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Tabula Rasa: A clean slate through tax amnesty

Tabula rasa is a Latin phrase popularly translated as “clean slate” or starting fresh. Sometimes our liabilities have become so burdensome such that, whenever an opportunity is presented to settle those liabilities, the tendency is to grab the opportunity to move forward and start anew.

Many taxpayers struggle to understand the intricacies of tax laws and regulations, while there are others who, without deliberate intent, find it difficult to fully comply with tax requirements. These situations create a tax liability exposure for taxpayers. Once in a while, however, the government gives taxpayers an opportunity to settle their tax exposures and start fresh through tax amnesty laws.

The Senate and the House of Representatives have been fast-tracking the passage of a tax amnesty law which that includes general tax amnesty and delinquency tax amnesty. Congress has been going over various bills for some time now, and recent reports say that both houses aim to have the bill enacted into law before this year ends.

For general tax amnesty, the most recent development on the passage of the bill in the House of Representatives is granting 2% general tax amnesty rate based on the taxpayer’s total assets declared. The taxes covered by the general amnesty tax are all internal revenue taxes for taxable year 2017 and prior years, which remain unpaid, with or without assessment.

For example, an individual or corporation has total assets amounting to P20 million; the 2% tax amnesty would be P400,000.00. At this point, tax payers should be able to weigh the pros and cons of proceeding with the amnesty, considering that they should know their degree of compliance with existing tax laws. The taxpayers should be able to determine whether their exposure for noncompliance would be much better settled under the amnesty rules, or it is much beneficial if it is settled through a regular assessment by the Bureau of Internal Revenue (BIR).

The recent versions Senate and in the House of Representatives bills enumerate seemingly similar instances wherein general amnesty will not apply. These instances include those involving withholding taxes; pending cases involving violations of the Anti-Money Laundering Law; and pending criminal cases involving tax evasion, among others.

Another interesting point is the tax delinquency amnesty of the bills. Both the Senate and the House of Representatives versions lean towards providing amnesty, even for cases that have reached the latter stage of the tax assessment process. The proposals include a 40% rate based on the basic tax assessed for delinquencies and assessments that have become final and executory, a 50% rate based on the basic tax assessed for cases that are pending in court, and a 60% rate based on the basic tax assessed for cases subject to final and executory judgement by the court.

The tax amnesty proposal appears to go far beyond, with a consequent impact of declogging the BIR’s dockets and reducing the administrative cost of pursuing tax cases. Likewise, this situation would declog the dockets of the courts and dispose of pending tax cases. From the perspective of taxpayers, on the other hand, they must weigh the costs and benefits of availing of tax amnesty or pursuing the case under normal course. Would this mean a reduction or elimination of litigation costs? Or the cost of hiring professionals to handle the assessment, or the cost of retrieving of documents, not to mention the difficulty of finding supporting documents? The decision would include choosing whether the cost of spending time, resources, and effort to go through an assessment is worthwhile, considering that such resources could have been allotted to business operations or expansion.

The current versions of the tax amnesty bills may have started from several different versions, but the taxpayers can hope that the version that will find the balance and achieve its purpose will be the one that will be enacted into law. Thus, the government can focus more on enforcing the new tax laws and deliver the needs of the country; and, conversely, taxpayers can start anew and comply with the tax laws and regulations.

The tax amnesty bills of both the Senate and the House of Representatives are definitely getting the attention of taxpayers since, once enacted and taxpayers avail of tax amnesty, this would give taxpayers a clean slate. Enabling taxpayers to move on from fears that the BIR might be lurking ahead of a visit them is a welcome development.

 

Gemmalu O. Molleno-Placido is an associate of the Tax Advisory and Compliance Division of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.

As Published in BusinessWorld dated 20 November 2018