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Is RATE just filing and piling?

(Article published in the Sep 22, 2010 issue of Manila Standard Today)   

The RATE, revived under the current tenure of Finance Secretary Cesar Purisima, is on its third month and time it is, I think, to examine how the program so far is faring.  What follows is my reading of the data provided by my former student, lawyer Claro B. Ortiz (Ateneo, LLB ’89), who is the point man of the Bureau of Internal Revenue Rate Office for the monitoring of the progress, or lack thereof, of the RATE cases filed by Commissioner Kim Henares with the Department of Justice.

 The first case, against William R. Villarica was filed on July 5, barely five days after the inauguration of PNoy as President.  Acting on information provided by a concerned citizen who may have been scandalized by his recent purchase of a Lamborghini luxury sports car, the BIR prosecuted Villarica for failure to file his income tax returns for the five taxable years 2002 to 2006, inclusive, and 2008 and 2009.  He did file his income tax returns for 2001 and 2007, but he, however, made no income tax payment.  His lawyer filed a motion for bill of particulars on August 26 which was opposed by the Bureau.  Reply and Rejoinder have respectively been filed by the parties.  As of last week, the Department of Justice has not yet rules on the issue.

 Second to feel the brunt of the BIR’s revived RATE was DSM Construction and Development Corp. together with its president, corporate secretary and vice president for operations.  Again based on information received, the bureau prosecuted the company, its president and its corporate secretary for failure to supply correct and accurate information regarding the full payment to the company, amounting to P80 million made by Megaworld in 2006 in full settlement of a judgment claim.  The case is still under the preliminary investigation state at the Department of Justice and is scheduled to be heard on Thursday.


Two weeks later, the third tax evasion case was filed against China State (Phils.) Construction Engineering Corp.  It appears that for the year 2003 to 2006, the company claimed creditable withholding taxes, final withholding taxes and creditable VAT but did not present evidentiary documentation in support thereof.  It apparently tried to mislead the authorities by submitting some certifications in favor of a related company, China Limited.  With the submission of the counter-affidavits of its top officers in the middle of September, the case remains in the preliminary investigation stage which is expected to continue by the end of September and into the middle of next month, at the very least.

 The fourth case, which was filed by the Revenue Officers of the BIR who were formerly assigned at Revenue District Office 27, was against Grand C. Graphics, Inc., a corporation engaged in the business of providing services related to printing.  Its President and Treasurer were also included in the charge sheet.  Grand C Graphics, Inc. is among the top 10,000 corporations and was thus required to file and pay national internal revenue taxes through the electronic filing and payment system (eFPS) in place with the Bureau.  Despite the ease afforded by the system, the company was found to have willfully failed to pay deficiency taxes arising from final and executory assessments, willfully failed to pay deficiency taxes determined to be due per returns filed, and willfully failed to remit taxes it had withheld from its payments to others.

 Last August 12, probably sensing the seriousness of its plight, Grand C. Graphics, Inc. sent a letter to the regional director proposing to settle its tax obligations in monthly installments.  On that same day, however, the case was filed against it by the BIR.  Perhaps to show good faith behind its offer to pay, the company nevertheless sent in the first of its promised installment, in the amount of P150,000 on Sept. 3.  Prosecution of this case is being handled out of Regional Office No. 5.

 The case against Marcario Lim Gaw, Jr. is interesting.  As opposed to the RATE cases previously filed which involved essentially willful failure to state the correct information on which the correct tax is to be based and to pay the taxpayers’ liability, as adjusted, Gaw employed a more ingenious scheme.

 Gaw had at least three different tax identification numbers, to wit, 263-231-513-00 which was as a “local employee”, 108-304-796-000 for a purported “one-time-transaction” and 000-541-102-000.  He then cleverly deployed these numbers in his purchases and sales land.  The attribution of the transactions to different TINs avoids detection of the purchases and sales as being made by one and the same person, thereby dodging detection of the habituality or regularity of his transactions over real estate.

 Under the “cover” of these TINs, Gaw then tried to make the case that each one of his purchases and sales was not in the course of conducting business over real property but simply of isolated instances of purchases and sales of capital assets.  Since the gains on the sales of capital assets by an individual are taxed at rates lower than rates applicable to gains from sales of ordinary assets, Gaw’s transactions, which involved purchases totaling P4,119,183,500 and sales of P8,419,621,441 did not attract the correct tax treatment.  As of last week, the bureau was still awaiting notice from the Justice Department when the preliminary investigation is to be conducted.

 It is thus not surprising that, the last two cases, which were apparently both filed only at the start of this month, on Sept. 9 (one involving the use of falsified documents to effect tax evasion and the other failing to supply the correct information in the income tax return), are still waiting to be assigned to a hearing officer at the DOJ.

 Thus, for the two and a half-months of the revived RATE, it seems, the situation is so far, is just “filing and piling:  “filing by the tax authorities and piling at the investigator’s office.  Undoubtedly, “due process” has a lot to do with the deliberate speed of the proceedings at the Justice Department.  But such “speed” cannot be maintained for too long without giving the impression that, giving the hype in the filing, the program will eventually falter if it stays in the piling.

 Now that the Justice Secretary is done with her report on the Luneta hostage crisis, perhaps she would have more time to look into the RATE cases to see to it that, though not hostaged, the cases soon leave her prosecutors’ desks and move on to the salas of the courts.