flows and the concealment of undeclared income,” BIR Commissioner Charlito Martin Mendoza told The STAR.
“However, bank secrecy should not become an obstacle to the proper enforcement of our tax laws,” Mendoza added.
Under Republic Act 1405 or the Bank Secrecy Law and RA 6426 or the Foreign Currency Deposit Act, access to bank information is “generally restricted,” subject to specific legal exceptions.
However, Section 6 (F) of the National Internal Revenue Code, as amended by RA 10021, allows the BIR commissioner to inquire into bank deposits in certain cases.
This includes those involving estate tax determination, compromise applications based on financial incapacity and exchange-of-information requests from foreign tax authorities under applicable international agreements.
Mendoza said the restrictions make it difficult for the BIR to independently verify whether taxpayers have accurately declared their taxable income, even with the agency’s broad investigative and assessment powers.
“The challenge is that, unless the case falls within a statutory exception, we generally cannot compel banks to disclose the taxpayer’s deposit records merely on the basis of a regular tax investigation,” he said.
However, Mendoza said any amendments should include safeguards against arbitrary examinations, unauthorized disclosure and the misuse of financial information.
“Our goal is not to intrude unnecessarily into legitimate financial transactions. It is to ensure that taxpayers who faithfully comply with the law are not placed at a disadvantage compared with those who deliberately conceal income or evade taxes,” he said.
Also in an interview with The STAR, Eleanor Roque, tax principal at P&A Grant Thornton, likewise backed a review, saying the Bank Secrecy Law was enacted during a different period in the country’s financial history.
“Its objective of encouraging people to deposit their money when the banking system was still new and needed confidence from depositor is no longer true now,” she said.
Roque added that allowing the BIR to independently verify whether declared income is consistent with a taxpayer’s financial activity could help improve tax collection.
“But the greater access to bank information must have clearly defined circumstances to protect taxpayers and at the same time, help in detecting undeclared income and pursuing tax evasion,” she said.