Let's Talk Tax

Rebirth of the tax system

This Lenten season we are once again reminded of various biblical and historical accounts about Jesus of Nazareth (4 B.C. -- 30 A.D.), the central figure of Christianity. Probably the most notable thing about him is his fondness for the company of tax collectors. From the tax collectors of the past to the Bureau of Internal Revenue (BIR) of the present, the tax man has been stereotyped and has received more than his share of contempt, and even ridicule.

According to Christian theology, all men are sinners, and that Christ’s unconditional love and his death on the cross grants redemption and genuine spiritual rebirth to all those who believe.

Like the biblical Messiah, the Philippine Congress also seeks to grant the gift of rebirth to the system of our present day tax administration.

No less than a former Chief Executive of the Republic who is now serving as representative of the 2nd district of Pampanga, Gloria Macapagal-Arroyo, proposed House Bill (HB) 695 to the 17th Congress. The bill seeks a consequential transfiguration of the present structure of the BIR and replace it with a new organization to be known as the National Revenue Authority (NRA). 

The proposal for the creation of the NRA, as declared in the explanatory note of the sponsor, seeks to address the growing dissatisfaction of taxpayers, mainly over the front-line services, tax evasion cases, and increasing public dissatisfaction with the systematic corruption within the BIR. The new NRA is expected to be free from political interference in terms of decision-making with regard to revenue rulings, audit and assessment personnel management, and budgeting. The bill is now with the Ways and Means Committee of the House of Representatives with Congressman Dakila Carlo E. Cua of the lone district of Quirino as its chairperson.

During Ms. Arroyo’s first term as President, she attempted via executive fiat to convert the BIR into a corporate-like public organization that will operate under performance-based parameters. However, without enough support from the members of the House of Representatives, the endeavor was short-lived. As a consequence, according to the principal author of the bill, the tax bureau continues to be hampered by at least three fundamental institutional constraints: (a) a rigid personnel management system where promotion is based merely on loyalty and seniority rather than exemplary performance; (b) a compensation structure that restricts the hiring of first-rate professionals; and (c) strict line-item budgeting that limits the flexibility in the allocation of funds.

The BIR is attached to the Department of Finance (DoF), but the NRA is proposed to be set up with an authorized capital of P10 billion, to be fully subscribed by the Philippine government. All functions of the present BIR shall be deemed transferred to the NRA.

As currently organized, the BIR is headed by a commissioner together with four deputy commissioners. It operates under the supervision and control of the DoF. Under HB 695, NRA shall be governed by a Revenue Board composed of seven members, four of whom will be from the government and the rest will be from the private sectors. The four government representatives shall include the heads of the DoF (as chairperson), the Department of Budget and Management, the National Economic and Development Authority, and the Securities and Exchange Commission. On the other hand, the three private sector representatives shall be nominated by professional organizations, and appointed by the President of the Philippines. To qualify, they must be recognized experts in the fields of economics, accounting, law, business management, and other related professions.

All members of the Revenue Board shall serve for a fixed tenure of office with different periods of expiry to avoid disruption of services, to prevent abandonment of approved programs, and to limit the reversal of issued revenue regulations and rulings.

A Chief Executive Officer (CEO) shall be appointed by the Revenue Board from a list of at least three nominees prepared by a selection committee created and chaired by the Board as well. The CEO shall serve for a term of three years and must be a natural-born citizen of the Philippines, of good moral character, known for honesty and patriotism, or unquestionable integrity, with at least seven years’ experience in management, and a recognized expert in the field of taxation, finance, fiscal administration, economics, public administration or public finance. The reappointment of an incumbent CEO is possible under a performance-based contract.

The CEO shall exercise the powers and functions of the BIR commissioner as outlined in the Tax Code of 1997, including those enumerated in Section 15 of HB 695, most of which addresses the issue on work program, organizational structure, annual budget, compensation package, and appointment of rank and file employees among many others.

BIR employees or officers, who will be offered to join the proposed NRA but can opt not to, will be offered an “attractive separation or retirement package.” Those who will be separated because of the change in the structure will get a severance pay not lower than P100,000.

As stated by the bill proponent, “the NRA will establish a performance-based management system which shall govern the selection, hiring, appointment, transfer, promotion or dismissal of all personnel, such system shall aim to attract and retain professionally competent, well trained, honest, courteous and efficient personnel and to establish professionalism and excellence at all levels of the NRA.”

The creation of the NRA is consistent with the government’s objective to enhance the tax administration to meet the needs of the government; to satisfy the taxpayer-customers; and help ensure the efficient and effective collection of taxes necessary to serve as the lifeblood of the entire country.

If HB 695 pass the scrutiny of our lawmakers and is signed by our President, the tax paying public can expect a drastic transformation. However, let us be reminded that revamping the structure of the tax office will not cure all issues of tax collection if the taxpayers do not do their part. Genuine moral change in tax collection towards nation building should be a concern for both the government and the tax paying Filipino people.

As we welcome this rebirth in tax collection, may we find truism in the words of the Apostle Paul; “the old things are passed away, behold, they become new.”

Manuel A. Rodriguez II is an associate with the Tax Advisory and Compliance division of Punongbayan & Araullo.

 

As published in Business World, dated on 11 April 2017