Changes in the Tax Collection Service

2.3. Changes in the Tax Collection Service

Over the years, the BIR has implemented incessant measures to enhance voluntary compliance of taxpayers, plug loopholes and improve tax collection service. It would be recalled that a major structural reform in tax administration transpired in 1986 with the adoption of the Value Added Tax System. In 1997, the Philippine Congress legislated the National Internal Revenue Code. Among others, the 1997 Comprehensive Tax Reform Program introduced exemptions from VAT coverage, adjusted down the corporate income tax, and lowered effective taxes for alcohol, cigarettes, and petroleum products. On the heels of these structural reforms, the BIR kicked-off a major project, the establishment of a modern and computerized Integrated Tax System and Internal Administration System. This was supported by an executive order to streamline the BIR organization. Several other programs were subsequently launched.

Priority reform measures were undertaken to enhance voluntary compliance and improve the bureau’s productivity. One of the most significant reform measures was the implemen-

tation of the Economic Recovery Assistance Payment Program, which granted immunity from audit and investigation to taxpayers who have paid 20% more than the tax paid in 1997 for income tax, VAT, and percentage taxes. To educate consumers to demand sales invoices and receipts, the raffle promo Humingi ng Resibo, Manalo ng Libo-Libo was instituted. The Large Taxpayers Monitoring System was established to closely monitor the tax compliance of the country’s big taxpayers. Other significant measures include expansion of the use of the electronic Documentary Stamp Tax metering machine; tie-up with government agencies for the prompt remittance of withholding taxes; and Compromise Settlement Program for taxpayers with outstanding accounts receivable and disputed assessments. In line with the Electronic Commerce Act of 2000, the BIR accel- erated the rollout of the Integrated Tax System to fully computerize its operations.

Philippines

During this period, several measures that would affect the tax revenue generation were put into law. In 2003, Republic Act 9224 rationalized the excise taxes on automobiles. In 2004, the sin tax law was amended by Republic Act 9334 providing discrete increases in the tax rate on cigarettes and alcoholic products every other year thereafter until 2011. In 2005, the Philippine Congress passed Republic Act 9337 or the Reformed VAT Law which expanded the coverage of ad valorem taxes to electricity and petroleum products. The law effectively raised VAT rate from 10.0% to 12.0% in 2006. A parallel measure, Republic Act 9335 or the Lateral Attrition Law, was passed to create incentives for the BIR and the BOC relative to the “excess” collection of at least 15.0% difference between actual and target collections. This law also provides that officials and employees may be removed from the service if their revenue collection performance falls short of the target by at least 7.5%.

On the part of the BIR, the thrust was to reform the tax system to make it simpler and suit the Philippine culture; reengineer the tax processes to make them simpler, more efficient, and transparent; restructure the BIR to give it financial and administrative flexibility; and

redesign the human resource policies, systems, and procedures to transform the workforce to be more responsive to taxpayers’ needs. The expanded coverage of the creditable withholding tax system, voluntary assessment, and abatement and compromise settlement programs enhanced the BIR’s revenue-generating capability.

The Reconciliation of Listings for Enforcement or RELIEF System to detect under-decla- rations of taxable income by taxpayers and the Electronic Broadcasting system enhanced the security of tax payments. A technology-based system that promotes the paperless filing of tax returns and payment of taxes was also adopted through the Electronic Filing and Payment System (eFPS). BIR also expanded its electronic services to include the web-based application for tax identification numbers, e-substituted filing of tax returns, and electronic submission of sales reports. Special operation on high profile tax evaders was executed under a new program dubbed Run After Tax Evaders. This was complemented by Tax Compliance Verification Drives and accreditation and registration of cash register machines and point-of-sale machines. To improve taxpayer service, the BIR set up Contact Centers and eLounges. The e-Complaint System allowed taxpayers to log their complaints against erring revenuers through the BIR website. New payment gateways such as the Efficient Service Machines, G-Cash and SMART Money were added up to its electronic facilities. The National Program Support for Tax Administration Reform (NPSTAR) was launched to improve the BIR efficiency in various areas of tax administration. The BIR also intensified the use of business intelligence through data matching of income payments of withholding agents against the reported income of the concerned recipients and strengthened its audit capabilities via the Computer-Assisted Audit Tools and Techniques.

Measuring Public-sector Productivity in Selected Asian Countries

Nationwide closure of erring business establishments under the Oplan Kandado took place. BIR resorted to a high visibility and public awareness campaign on the enforcement and taxpayers’ service and introduced additional programs such as Project R.I.P. (Rest in Peace) and conduct of Taxpayers Lifestyle Check. The Handang Maglingkod Project where the best frontline offices were recognized for rendering effective taxpayer service was also revived. Alongside them were programs to strengthen competence and integrity of personnel through Integrity Reviews and implementation of the Integrity Development Action Plan.

July 2010–present

Under the current administration, the BIR energized its mission. Foremost in its strategy is the Invigorated Run After Tax Evaders which aims to generate the maximum deterrent effect by impressing upon the public that tax evasion is a crime and violators will be caught and punished. (Its counterpart, the Revenue Integrity Protection Service imple- mented by the Department of Finance, does the lifestyle check for revenue agents.) The BIR revved up its Oplan Kandado by suspending business operations, and temporarily closing business establishments for non-compliance with essential requirements such as taxpayer’s VAT registration, the issuance of sales invoices/receipts, filing of VAT returns, declaration of taxable transactions and paying the correct amount of taxes by persons engaged in transactions subject to VAT. Likewise, the BIR Contact Center is upscaled to be able to offer accurate and consistent tax information at a single point of contact. To provide electronic submission channels to its non-electronic filers, the Offline eBIR Forms which allows automatic computations and validation of taxpayers’ information was introduced.

The e-Lounge has been extended to regional and revenue district offices, where taxpayers can make use of the BIR’s eServices such as the one-stop shop on-line Electronic

Authority to Release Imported Goods (eATRIG), Electronic Certificate Authorizing Registration (eCAR), On-line System for Transfer Tax Transaction (eOSTTT), and

Electronic Official Registry Book (eORB) for Excise Products. For taxpayers registering their business online, the application is already simplified through the Philippine Business Registry. The quality management system for the business registration process is certified to ISO 9001:2008. Pending the implementation of the Lateral Attrition Law, the new performance-based incentives system of the national government was initiated in the BIR in 2012. Another landmark legislation, Republic Act No. 10351 or the Sin Tax Reform Law, was passed by the Philippine Congress in 2012. The law restructured the excise tax on alcohol and tobacco products and will take effect beginning in 2013.

Philippines

RA 8424 National Internal Revenue Code (1997)

RA 9337 Reformed VAT Law (2005)

RA 10351 Restructuring

Legislative

EO 430 Streamlining (1997)

RA9224 Excise Tax on Automobiles (2003)

Excise Tax on Tobacco and Alcohol (2012)

EO 175 Organizational Restructurings (1999)

RA 9335 Attrition Law (2005)

Audit Program

Delinquent Accounts Program

Run After Tax Evaders (RATE)

Voluntary Assessment Program

Tax Amnesty Program (2007)

Programs

Large Taxpayer Monitoring System Quality Management System Tax Clearance for Taxpayer Record Update Program

Oplan Kandado Program Bidding Purpose Tax Mapping Operations

National Program

Tax Administration Reform Initiatives Taxpayers Service Center

Tax Compliance Verification Drive

Support for Tax

Administration

BIR Contact Center

BIR Building Program

Architecture

IEC/Information Kiosks

BIR on Wheels

Philcox Inc. for eServices Storage, DST System Servers and Data Center Hosting Services

Outsources

Ayala Port, e-Konek Phil Inc., Korean

ePLDT Inc. for BIRCC Servers, Workstations and Equipment

International Cooperation Agency for eFPS

JV of Indra Phil Inc. for Mobile Revenue Collection Offices System, eCAR, eORB

Tax Computerization Project / e-Services

Digital / IT

Integrated Tax System

Nationwide Roll-out of Computerized System RELIEF System

Online DST

Automated Excise Data Mgt

Computer Linkages

Revenue Watch Dashboard

and Data Matching

Computer Assisted Audit

General / EO 80 on PBI4 Contextual

E-Commerce (2000)

EO 366 Rationalization Program (2004)

Typhoon Ondoy (2009)

SSL lll (2009-2012) Philippine Business Registry

Figure 14. Changes in Tax Collection Service: Philippines, 1997–2012

Source: BIR Annual Reports and authors’ own research