April 15 is near and for many, this is when we bite the bullet and shell out precious, hard-earned money to pay our income taxes.
Those of us who are employed often grumble underneath our breath about dutifully paying taxes (automatically withheld from us) while knowing many get away without doing so. This, and the knowledge that so much of our taxes leak out into the pockets of corrupt officials, makes tax time that much more painful.
In a recent forum on Understanding Government Revenues, Department of Finance (DoF) Sec. Purisima said it is shocking to discover that the list of the top 1,000 taxpayers does not include people you’d expect there. He said he was particularly interested in what he calls the “Invisible 500”.
The day may not be long in coming, if this administration executes its plans as described by Sec. Purisima, when tax evaders will slowly fade away and revenue collection starts to improve and become efficient.
Where does government get its funds from?
The government’s main sources of government revenues come from:
- Bureau of Internal Revenue (BIR) – in the form of various taxes
- Bureau of Customs (BoC) – importation-related tariffs, VAT and excise taxes
- Bureau of Treasury (BoT) – dividends remitted by government agencies and government owned and controlled corporations (GOCCs) as well as interest income on bond holdings
- Fees and charges – revenues from government agencies such as National Statistics Office (NSO) fees and MotorVehicle User’s Tax
The two major sources of government’s funds come from the BIR and BoC. For now, let’s focus on what the DoF is doing in just these two areas.
DoF + IT = Bye Bye Tax Evaders?
For the first time, I believe the DoF is well-equipped in terms of using information technology (IT) to its advantage. If you’ve seen the DoF Secretary, he touts an iPad around with him. IT-savvy people have also been brought in by this administration.
The BIR and the BoC have always been separate bureaus, with separate targets and separate strategies for imposing and collecting taxes. But there can be a more efficient collection of taxes when data from these two institutions are merged and analyzed as one. If Sec. Purisima had his way, he said, he would merge the functions of the BIR and the BoC because both are crucial contributors to revenue and the information they both have are shareable.
He cited several ways that the DoF can utilize IT and information.
Plan 1: Use Data to Drive Performance
Remember the BIR’s “Premyo sa Resibo” text promo?
This is not simply a way of forcing establishments to issue valid official receipts to customers. It enables the BIR to gather enough evidence on the true state of establishments’ sales (as well as the purchasing power of individuals).
The DoF tried comparing the top 7,000 importers with the top 5,000-10,000 taxpayers. You can guess the result: a substantial mismatch.
The typical smuggler, Sec. Purisima said, knows how to continue operating under the radar of the government. The smuggler declares a wrong address and uses a fictitious name to import goods. When the smuggling operation is discovered, the masterminds cannot be caught. A large importer almost always has to be a large taxpayer. So sharing just one database between the BIR and the BoC can easily match information and increase performance.
While existing information at the DoF, according to Purisima, is not something he can still rely on exclusively for now, there are external data sources that can mirror transactions. One can purchase Nielsen data usually sold to companies; this will allow them to create models whereby taxes/duties can be estimated based on market share data per industry.
Plan 2: Increase Risk Perception
If chances of getting caught are significantly increased, that may just deter tax evaders, right?
DoF has been accrediting importers and categorizing them into 4 lanes according to the degree of shipment risk, extent of documentary and/or physical inspection: Super Green Lane +, Super Green Lane, Yellow Lane and Red Lane. The Red Lane necessitates the most checking while the Super Green Lane + is the express lane but requires accreditation for specific commodities.
Each lane has its own association to police its members. Violators caught in any lane results to all members in that lane being negatively affected in terms of rights and privileges.
While serving as a deterrent against evading taxes, lane classification also allows government to estimate lane yields based on the composition of entities in each lane.
Plan 3: Rationalize Processes, Invest in IT
Minimize paper-based activity
Many transactions can now be recorded electronically with accounting entries likewise being electronically generated. But the process fails when signatures are still needed from different departments. First, the document/s needing signatures have to be printed (waste of paper). Then that paper needs to make the rounds of the departments. Sec. Purisima has instructed the Customs Commissioner to do away with paper that people need to sign. I’m guessing electronic signatures (approvals activated through user passwords).
One point of contact
By reducing the contact between customers and Customs officials, opportunities for corruption and fraud are significantly reduced as well. It reduces Customs officials’ power over people because almost nothing will be discretionary; rather, everything will be processed by the book. One point of contact also pinpoints responsibility and who is at fault.
Tighter controls over automated processing
Sec. Purisima said that there is supposedly a “Tuldok Gang” within Customs which is able to electronically make entries disappear or reclassify entries from one type of lane to another, depending on their wishes. Wow, that is some syndicate!
He announced during the forum that all these IT changes will start with a change of the guards. The IT Head at Customs has been replaced with an ex-Accenture partner.
Don’t you wonder why the Pinoy, when he goes abroad, does not flinch when paying taxes? It’s because he knows he can’t evade the system. And, he feels the benefits of being a taxpayer.
This administration has only 6 years to put all these changes in place. My greatest fear at the moment is that succeeding administrations may not have the same priorities and all these efforts would go to waste. But if the changes are institutionalized, and we see the benefits, then people will make sure the changes are made permanent.
I believe the Juan on the street will be much more willing to ante up his income tax payments if he could see corruption curbed, the system tweaked to identify big earners, and taxpayers’ money used prudently by government in projects whose benefits are felt by the citizenry.
Don’t forget to pay your income taxes on or before April 15. As for tax evaders, beware. It may not be that long before the BIR bogey-man gets to you.