Sixth part
The Bureau of Internal Revenue derives a significant amount of data from various sources. Taxpayers submit regularly to the BIR their tax returns, information returns, and various attachments thereto that contain financial and tax-related information.
Third parties engaging with taxpayers are compelled to submit various reports to the BIR on their transactions with their clients and suppliers, including lists of purchases, sales, and withheld taxes. There are other entities that also provide taxpayer-related information to the BIR, including government agencies, external auditors, accredited tax practitioners, printers of receipts and invoices, dealers of cash registers and point of sales machines, service providers of computerized accounting systems, Philippine Council for NGO Certification and a host of others. For the non-recurring or uncommon transactions with the BIR, taxpayers have to submit information pertaining to retirement funds, transfers of properties, tax amnesties, availing of tax exemptions, qualifying for tax and investment incentives, related party transactions, operations of excisable articles, etc. All of these bring in the BIR’s possession trigintillion (the largest imaginable number) amount of data available for processing. Data processed into information can bring so many advantages to the BIR in its decision-making process and implementation of key functions.
Picking up from last week’s article on the BIR audit of taxpayers, I advocate that this processed information, if actually done and done properly, can radically transform the tax investigation system. Data arising from the Googolplex (another description of the largest number) sources abounding in the BIR can be put into immediate utilization to increase the tax financing that the BIR can generate to support a bankrupt state. I have been focusing on this precarious state of the government in my ongoing series of articles.
Of course, the key to putting into productive use this voluminous data is tapping information and communication technology. The traditional term long in use for ICT was “computerization.” I was part of the then ambitious Five-year Tax Computerization Progam initiated by the BIR in August 1994. As then the Assistant Commissioner for Management and Planning, I was the project owner of the Management Information System tasked to formulate the applications for the executive decision making or what is commonly called now as Management Dashboard. Unfortunately, I had to leave the BIR to join the private sector and tax practice in 1996 and hence was not able to complete that MIS assignment.
At that time, one of my visions then on the MIS was the setting up of an automated selective audit program. This program was supposed to come up with a risk-based and weighted scoring system to select the taxpayers to be audited by the BIR. Instead of relying on the discretionary judgment from the various BIR audit heads, this system would have relied on objective data-driven parameters culled from the various data sources of the BIR to select taxpayers who could be examined and could result in the maximum tax audit revenues. Again, with this potential of increased tax collections, financing of the bankrupt state will be enhanced with this system in operation.
Furthermore, this application can mitigate if not eliminate the perennial issues and problems encountered in the BIR audit process. You can just imagine an audit environment where such irritants and anomalies, such as the “suki” system, the perennial selection of the same taxpayers, audit numbers beyond the absorptive capacity of the BIR offices, etc. are a thing of the past. Unfortunately, these continue to persist today without this measure being taken.
I just hope that the Digital Transformation Plan that the BIR initiated in 2019 will be able to address these much-needed changes in the tax audit process.
To be continued.
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 from the business and academic community for consideration for publication. Articles not exceeding 600 words can be e-mailed to jltantorres@up.edu.ph.