PNoy's BIR

PNoy's BIR by: Lina P. Figueroa

The taxes that our BIR collects account for about 75% of the total national budget.  Indeed, taxes are the lifeblood of our government. 

I’m quite sure that any new administration gives a significant thought to its choice of a commissioner for the BIR.  The criteria have varied over the years.  Some thought a commissioner who is already part of the Bureau and who, therefore, knows the Bureau well enough is a good choice.  Others opted for outsiders who can take on the Bureau with new and fresh perspectives.  Many who’ve had private sector experience have also been appointed to the BIR. 

We can probably say we’ve had all these different kinds of appointees and if is difficult to conclude what single qualification will make a good commissioner.

I’m sure PNoy is no exception.  He will carefully choose his commissioner based on well-contemplated factors.  Many are already guessing while some claim to have trusted sources on the information.  I’ll probably not bother to join the speculation and just wait for the announcement.  Anyway, whether the current commissioner is retained or a new one is appointed, the real test will come later when the BIR’s performance as an institution is evaluated.

The commissioner should make the collections happen.  The commissioner should be able to bring in the revenues. 

He is not even allowed a grace period for his performance.  Because while he is going through his own adjustments to the new post and learning the routes, money is already being spent by all other agencies of government.  These collection statistics have spelled the decision to retain or replace the commissioner.  In a number of cases, the commissioners themselves have voluntarily resigned if they feel that they have not accomplished their revenue-raising responsibility well enough.

However, considering PNoy’s pronouncements that he will not support new taxes, the task of PNoy’s BIR and its commissioner becomes even more difficult.  Without new taxes or increases in existing tax rates, increased tax collection can only come from more efficient tax administration and more compliant taxpayers. 

Last week’s issue has already dealt with the first part of the equation, on developing enabled and motivated BIR personnel. 

Tax compliance is an equally complex equation.   Various studies have already been conducted on tax compliance and many factors have been identified. 

Foremost is the risk factor – the risk of being caught and the risk of being penalized.   The higher the risk of being detected and the heavier the penalties, the more taxpayers will choose to comply.  Taxpayers also put significant value to equity or fairness – both in terms of the benefits returned by government on taxes paid and in terms of the relative burden of the taxpayer compared to other taxpayers, whether in the same or different industry and income status.  Honest and compliant taxpayers should not perceive that they are further penalized for choosing to comply.  Rewards for honest and compliance taxpayers may even be worth considering.  Programs such as least priority in audit have proven to be encouraging in the past.  Honest taxpayers would also appreciate that their rights are respected in their dealings with the tax bureau.

Ease of compliance in terms of the number of compliance requirements and clarity in the tax rules and obligations also affect compliance.    A lot of times, taxpayers who actually intend to comply, fail to comply properly and are penalized because the rules that are supposed to be followed are ambiguous.  In extreme cases, the rules seem to be too idealistic and in practice, difficult if not almost impossible to follow completely.  Compliance cost becomes burdensome if taxpayers are highly regulated. 

We have high hopes that if revenues can be raised efficiently, and if funds can be expensed properly, BIR can support a reduction in tax rates, particularly in personal income taxes for certain income levels.  We would like to see the 32% rate imposed only on individuals who really have income in excess of the amount required to live decent lives and support children to become productive assets of the country in the future.  In that way, government can truly be a partner, not a competitor, in improving the Filipinos’ lives.