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Paradigm Shift at the BIR

(Article published in the Jul 13,2011 issue of Manila Standard Today) 

Time was at the Bureau of Internal Revenue when the marching orders from the top to the lieutenants below and all the way to lowest rank-and-file was to simply collect revenues in order to replenish (if not fill-up) the government coffers.  The then modus of this focus, like a coin on the table, had two sides: on top was the effort to raise the level of tax collection by inducing voluntary compliance through gentle persuasion; and at the bottom, hidden from view and unsaid, was the threat that blatant tax evasion, precisely because it flaunts refusal to pay taxes, could have dire consequences.

 The preference for the voluntary compliance route has practical as well as, I submit, historical justification.  The BIR, like any government bureau had always been undermanned and underbudgeted when viewed in the light of the gargantuan tasks set before it. Moreover, our colonial history had perverted our view of taxes.  Centuries of Spanish subjugation followed by fifty years of American Occupation and a brief experience of Japanese Imperial Might had made not paying what the rulers are collecting a patriotic duty.  Andres Bonifacio chose to dramatize his revolt from the authorities by the tearing up his cedula.  Accordingly, members of the gentry who did not pay their taxes were nevertheless considered decent, especially when non-payment was coupled with good works, with or without the clicks and whirrs of media’s cameras. 


When Manuel L. Quezon saw the fruition of his dreams of our country run like hell by Filipinos than like heaven run by American, this distorted thinking about taxes was reinforced amongst the majority who were by nature the ones suffering most in the Filipino hell.  This prompted Ferdinand E. Marcos to increase the instances of withholding taxes, which used to be applicable only to salaried employees.  He furthermore astutely introduced the concept of final taxes which had the effect of not only conscripting payors of income (particularly the big and visible ones) into the tax collection army of the government, but also, because of the “final” innovation, of effecting the collection of taxes much earlier than the traditional income taxpaying date of April 15. The unfortunate withholding agents were made the slaves of two masters, i.e. slaves of the government, to enforce collection, and slaves of the payees, to remit the tax, or part thereof, to the government.

 Despite these innovations though, the desired mode of taxpayers is voluntary; the tax collector’s big stick of criminal action continued to primarily hang idly on the wall.

 Ironically, however, this preference for voluntary compliance, assisted though it may be by measures of varying intensities of suasion, had the opposite effect.  Nobody, except teachers of taxation like me, preached the Holmes’ view that taxes are what we pay for living in a civilized society.  Instead, taxes were seen by most as inconveniences to be avoided, and, at times, evaded, depending on the results of the evaders’ cost-benefit analysis.

 Such analysis almost always indicates that the benefits of not paying taxes, albeit spawned in sin and grown in hell, outweighed the cost of the non-payment being discovered, if at all. And in those instances where the analysis shows otherwise, there was always the evader’s fall back, or Plan B, which was to cut the loss by simply paying the taxes.  This strategy worked because, after all, the sweet refrain was that the BIR is more interested in collecting money for the treasury than in sending people to jail.

In 2005, the BIR started the Run After Tax Evaders campaign.  The big stick was taken off the hook on the wall and with financial assistance from the Millennium Challenge Corporation, in the span of two years, made ready for use.  Among other things, Seventy-five regional district offices were computerized, including the encoding of more than 2.2 million documents into the country’s tax system, and extensive training was provided to relevant personnel on legal writing, legal and tax accounting, financial investigations, substantive law, tax fraud, prosecution skills.  With enhanced capability, it was only a matter of time for the country to reap the fruits.

Presently, Commissioner Kim Henares, is pushing the envelope of the RATE program, striving to get the Bureau  file at least one tax evasion case every other week at the Department of Justice.  To date, about fifty-five cases have been filed; at least three of the RATE cases filed by her predecessors have been won at the Court of Tax Appeals; and there are no signs of the effort letting up.

At long last, criminal action as a means of enforcing tax law, after the many long years of hibernation since it was introduced in the tax system in 1972 by Presidential Decree 69, has awakened.  The coin is up and rolling; criminal action is now, in text book law and in real life, side by side with civil action, in insuring that taxes keep coming in.

 And are now cleaning it up.  Preparatory to wielding it to make the cost of tax evasion, at least even up with, if not exceed, its benefits.  Tax compliance is currently still desired to be voluntary; but those who are tempted to think of evading need to up the ante.  They have to reckon with the risk of being criminally charged for tax evasion.  Criminal prosecution has emerged from backstage and is moving front and center.

 Actually, the handwriting had began appearing on the wall much earlier. It was, however, not noticed amidst the evaders’ revelry.  Tax Consciousness campaigns which had been all along been harping on the uses to which taxes have been devoted--“This is where your taxes go” on billboards by the highways had become as ubiquitous as the announcement that “This is a project of Congressman X …”— began raising the appeal to pay taxes a decibel or two higher by the invocation of  the cultural values, “hiya” and “utang na loob”.  People who do not pay taxes, the pitch goes, are not desirable members of society. 

 In 2005, the Bureau started its Run After Tax Evaders Program. 

 Executive Order no. 625-A : administering the run after tax evaders (RATE) program through the Office of the Deputy Commissioner for Legal and Inspections group of the Bureau of Internal Revenue.