(Article published in the Sep 9, 2002 issue of TODAY, Business Section)The Explanatory Note of the IRMA bill, House Bill 5054, proposing to abolish the Bureau of Internal Revenue and replace it with a new public organization to be known as the "Internal Revenue Management Authority", presents the restructuring of the tax collection agency as the key to increasing tax collection needed to significantly reduce the budget deficit of the government. The Bureau of Internal Revenue, say the authors, cannot meet its target of improving its tax collection effort (measured by the ratio of tax collections to the gross domestic product) from the current 10.8 percent to 14 percent in the next three years without fundamental changes in the way it operates.
Three factors were
identified as responsible for preventing the BIR from doing its job: first, "a rigid
personnel management system under which recruitment is only weakly linked to appropriate
qualifications, where promotion is based almost entirely on loyalty and seniority, and
where performance, either at the individual or unit level, is measured in terms of paper
work produced and not on the desired results"; second, "a compensation system
that seriously constrains the ability of BIR to hire first rate auditors, lawyers, and IT
professionals who are needed to administer effective auditing system, manage a capable
prosecution team, and maintain a comprehensive data base, respectively; and third, the
budgeting system that operates on a rigid line item basis that hampers the utilization of
funds for rapidly changing client needs even as it deters alignment of agency plans with
To overcome these so-called "fundamental institutional constraints", the bill proposes to replace the BIR with "a new form of public organization with corporate-like features that increase managerial flexibility but strengthen performance requirements and accountabilities" and with "clear external accountabilities to both Congress and the Executive". Simply create this new creature, and voila, the country will achieve, we are told, a "better tax collection effort that in turn helps contain and, possibly, eliminate the deficit".
I doubt whether IRMA, as it is now drafted, is the silver bullet. At the very least, poor IRMA cannot stand by itself.
In the first place, the "tax collection effort" is the result of the interaction of many factors, such as the taxpayers, the taxes they are required to pay, and, the tax collectors. These factors do not have equal weights; that more than 90 percent of tax collections is the result of voluntary compliance indicates that reforming the tax collector will not yield as significant increase in collections as getting the taxpayer to voluntarily pay his tax.
Tax collection is like the traffic situation which is the result of the drivers education (or lack thereof), engineering in the streets, and enforcement. The traffic is made smoother and faster, more by clear road signs, concrete embankments and raised islands than by the traffic aides posted at the intersections, blowing their whistles and waving their arms.
In addition to cleaning up the collectors, it is just as, if not more, important to look at the taxpayers to find out what makes them think it is their patriotic duty not to pay taxes.
Secondly, the so-called "rigid personnel management system" purportedly at the BIR is simply the result of the way we have over the years and since time immemorial run our civil service system and is no worse at the BIR than elsewhere in the government bureaucracy. IRMAs primary antidote against this malaise is the mandate that "the officials and employees of the Authority shall be hired on a fixed term performance-based contracts". Just how long the term of the contract is to be and what standards of performance are to be observed are not fixed in the bill and so it is not clear exactly how the "performance-based management system" that the Chief Executive Officer of the Authority is required to set up will avoid reverting to being, after a time, the same old dog with a different collar. IRMA needs definite standards lest it be struck down, even before it could collect the first centavo (has anybody seen a centavo, lately?), for being constitutionally vague.
Thirdly, the mandate for a compensation system designed to attract the best and the brightest in the field, a typical justification for the creation of many a government corporation, is, in the light recent events, an empty gesture. The President could, when constrained by the deficit and favored by the political winds, by a mere stroke of the pen, exert pressure on those who had been conscripted in the service under the promise of being outside of the salary standardization law governing the rest of the bureaucracy to take a salary cut. As of today, several officials who were plucked from the private sector to head government corporations are formally charged with or, as euphemistically described later, are under an "inquiry" by, the Presidential Anti-Graft Commission for not complying with an order issued June 25, 2002 requiring the submission and implementation of a pay rationalization plan that reduces their actual pay package to not exceeding two times the standardized rates for comparable national government positions. After that experience of the trusting, who would be dumb enough to take IRMAs word for it?
Fourth, the line item basis of the budgeting system, which is said to have a hampering effect on the ability of the BIR to adjust itself to the needs of the situation, is an essential tool of Congress in wielding the power of the purse. It is the means by which Congressmen and Senators poke their noses into the realm of the executive. It is an essential part of the system of checks and balances. Taking that away, by providing instead a "service fee" of not less than 1 percent and not greater than 2 percent of the revenues collected will not prevent lawmakers from interfering with the executive. It will simply increase the number of congressional investigations feigned to be "in aid of legislation". Or better still, though it is not in the bill yet, the creation of a congressional oversight committee to "monitor the implementation" of the IRMA. The present Tax Code has it and, so do other laws that touch on the legislators interests, and there is no reason why our lawmakers will be loath to put one on IRMA. Congress, if it wants IRMA to work, must restrain itself.
If IRMA, by itself, will not necessarily increase tax collections, what will? Here are some practical suggestions offered by a former co-worker in the office, lawyer Kim Jacinto Henares.
One suggestion is to make it easier for individuals and corporations to be included in the "tax net". She observes that out of a population of 80 million only 2 million are taxpayers. One can start increasing that number by liberalizing the issuance of the issuance of tax identification number. Presently, even if one wants to pay taxes, the requirements for the issuance of a tax identification number prevent even those who honestly wish to pay their taxes from getting one. She proposes that a system be instituted where in TANs are issued to (1) individuals simply upon presentation of a duly certified birth certificate issued in security paper by the National Statistic Office; (2) to juridical entities merely upon presentation of incorporation papers or licensed to engage in business in the Philippines issued by the Securities and Exchange Commission; (3) to non-resident taxpayers upon presentation of duly authenticated incorporation documents for juridical entities, or passports for individuals. With safeguards ensuring the integrity of the issuance process of the tax identification numbers, this should bring into the fold those who will eagerly comply with their tax obligations.
She supports the present initiatives of making payment of taxes convenient for taxpayers by securing the system of paying through the banks. All tax payments made to financial institution should be deposited to the account of the Bureau of Internal Revenue. Banks ought to be required at the end of each banking day to submit a detailed report of tax collection, i.e., from whom (name and tax identification number), type of taxes, amount of taxes and the taxes received by banks should be automatically be credited to the treasury account of the Bureau of Internal Revenue to be consolidated and remitted directly to the National Government. No withdrawals, including debit memos, should be allowed as against said account with the banks. If an error in payment is made, the recourse of the taxpayer is to ask for a refund, and not for a reversal of entry.
A believer in information technology, she proposes that all tax returns be scanned directly to the database of the Bureau of Internal Revenue. Once data are entered into the database, no correction should be allowed. Furthermore, the controlling documents to be used in investigating or assessing a taxpayer should be the document as scanned into and retrieved from the database to prevent the common occurrence of lost originals and switching of supporting documentation. The computer data base should enjoy the presumption of correctness and it should be presumed that no tax payment was made if no evidence of payment or filing of return can be found in the database of the Bureau. The burden of showing the contrary should be on the taxpayer.
The suggestions of Kim Jacinto Henares do not, of course, exhaust the many number of ways of increasing tax collections. What is important is that focus should be made, not on the tax collector alone, as the IRMA does, but also on the process of paying taxes and, most important, on the taxpayer himself. The enough taxes will be collected if and only if the taxpayer finds it worth his while to pay taxes. And when he is convinced of that, no obstacle must stand in his way to the tills of the Bureau of Internal Revenue or, even of IRMA.