Conclusion
The responsibilities that are being stipulated in the Statement of Management Responsibility (SMR) for tax purposes as prescribed in Revenue Regulations 3-2010 are nothing new. Taxpayers and management already know their tax obligations and how to comply with these.
What the SMR intends to accomplish is to instill these responsibilities into the “hearts and minds” of management, they being the persons who most matter in this essential role of correctly paying the taxes. It is commonly known that some tax executives of business enterprises may have taken for granted the tax compliance of their business, if not condoning practices of taking risky or illegal tax positions to reduce the payment of their taxes. With RR 3-2010 in place, these irresponsible tax managers should think twice (and many times over) if they persist in stretching the limits of the tax law in reducing the taxes that they pay. Before the adoption of these regulations, erring executives and business owners might have been able to feign ignorance of their tax obligations. However, now that they are required to acknowledge their awareness of the tax rules by signing the SMR, they have no reason for not complying fully with their responsibilities.
It is sad to note that the implementation of the rule for the SMR for tax purposes has not taken off the ground. Though RR 3-2010 has not been repealed and continues to be in place, I am aware that the submission of the SMR has not been a regular practice of taxpayers. Further, the BIR has been complacent in promoting and enforcing compliance. The ingredients of a good tax administration improvement measures are in place in these regulations.
The submission of the SMR by taxpayers is not a costly and complicated process. Management is required simply to fill in a one-page statement and dutifully sign this. Of course, those signing the document will have to ensure that they are assuming accountability for the integrity of their tax declarations.
On the side of the Bureau of Internal Revenue, implementing and enforcing the same is also not complicated and burdensome. This substantially just involves a communication and monitoring process by the BIR. The communication can start with the BIR touching base with the tax practitioners and accountants of taxpayers who should be prompted to remind their principals and clients to comply with this SMR requirement. The monitoring of the SMR submission can be done manually or automated by the BIR. There should be a process to check if the SMRs are being submitted together with the other attachments in the income tax returns filed annually. Thereafter, the BIR can proceed with its enforcement by instituting civil or criminal cases against the tax executive signors of the SMRs for their false representation in the SMR that their companies have been tax compliant when all the while, they have been illegally reducing their tax payments as subsequently determined by BIR audits. This resulting “mind threat’ among taxpayers arising from a pro-active and effective BIR enforcement and monitoring would go a long way in changing the mindset of taxpayers of illegal under or non-payment of taxes.
The top management of the BIR should appreciate the potential that this measure can do to improve voluntary tax compliance, enhance tax enforcement, and increase tax payment. This can very well be the tipping point for institutionalizing this tax administration enhancement and transparency measure.
Joel L. Tan-Torres is the Dean of the University of the Philippines Virata School of Business. Previously, he was the Commissioner of the Bureau of Internal Revenue, the chairman of the Professional Regulatory Board of Accountancy and partner of Reyes Tacandong & Co. and the SyCip Gorres and Velayo & Co. He is a Certified Public Accountant who garnered No. 1 in the CPA Board Examination of May 1979.
This column accepts articles for publication from the business and academic community. Articles not exceeding 600 words can be e-mailed to jltantorres@up.edu.ph.