Get a ‘tax health checkup’ before it’s too late

CEBU, Philippines — Business owners usually fret at the prospect of receiving the dreaded notice of audit or Letter of Authority (LOA) from the Bureau of Internal Revenue (BIR). The fear usually comes from celebrated cases of tax disputes with the BIR.

With this year’s BIR collection target at P2.3 trillion, 14% higher than the previous year’s goal, expect the BIR to intensify its tax enforcement and collection drive.

 But fret no more. There are ways of avoiding the adverse consequences of a BIR scrutiny. Ample preparation and employing the right resources may lower the chances of such consequences.

Atty. OIivier Aznar, partner at P&A Grant Thornton, one of the top 5 auditing and professional services firms in the country, who handles corporate taxes for some of the country’s largest corporations, believes everything begins with integrity.

“Adhering to the basic principle of following the tax rules enables you to argue your position in any tax inquiry.  Then, while the BIR reserves the right to audit, taxpayers also have the right to a fair assessment,” he said.

He then prescribed four quick pointers taxpayers may adopt:

1. Simply comply.  Philippine taxation is complex and companies need to know by heart every deadline they must meet or else face staggering amounts of penalties and surcharges for late filing or payment. “Do it right the first time,” Atty. Aznar said. “Discrepancies call attention and raise the red flag with the BIR that something is up and must be looked into.”

2. Keep abreast.  Needless to say, it is important for the taxpayers to be updated of the tax rules and BIR issuances that are relevant to their businesses. Visit the BIR website regularly and attend tax seminars. For example, he said not a lot of people may know that the BIR already has a new form for annual income tax payment for this upcoming April 15 deadline, which is just less than two months away.  The new format features fewer pages to fill out for both corporate and individual taxpayers.

“Just recently, we learned that the President signed into law Republic Act No. 11213 which is about tax amnesty, and there were provisions in the Congress’ version that were vetoed by the President,” Atty. Aznar added. Taxpayers must carefully study this law when considering their options.

3. Engage experts. Some accountants specialize in financial audit, some in tax, and some in other fields. Financial reporting standards and BIR rules are not the same, said Atty. Aznar, who was also a former financial auditor at P&A Grant Thornton for several years.  An audited financial statement is no assurance against tax exposures. Better consult tax professionals, he urged.  Besides, it is virtually impossible for anyone to keep track of all the BIR rules. Having tax experts on your side also extends your ability to anticipate and monitor upcoming tax laws that may impact your business.

4. Maintain complete records. Don’t shred those old tax documents just yet. Remember that the BIR has its right to examine the taxpayers within a prescription period. Employing a system of meticulous and complete recordkeeping will boost your confidence in facing the BIR examiners during their tax audit. Better yet, even before the BIR audit, perform periodic reconciliations of your accounting records and tax returns in anticipation of the usual comparisons made by the BIR examiners.  Most of the initial huge findings in a BIR audit come from such comparisons.

Certainly, there are ways on how taxpayers would feel more self-assured of their “tax health” ahead of a BIR audit. Taxpayers might revisit their own tax practices or ask assistance from experts to do a tax compliance review for them.

As Atty. Aznar said: “Taxpayers should not wait for the time that they have already accumulated a lot of tax issues, just like each one of us who should not wait to feel a serious illness before getting our own health checkup.”