MY tele-tax–novela on the Official Receipt (OR) for sale crime, also called the ghost transactions episode is now on its conclusion.
The Bureau of Internal Revenue (BIR) has aggressively filed criminal and civil cases against the erring participants in the OR scam that was discovered in the Eastwood City raid of the National Bureau of Investigation last November 2022. Cases have been filed by the BIR in the Department of Justice against the Masterminds and sellers of the ghost ORs, the companies indicated in these ORs, and the external Certified Public Accountants auditors of the Masterminds. The BIR also filed a complaint with the Professional Regulatory Board of Accountancy for the revocation of the professional license of the same CPA. I hope that these cases will proceed expeditiously so that the guilty perpetrators will be prosecuted the soonest time possible. The adjudicators, including the Department of Justice, the BOA, and the judicial courts, should act and decide with dispatch.
This first set of respondents to the cases is only the tip of the iceberg. There are other parties involved in these ghost transactions. Aside from the company based in Eastwood City, there are other Masterminds of this crime operating in various parts of the country. While they may not be as big as the Eastwood City Mastermind, they are equally guilty of defrauding the government of substantial amounts of unpaid taxes.
There will not be any OR for sale racket if there are no willing buyers of these fake receipts. These entities and persons should also be investigated and prosecuted. Their accounting records bearing these ghost receipts clearly indicate their tax evasion intent.
The CPAs of these companies, both internal and external, should also face the brunt of sanctions by the BIR and BoA. These CPAs have violated their Professional Code of Ethics and mandate, in addition to the Tax Code for abetting the tax evasion practices of their clients or employers.
Finally, an internal cleansing within the BIR should be conducted to investigate if there are BIR personnel involved. It is likely that this syndicate of fake transactions that have been in place for decades has the connivance or participation of some BIR personnel.
The BIR is the main character in this tele-tax-novela. It has the main role of safeguarding the coffers of the country and making sure that any and all attempts to defraud the government of taxes should be nipped in the bud. The BIR has to utilize its full arsenal of tools to combat any tax fraud and evasion infractions.
It has its “Reconciliation of Listings for Enforcement” (RELIEF) system. The RELIEF relies on a cross-referencing and matching function of third-party data coming from the submissions of summary sales and purchase information of taxpayers. The RELIEF conceptually can detect instances of ghost transactions. But in practice, the RELIEF may be unable to optimally do this due to incomplete or limited data being submitted and processed. The BIR should be able to improve on this Big Data analytics system by adopting newer technology that can use artificial intelligence in the process.
The forthcoming implementation of the electronic invoicing (e-invoicing) system will serve as a deterrent to these ghost transactions. The e-invoicing system mandates the taxpayer to adopt the use of a digital platform and system in issuing its business documents, such as invoices and official receipts. This system shall be inter-connected with the BIR such that this will allow real-time access of the BIR to these records and transactions. This capacity will be a signal to taxpayers of a more-efficient capacity of the BIR to track tax payments and business transactions.
Another way to deter and detect these fraudulent practices of ghost transactions is by integrating appropriate measures into the audit program conducted on taxpayers. From the initial phase of audit selection to the investigation of taxpayers, BIR officials and examiners should assess the risk factors of fake ORs and transactions. For taxpayers who have been verified to have engaged in these ghost transactions, they should be subjected to a fraud audit of multiple back years. The audit of these erring taxpayers should also include the simultaneous investigation of their external auditors to verify their culpability in this financial scam. Said investigation will not only result in the collection and assessment of deficiency taxes but also will be the source of information to follow the trail of these fake transactions.
The BIR has started the verification of taxpayers who are involved in the buying of these fake receipts. This campaign is led by a Task Force under the Office of the Commissioner and comprised of various BIR examiners coming from different Revenue District Offices. There have been a number of persons who have been visited by these examiners who have asked my advice on what to do. My foremost advice was for them to “examine their conscience” and be ready to bite the bullet for any misdeeds.
It is not too clear at this point what is the main direction of the BIR regarding violations ascertained from these ghost transactions. Will the BIR mandate the criminal prosecution of these taxpayers for their fraudulent acts? Or, will the BIR be more lenient and allow the payment of deficiency taxes and penalties while avoiding criminal sanctions? Tough choice for BIR Commissioner Romeo Lumagui who heads this campaign against these ghost transactions.
Meanwhile, we, the observers of this tele-tax-novela, are all watching and hoping that there will be a good ending for this real life drama.
Joel L. Tan-Torres was the former 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. He is now back to his tax practice with his firm JL2T Consulting. He can be contacted at email@example.com.