For taxpayers using the calendar year, the due date for the filing of the 2022 Income Tax Return (ITR) will be on April 17, 2023, since April 15 will fall on a Saturday. Taxpayers are already used to their life cycle – file their different tax returns regularly, the ITR being the last periodic tax return to be filed for a taxable year, then wait for the BIR (Bureau of Internal Revenue) to come to them for the subsequent BIR audit.
In the taxpayers’ life cycle, many have the impression that the taxpayers and the BIR are on two opposite sides. Some taxpayers believe that, even when they file their tax returns correctly, the BIR will subsequently assess them, anyway, for arbitrary tax findings. On the other hand, certain BIR officers believe that some taxpayers are dishonest, and hence, there are instances wherein the revenue officers become overly skeptic against taxpayers during BIR audits. There appear to be trust issues from both sides.
Based on the BIR’s Annual Reports posted in its website, the revenue collections from BIR audits for the past two taxable years comprise only less than 3% of the BIR’s total revenue collections. Meanwhile, the remainder, comprising more than 97% of the collections, comes from voluntary tax payments.
Having seen the above percentages, one might wonder – who wants to spend so much time on the measly 3% revenue collections from BIR audits? Yes, in a revenue budget of more than P2.5 trillion, such percentage translates to over P75 billion for the government; but nonetheless, perhaps, there could be better ways to capture such relatively minimal percentage while maximizing the personnel resources of the government nationwide.
On the other hand, taxpayers would also prefer to devote their means and resources in complying with their tax obligations and filing tax returns, rather than spending so much time in disputing and arguing against the BIR during BIR audits. Not to mention, such cases can be dragged to the courts, and it might take several years before a final court decision is rendered. Who wants such stress, in addition to the demands of the daily tasks of the taxpayers or of their Finance and Tax personnel?
Regarding the 3% portion of the BIR’s revenue collections from BIR audits, while it is relatively small in terms of proportion, that small percentage could be the reason of a major discord and negative impressions between the BIR and the taxpayer, especially when a BIR audit is perceived to be unreasonably handled by certain BIR revenue officers. Then, more trust issues would surface.
BIR audits initially alleging hundreds of millions or billions of Pesos of tax assessments against a taxpayer that are later disputed and reduced to less than 1% of the initially alleged amount show that there could be a wide disconnect on understanding between the BIR teams and the taxpayers. In situations like these, questions from taxpayers may arise on why the BIR almost always starts at such huge amounts of initial tax findings. Do they really believe that the taxpayer that they are examining is that dishonest? Is this a form of harassment against taxpayers?
On the part of BIR audit teams, they may contend that it is also not their fault that they start at such enormous amounts of initial tax findings during BIR audits, as such may have been based on the practice of the many other BIR audit teams in the past. Or perhaps, one may ask, are the BIR audit procedures really designed to follow an overly skeptic approach against the taxpayers? Do the BIR audit teams want to be perceived as tormentors?
Of course, it is a different story when it comes to tax evaders, like those using false official receipts that we have been reading in recent news reports. Needless to say, these evaders should really be chased. But for a regular BIR audit, how can the gap be narrowed between the BIR and the taxpayers?
In the recent BIR tax campaigns, we have been hearing that the BIR intends to focus on providing great service to taxpayers. Further, it is the direction of the BIR that with convenience, accessibility, transparency, and fairness, more and more businesses will leave the shadow economy and voluntarily join the tax net. On the part of the taxpayers, this is a very welcome approach, as this is focused on the 97% portion of the government’s revenue collections which pertain to the taxpayers’ voluntary tax payments.
One could say that improving voluntary tax payments, instead of engaging in a fight during BIR audits, is the common viewpoint between the BIR and the taxpayers. Hence, in bridging the gap between the BIR and the taxpayers, both could channel their efforts and resources towards an intensified promotion of tax education, simplification of tax rules and compliance thereto, and formulation of equitable BIR audit procedures, among others.
On the taxpayers’ part, the payment of correct income tax due through their 2022 ITRs for this upcoming April deadline will be a confirmation of that common viewpoint with the BIR.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 28 March 2023
