The delisting of the largest taxpayers from the roll of the Large Taxpayers Service (LTS), an office directly under the commissioner of the Bureau of Internal Revenue (BIR) which handles large corporations, surprised not only the delisted taxpayers themselves but also ranking officials of the BIR. Out of around 1,200 large taxpayers, more than 500 were stricken off the roll and were transferred to the jurisdiction of the revenue district offices.

There were no reasons given, and the criteria used for selection of delisted taxpayers have not been made known. Apparently, the move was not meant to weed out shrinking, closed, merged or underperforming companies. The delisted taxpayers consist of the biggest local and multinational banks, insurance, pharmaceutical and manufacturing companies which belong to the top 500 corporations on the Securities and Exchange Commission list.

The LTS was originally set up, sometime in 2000, to specifically handle large taxpayers, so that the BIR can design and deliver efficient and fast service that is specifically suited to their needs. The trend then was for the segmentation of taxpayers into groups: large, medium, self-employed and professionals, and government. Realizing that each segment is differently situated, programs specifically attuned to the needs of each segment were to be developed. Of the four, only the large taxpayers’ group materialized and was called the LTS.

The LTS is an office that is armed with full functions that include taxpayers’ assistance, assessment, collection and planning and policy. Its guiding principle is the delivery of first-class service to “valued customers.” Thus, revenue officers assigned to the LTS are presumed to be the cream of the crop who could understand the business and the peculiarities of the industry’ to which each of these taxpayers belong.

Likewise, the LTS provides the BIR a good mechanism to closely monitor the behavior of large taxpayers which, although few in number, contributes almost 50 percent of the total revenue collection. The timely information on revenue collection is important for purposes of monitoring, trending, forecasting, and benchmarking.

Originally, to be on the prestigious list, one must meet certain criteria based on the amount of tax payment, net worth or sales. Big banks and insurance companies automatically landed on the list. The list is reviewed every two years, allowing the delisting of closed or downsized taxpayers and the enlisting of newly classified large taxpayers. Again, such selections are based on clear, transparent and specified criteria, which was what was lacking in the recent delisting. There are no clear, transparent and well-defined criteria. Insiders themselves could not explain the basis for the selection.

Was the delisting meant to sanitize the consistent failure of the LTS to reach its collection goal?

Through delisting, the collection goal is transferred from the LTS to the regular district offices, where these are devolved. But are the district offices equipped to handle the concerns of these large taxpayers? Shouldn’t the district offices be prepared or oriented first before taking on a job that requires a different orientation?

On another note, wouldn’t this affect customers’ decision? For example, would a depositor prefer to put his savings in a large taxpayer bank than one that is not? Or get insurance from a large-taxpayer insurance company than one that is not? Being called a large taxpayer has some premiums on it, at least from the public’s perception. A large taxpayer is viewed as one that pays taxes correctly, a patriotic and responsible business entity, transparent and well-governed.

Talking about perception reminds me that right after the delisting, the BIR commissioner issued Revenue Memorandum Order (RMO) 16-2008. This RMO has given the National Investigation Division (NID) and the Policy Cases Division (PCD) the authority to investigate these delisted taxpayers. The NID is an office associated with investigating fraud cases. It used to be named the Tax Fraud Division. The PCD is an office that investigates normally by industry, or by issue, to identify loopholes in the tax treatment of taxpayers belonging to a specific industry.

With this in mind, is it possible that the taxpayers were delisted because they were fraudulent? Or that they are not reporting their taxes properly?

As to the adulterated LTS jurisdiction, since it does not cater to the real large taxpayers anymore, shouldn’t it be renamed to “Selected Taxpayers Service (STS)” or perhaps “Commissioner’s Choice Taxpayers Service (CCTS)”?

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The author is a partner at Benedicta-Du Baladad (BDB) and associates. If you have any comments or questions concerning the article, you can e-mail the author at benedicta.du.baladad@bdblaw.com.ph or call 856-2952.

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Tax Law for Business: Mystery behind delisting of large taxpayers

The delisting of the largest taxpayers from the roll of the Large Taxpayers Service (LTS), an office directly under the commissioner of the Bureau of Internal Revenue (BIR) which handles large corporations, surprised not only the delisted taxpayers themselves but also ranking officials of the BIR. Out of around 1,200 large taxpayers, more than 500 were stricken off the roll and were transferred to the jurisdiction of the revenue district offices.