Seventh part
The taxpayer is now in this stage where he has received for the nth time a Letter of Authority from the Bureau of Internal Revenue. The LOA is one of the much-dreaded documents that a taxpayer can receive from the BIR. This LOA authorizes the BIR to conduct an audit or investigation of the tax liabilities of taxpayers for a stated tax period. For certain “lucky” taxpayers, they can be subjected to several audits covering a single particular period.
This may arise if the BIR pursues the regular tax audit of the annual tax liabilities, and separately, an issue-based value-added tax audit, and also conducts a Letter Notice verification of discrepancies detected by the computerized data matching system of the BIR, on taxpayers for one particular audit period or year. I know of several taxpayer clients who have been subjected to these concurrent audits. You can just imagine the extreme burden that these taxpayers endure engaging with several sets of BIR examiners. Taxpayers have to allocate resources of time, manpower,consultant fees, and endure a lot of tension and aggravation when engaging with the BIR tax auditors. This still does not include the resulting deficiency taxes and penalties that taxpayers would have to pay or be assessed with after the conclusion of the audit.
To cushion the adverse impact of tax audits on taxpayers, the BIR has issued several guidelines to govern the conduct of the audit. The more important issuances are Revenue Memorandum Order 19-2015 of the BIR Audit Program for the regular tax audits; the various issue-based VAT audit guidelines, including RMO 20-2012, 16-2014, and 59-2016; and the Letter Notice Verification, as governed by Revenue Regulations 22-20, which amended previous issuances, RR 12-99, RR 18-2013, and RR 7-2018. While these are intended to provide clarifications and guidelines to both taxpayers and BIR alike, unfortunately, a great number of taxpayers are overwhelmed by the voluminous and sometimes contradictory provisions of all of these BIR documents.
In my role as BIR Commissioner from 2009 to 2010, I was aware of the tensions and problems arising from these audit engagements. I also underscored the impact of the BIR enforcement to foster better voluntary tax compliance and maximize the tax revenues from erring if not evading taxpayers. To address and resolve these, I took into account certain strategies and philosophies. These include the following:
Implement programs and audit approaches that minimize uncertainties and discretion on the part of both taxpayers and BIR and maximize transparency of BIR objectives and outcomes desired. The approach to these is not necessarily the issuance of more details and guidelines, but an effective communication to all stakeholders of the win-win outcomes that are sought to be attained. The mantra of my administration, which is “Making the Public Know,” clearly shows my vision of this.
Maximize the use of technology in the different phases of the audit cycle, including the conduct of tax audit. While more than a decade ago when I was the BIR Commissioner, there was not too much of a buzz on the use of Information, Communication, and Leading-edge technology, I was keen already on promoting the use of the available applications to enhance the tax audit processes. These included the use of computer-assisted audit techniques, the mandating of the use of computerized accounting systems by the large taxpayers, and the utilization of our version of big data using the third party matching of data compiled under the Reconciliation of Listings for Enforcement initiated by previous commissioners. These programs were able to generate a substantial amount of tax revenues for the coffers of the government. Presently, the prospects for increased tax revenue generation of ICT are more inevitable, with data analytics, artificial intelligence, more automated processes, the use of existing digital tools, and the implementation of the e-invoicing requirement prescribed by law. Truly with transformed ICT comes increased tax financing desired by all governments and states.
Focus on big-ticket sectors but with minimal tax collections. I recall instituting programs to maximize collections from VAT on tollway fee collections; estate taxes of decedents, estates, and their administrators; industries with big tax issues; interrelated groups of companies and conglomerates; and others.
Collaborate with various stakeholders from government agencies, industry and professional associations; and other parties. I aggressively concluded several memoranda of agreements with our “collaborators” to ensure that the BIR and these groups will have an active partnership in promoting tax compliance.
Dwell only on bite-size pieces of BIR-taxpayer engagements. The example of issue-based VAT audits was a model that I reminded my audit heads to always pursue to arrive at faster tax audit conclusions and collections.
Institute the electronic LOA system that enhances management and monitoring of the audit process.
It is quite heartwarming that the fruits and benefits of these initiatives that I pursued when I was the BIR Commissioner are still being experienced today. But I know that more can still be done. Any bankrupt state requires all the tax financing that it may be able to collect at the soonest time possible.
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.