The first of September 2016 marks the resumption of the previously-suspended tax audits being handled by the Bureau of Internal Revenue (BIR). This was by virtue of Revenue Memorandum Circular (RMC) No. 91-2016.
The said RMC mentioned that the lifting of the suspension was done since "the conferred authority under the laws to the BIR for the collection of taxes, to be more effectively administered and implemented, requires some form of enforcement activities to ensure the collection of correct taxes at the times prescribed by the law."
RMC No. 91-2016 lifted the suspension of all field audit and operations of the BIR in relation to the examination and verification of the taxpayers' books of accounts, records, and other transactions. Prior to this RMC, the BIR issued RMC No. 70-2016 which suspended the field audit of the BIR examiners (except in certain cases, like those cases already prescribing and those cases involving taxpayers retiring from business), as well as the issuance of written orders to audit or investigate the internal revenue tax liabilities of taxpayers. According to news reports, this previous suspension of BIR audits took place when the new BIR Commissioner was made aware of certain tax investigations that took years to be processed and were saddled with delays, some for causes that cannot be explained.
Now, as the suspension of the BIR audits is lifted, the BIR is definitely back to the grind. But, what can the taxpayers expect?
It could be expected that starting this month of September, several notices of tax audits will be issued to the taxpayers, and that the BIR examiners will be in full throttle again in their investigations.
However, many taxpayers are anxious that there might still be cases of assessment harassment, wherein:
BIR examiners may harass taxpayers by producing unsupported huge amounts of initial tax findings against the taxpayers, like what happened in the past. This situation is feared by many to be a possible source of corruption.
Although based on recent news, while the audits are suspended for two months, the BIR is showing that it is serious in disciplining its examiners by releasing reports that there were investigations that are being made for allegedly erring examiners. Some have been suspended while others were already dismissed out of service. How this disciplinary approach will be sustained by the BIR is something that remains to be seen.
Nonetheless, the taxpayers should be prepared for any BIR audit knowing that the BIR's findings could be on factual issues and sometimes on a legal matters.
Thus, taxpayers should be knowledgeable and updated on the developments about topics affecting their business operations. Also, they should always have a review mechanism to check whether the tax practices of their companies are in accordance with the tax rules.
The taxpayers may also consider looking back to check whether there were errors committed in the past (for open years that could still be subjected to BIR audits), and determine whether amendments to the tax returns have to be made. Note that once the taxpayer receives a notice of audit from the BIR, the taxpayer can no longer amend its tax returns.
As commonly observed, the usual findings of the BIR in assessments include unsupported expenses due to documentation deficiencies, unsupported creditable withholding taxes and input value-added taxes, withholding tax deficiencies, and differences from comparisons of amounts of identified accounts per books as against the corresponding amounts in the tax returns, among others. Hence, the taxpayers, in reviewing their practices and documentations, should not forget to verify these items.
Note that simple hits and misses with regard to the tax impact of the companies' practices could mean millions, billions even, of wasted funds for tax exposures. Thus, the taxpayers should be cautious about this.
On another note, in case there are instances of harassment during assessments, the taxpayers should have to be firm in their values. Resorting to bribery would just encourage the practice of some erring examiners to continue, and will promote the system of corruption that we all abhor. Needless to say, bribery is a criminal offense punishable by imprisonment.
The two-month suspension of BIR audits has already passed. It remains to be seen on how the BIR examiners will approach their resumed examinations, considering that the target revenue of the BIR for the taxable year 2016 is about P2 trillion. Will they be strict? Will they be reasonable? At any rate, nothing beats an honest and prepared taxpayer.
Cheryl R. Gatdula is a senior of the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
As published on BusinessWorld dated September 07, 2016