Articles in TODAY
(Article published in the August 6, 2001 issue of TODAY, Business Section)There must be something about the seventh month after assuming office that makes a head of state realize that the treasury is in need of fresh infusion.
After taking his oath of office on 30 June 1998, then-President Joseph Estrada had his Secretary of Finance issue Revenue Regulations No. 2-99 in February of the following year launching the ERAP, short for "Economic Recovery Assistance Payment", program.
Now President Gloria Macapagal-Arroyo on the occasion of the Bureau of Internal Revenues anniversary celebrations on August 1, more or less within the same period after becoming the countrys chief executive, is prodding taxpayers to avail themselves of the VAP, or Voluntary Assessment Program, under Revenue Regulations No. 8-2001.
That both ERAP and the VAP are cut from the same cloth is obvious in the avowed justification for the two programs. In exactly the same words, the establishing regulations affirm the government policy "to maximize revenue collection with least administration costs, to encourage voluntary tax compliance, and to maintain harmonious relation with taxpayers by minimizing inconvenience relative to investigation".
Since taxation is essentially legislative, the right to waive the collection of taxes and penalties properly belongs to Congress. Accordingly, both programs of the executive branch simply offer administrative tax amnesty, which is no more than some form of relief from the heavy hand of the tax collector.
This is not to say, however, that the current VAP is a replica of the ERAP of yore. The VAP has features superior to ERAP which, at the very least, should suggest to the taxpayer to seriously consider availing himself of its benefits.
For one thing, the VAP is very transparent about what it is offering while the ERAP was, at best, inconsistent. ERAPs opening statement gives the impression that it was giving "immunity from audit and investigation". However, the immediately succeeding paragraph declared that the regulations were "providing for last priority in audit and investigation". And, just as quickly, ERAP goes back, in Section 1, to "immunity from audit and investigation".
So what was ERAP, immunity or just last priority status?
VAP does not suffer from the same ambivalence. Up front, it offers only the privilege of last priority in the audit and investigation. This privilege consists in three things: (1) Only the Commissioner of Internal Revenue can authorize the audit and investigation of a VAP qualified taxpayer. Ordinarily, a lower official such as a Revenue Regional Director, under Section 10 of the Tax Code may issue the dreaded Letter of Authority. (2) The Commissioner can order the audit only if there is strong evidence or finding of understatement in the payment of the taxpayers correct tax liability. (3) Such understatement is more than thirty percent (30%) of the correct amount due.
Under the VAP, it is clear what you are and are not getting.
Moreover, ERAP covered only the income tax, the value-added tax, and the percentage taxes (exclusive of the withholding of those taxes). VAP is more comprehensive as it includes all internal revenue taxes. Thus, even those taxes which are paid only occasionally, such as the estate tax, donors tax, capital gains tax, expanded withholding tax and documentary stamp taxes may be subjected to a VAP application.
Denied the opportunity to apply for the VAP privilege, however, are those who have been issued Preliminary Assessment Notices; Final Assessment Notices or Collection Letters; those who are under investigation as a result of verified information filed by a tax informer and those with tax fraud cases already filed and pending in courts, all as of 31 July 2001. Their recourse is to take advantage of Rev. Reg. No. 7-2001 allowing compromise settlements. Those with unpaid tax liabilities reflected in their books of accounts, records or financial statements may avail themselves of VAP only after they shall have paid the recorded unpaid liability.
The significant difference between ERAP and VAP, is the amount that must be paid by a taxpayer in order to avail himself of the benefits promised. The amount of amnesty payment generally is the same at 20%. The ERAP however simply required the taxpayer to pay for his 1998 returns twenty percent (20%) or more of the income, VAT or percentage taxes than what was paid for 1997. The result was that a 1997 cheater, who underpaid his 1997 tax by 50%, was able to gain the promised immunity (whatever that might have been) by paying a mere additional 10% of the correct tax due. The government, which was bound by its promise, still lost 40% of the tax due.
The VAP tried to remedy that deficiency to a certain extent. The VAP amount to be paid for income tax is the higher of three figures, namely, (1) a percentage of tax due return of the covered year, depending on whether the ratio of the tax due per return over the annual gross sales/receipts does or does not exceed 2.5%; (2) a percentage of the total sales/receipts depending on whether the taxpayer is an individual or a corporation; and (3) a minimum amount for individuals and another for corporations.
For VAT and percentage taxes, the VAP amount is the higher of (1) a percentage of the output tax, depending on the ratio of the VAT payments over the gross/sales receipts whether exceeding or not exceeding 3%; and (2) a percentage of the total sales or receipts subject to VAT per books/records or financial statements, less the VAT paid per return.
Finally, the VAP on the one-time taxes, such as the documentary stamp tax, the final withholding taxes is simply a percentage of the tax due, generally 20%.
The improvement of this rather complicated method of computing the VAP payment which may require consultation with lawyers and accountants, over the computation under the ERAP is in the attempt to extract from the amnesty applicant approximately the tax due, with the government giving up the collection of, primarily, only the punitive exactions under the tax code.
Amnesties, in the ideal world, are to be avoided since they somehow condone tax evasion. But in our world of yawning budget deficits due to plunging revenues and rising costs of government services, amnesties are acceptable concessions to practical reality.
Taxpayers who pay their taxes correctly and therefore resent the concessions that the government gives up everytime it grants amnesties could take comfort in the thought that the VAP has not sold ethics and principle down the river.