(Article published in the Sep 16, 2002 issue of TODAY, Business Section)Over the years, by clients on one-on-one meetings as well during the open forum that follows my lectures on estate planning, I am asked, "But, will the BIR ever know?" The question is sometimes asked in earnest but, more often, it is delivered with an inflection that tells me that all my efforts at explaining how to reduce ones tax obligation through legally acceptable ways (tax avoidance) were internally rejected, for being at its kindest, silly. After all, simply understating ones tax base, through outright omission of items that ought to be declared and just bloating the deductible items, although illegal (tax evasion), stand a good chance of not being discovered at all. One visit at the local BIR office is sufficient to confirm this. My answer has always been a feeble, "Perhaps, not for now. But sooner or later, the BIR will be able to easily do so." I then go into how since the time of that great and honest taxman named Jun Deoferio, a surprisingly (for his age) computer-literate person even during the early days of DOS, the Bureau of Internal Revenue has been gradually computerizing itself and developing, with the support of legislative reforms giving the Commissioner liberal access to information from various sources, better capability to ferret out non-payment of taxes. The process has been very slow; but, like the mills of the gods, the wheels of progress nevertheless inexorably move forward. It was only a question of whether the day of reckoning will come sooner or later.
Today, if asked the same question, I will readily reply, "Repent, the end is near!". News reports during the final days of René Bañez and the soon after Guillermo L. Parayno, Jr. took over, are clear proofs that something is in the air. The sleeping giant has stirred and is stretching its arms. And those who were taking their chances at tax evasion ought now realize that the odds have shifted against them. Time to turn over a new leaf.
That time is now, or more precisely, the 28th of September 2002. That is when Revenue Regulations No. 12-2002 takes effect, fifteen days after it was published last week, ominously for tax cheats on Friday, the 13th, in newspapers of general circulation. The new regulations institute the Voluntary Assessment and Abatement Program (VAAP) for taxpayers with undeclared sales, receipts, and income for the calendar and fiscal years, 2000, 2001 and the first two quarters of 2002.
The Policy Statement (not a common feature of revenue regulations which traditionally are expected only to implement the law but not to formulate policies) explains what has just happened: The seeds of computerization that were sown long ago must have quietly sprouted, grown into what are now called the "Reconciliation for Listing and Enforcement (RELIEF)" and the "Integrated Tax System (ITS)", and are bearing their first fruits. We are told that RELIEF, together with ITS, "is now generating firm and precise data on sales underdeclarations. The data show that many taxpayers have not been paying the correct VAT, Income and other taxes to the government". Criminal cases have already been filed based on the data generated by the system and many more are expected to be filed as the system expands its coverage, both in terms of the years covered and of the sources of information to be tapped. The message is clear: The BIR, believe it or not, will know, sooner rather than later.
But our process of collecting through the courts or even administratively is not the fastest in the world, and the country, which has already breached its deficit target for the year, even before the first Christmas carol hit the airwaves, needs the money now. Besides, we are a soft and forgiving society. Thus, "with the objective of making RELIEF immediately contribute to this years collections," the Bureau announces that it will treat underdeclarations for 2000, 2001 and the first two quarters of 2002 differently from those to be committed starting the third quarter of this year. The first will be given an opportunity to make a clean breast of it until 15 November 2002; the second "will be subject to the full force of the law", whatever that means and however the means.
Essentially, those who have underdeclared their income tax, value-added tax and excise tax liabilities for the years 2000, 2001 and the first quarters of 2002, are given fixed periods within which to pay initially, a minimum amount, ranging from 2 percent (for VAT) to 3 percent (for income and excise taxes) and later, the rest of the full basic deficiency tax plus 10 percent. Those who do so, in full compliance with the law, will not be subject to the penalties provided under the tax code for late payment of the relevant tax. In effect, voluntary payment now of the basic tax plus 10 percent earns the delinquent but repentant taxpayer a substantial discount on surcharges, interest and penalties that he would have incurred as a result of his underpayment of tax.
A significant edge which Paraynos VAAP has over Banez VAP (which this column favorably wrote about in this papers Aug. 6 and Sept. 13 issues) is the formers use of a "Letter Notice". The VAP relied very heavily on the "V" in VAP which was for "voluntary". The "V" in VAAP is also for "voluntary", but Paraynos "V" is assisted by a wee bit of vis a turgo (kick on the behind, for those who do not read latin) applied by a letter generated by RELIEF, called "Letter Notice", a gentle reminder to the taxpayer that he has been found out. Obviously, VAAP, unlike VAP, is premised on the principle that love of country (which was the centerpiece of the VAP) should be helped along by fear of imminent damnation.
The Letter Notice is sent to the taxpayer whom RELIEF has identified to have under-reported his sales or receipts and it tells the taxpayer, to show that the BIR is not bluffing, the details of the amounts involved and what is expected from him. He is given the deadline for paying the minimum amount due, which on the thirtieth day from date of notice, the deadline for submitting his VAAP application form and the deadline for paying the full tax payable, which is the forty fifth day from date of notice.
Not meeting the deadline means that the taxpayer is dead: The BIR will institute such criminal and administrative actions as may be authorized under the tax code, specifically, closure of the business establishment, criminal acts, or audit and investigation, depending on the extent of underdeclaration.
Those who have not yet been caught by RELIEF, but who out of love of country or resignation to the inevitable, decide to come forward without any prodding from a Letter Notice may make their submissions and effect their payments not later than 15 November 2001.
Repentance is required to be sincere and restitution complete. If RELIEF finds additional discrepancies in terms of additional sales in excess of 10 percent of the amount disclosed or P1,000,000 (whichever is lower) or in terms of overstatement of costs, to the same extent, then the VAAP availment for each of the tax type and taxable period shall be considered null and void and the entire underdeclaration of sales or overstatement of costs will be subjected to the full force of the law.
I am in full support of the VAAP and am hopeful that it will surpass the performance of the VAP which poured in P3.47 billion to the government coffers. I have, however, three suggestions. First, the deadlines for the submission of the application and the payments of the minimum amounts and the basic plus 10-percent tax payable should be counted from the taxpayer receives the Letter Notice, not from the date thereof. It is very probable, considering the snails pace at which the Post Office delivers our mail, that thirty days will have passed before the taxpayer gets his Letter Notice.
Secondly, there ought to be some clarification on the effects of incorrect submissions. There ought to be some rules, in the event of the nullification or cancellation of penalties resulting from the discovery of other understatement of sales or overstatement of costs, when the discrepancy is over P1 million or 10 percent of the disclosed or demanded amount, whichever is lower, on how the payments made under the incorrect submissions will be treated. Simply saying that the availment will be considered null and void, without expressly providing for the crediting of the amount already paid under the incorrect VAAP against the full liability when finally determined, leaves the impression that the government wants to forfeit what was paid, albeit incorrectly, under the VAAP. After all, money did flow into the government coffers, helping the government in its fight against its own deficit. The imperfectly complying taxpayer should be given some credit for that.
Finally, there should be complementary measures that will deal with the avalanche of cases that could come when many taxpayers start receiving their Letter Notices. Not all delinquent taxpayers will decide to raise the white flag. A good number, because of the amounts demanded or their lack of funds, may decide it is worth their while to fight out the assessment that is soon to follow an ignored Letter Notice. We have to make sure that the Bureau is fully prepared to handle this sudden volume quickly and fairly. If the bureaucracy bogs down, the delinquent taxpayers will be able to stall collection of their correct obligations till kingdom come, and the VAAP will turn out to be no more than the silly mouse that scampers out of the mountain that labored.