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Interim Rating of RATE

(Article published in the Sep 1, 2010 issue of Manila Standard Today)   

 My opportunity to get a credible response to the questions posed to me by Roberto M. Herrera-Lim, Director for Asia, of Eurasia Group came last week, August 24, at the Mandarin Oriental Hotel, Makati City, during the open forum that followed the short talk of the guest speaker at the general membership meeting of the Tax Management Association of the Philippines.

 Eurasia Group, says its website, “is the world's leading global political risk research and consulting firm.” It claims to have helped clients since 1998 to “make informed business decisions in countries where understanding the political landscape is critical…[its] research platform is global and organized into four regional practice groups - Asia, Europe & Eurasia, Latin America, and Middle East & Africa. Additionally, the Comparative Analytics and Global Energy & Natural Resources practice groups cover issues that cross borders.”

The Eurasia Group, the website further tells us, “continuously monitor political, economic, social, and security developments around the world and forecast their impact on countries, regions, companies, and financial markets” and “assist clients in reducing their exposure to risk in potentially volatile regions.” Their “clients include a wide variety of financial institutions, multinational corporations, and government agencies.”  With that focus, the RATE is a natural target of their global scan.  And it was important that I get a good answer for Bob.

Bob, who was kind enough to describe my recent column entitled, At the R.A.T.E. she is going, “interesting,” e-mailed me saying that he has “been trying to get anecdotal evidence of whether or not the RATE program is having an effect on taxpayer behavior…” 


The guest speaker of TMAP last week was Deputy Commissioner Estela V. Sales whom I had alluded to previously, together Commissioner Kim Jacinto-Henares, as one of “RATE’s avenging angels.”  Her talk touched on the RATE, naturally, and so Bob’s questions were a perfect fit.  Stela’s answers, I think, would make a bit of a dent on Bob’s self-confessed pessimism on the effectiveness of RATE programs, in general.

 The RATE, Stella replied, must be looked at as a support endeavor of the revenue authorities, for the bigger program of raising the level of voluntary tax compliance.  The attendant publicity to the weekly cases being filed on Thursdays, just in time to make the Friday front page of the national broadsheets, is primarily intended not to sow fear but rather to encourage taxpayers to come forward to pay the right amount of tax.  I must honestly say, though, Sotto voce, that just as  fear of the Lord is the beginning of Wisdom, fear of exposure as a tax cheat is a good motive to jump-start compliance.

 A very palpable result on the public of the RATE campaign appears to be, said Stella, the number of tax informants who had gone to the Bureau to report tax evasion.  It is possible that the promise of the informer’s reward of 10% of the amount collected (but not to exceed P1 million) in these hard times is the powerful motivation for many, but since that feature of the law has been there for many years long before the revitalized RATE, the current surge in the reported instances of tax evasion needs additional explanation.  I do not subscribe to post hoc, ergo propter hoc, but am nonetheless constrained by the recent increase in evasion reporting to grudgingly give the RATE some credit for it.

 The concern to be out of RATE’s way appears to be also behind many taxpayers’ dismay at the recent policy on the issuance of tax rulings announced by the Commissioner.  Many taxpayers for their personal comfort routinely seek the ruling of the Bureau on their intended transactions.  I myself try to dissuade clients from doing that (although such a stance necessarily impacts southwards the amount of legal fees I can charge) not only because getting a prior ruling unnecessarily delays a project that could otherwise be earlier on stream but also because the tax opinion of an established tax practioner ought to be sufficient assurance to a businessman that he is doing the right thing. 

 At any rate, Stella, in her talk, stressed the fact that one of the key efforts of the Bureau in delivering its services to the public is the on-going review and streamlining of the process of preparing and issuing tax rulings.  The Bureau would like to do away with having to say the same thing on the same point of law applicable to the same, or similar in significant points, set of facts.  Where there have been established precedents or long-standing positions of the Bureau, its website will publish the complete texts for everybody’s consumption.  This is coupled, we understand, with a review of previously-issued rulings to ensure congruence with existing law.

 What seems to be a most telling impact of the RATE on taxpayer behavior is a question that came from the floor almost at the end of the forum.  A seasoned tax lawyer (albeit a graduate of the law school of the University of the Philippines) made the suggestion that the Bureau consider the launching at this time that the tax year of most taxpayers is about to end, a program similar to the VAAP.

 VAAP is the acronym for the Voluntary Assessment and Abatement Program that was put in place on September 12, 2002 by the Commissioner of Internal Revenue Guillermo L. Parayno, Jr. under Revenue Regulations No. 12-2002.   Essentially, it permitted taxpayers who had been not too compliant with their tax obligations to come forward with their tax failings and pay the differential between what they had remitted and the amount that is rightfully due.  In appreciation of the taxpayer’s voluntary self-confession, the tax authorities essentially offer leniency.

 When a seasoned tax practitioner who I am certain was articulating the sentiments of his many private clients, suggests a VAAP, you can be sure the RATE is hitting its mark.  So far.