Articles in TODAY


Lectures &

News $ Views

Law &



Trust Products
& Practice

About the Guru


Email Feedback

Guest Register









Improving the VAP via the BIR

(Article published in the September 13, 2001 issue of TODAY, Business Section)

It looks like a garage sale: the goods, though reasonably priced at the beginning of the day, were not moving fast enough. As the evening draws near, the expected revenues were not there. Prices had to be brought down, whereupon bargain offers improved and closing time moved a bit later.

We are talking about Revenue Regulations 10-2001, amending Revenue Regulations 8-2001 and instituting the VAP, or Voluntary Assessment Program of the current administration. The amending regulations were, issued on August 1.

Though definitely better than ERAP, which was the administrative amnesty program offered during the term of former president Joseph Ejercito Estrada (see Trusts and Estates, August 6 issue of TODAY), the VAP was given an even newer shine recently, obviously to induce more taxpayers to avail themselves of its benefits.

To give taxpayers a chance to count the offered blessings, the deadline for availing oneself of the VAP is extended by one month, from September 30 to October 31, 2001. Read that to mean that taxpayers did not turn out in numbers to take advantage of last priority audit and investigation offer of Revenue Regulations 8-2001.

A major taxpayer’s concern under the original VAP was the strength of the administrative amnesty.

While the power to order audit of one who has availed himself of the VAP was restricted to the Commissioner of Internal Revenue and confined to cases where there was strong evidence of understatement of one’s tax liability by more than 30 percent, it was not clear then what "strong evidence" meant.

The complaint, mostly from those who did not know that BIR Commissioner Rene Banez is a man who would never abuse that prerogative, was that word "strong" which seemed too subjective for comfort.

Revenue Regulations No. 10-2001 seeks to calm those fears by adding the requirement that the Commissioner’s finding that the evidence is indeed "strong" must be based on "a written report of the appropriate office detailing the facts and law on which such finding is based."

This seemingly minor improvement is in fact a major one because the need for a detailed report assures the taxpayers of a reasoned and deliberate determination on the part of the revenue officials - given the report, if made without sufficient basis, would itself be strong evidence of incompetence or ill-will.

That could lead to a reassignment in the next bureau reshuffle, if not to an Ombudsman case against the erring officer.

The impact of the administrative amnesty on taxpayers claiming refunds or claiming that they erronously overpriced their taxes was also clarified. It is now definite that availment of the VAP does not mean automatic approval of the claim for refund or tax credit. Any taxpayer who would want to pursue his case for refund or tax credit may request for processing or audit solely for purposes of his refund case.

In addition to strengthening the taxpayer’s administrative immunity, the amending regulation also lowers the cost of the protection in the number of cases, but retains the original setup of fixing the VAP amount to be paid to the highest of three amounts computed on three different benchmarks.

For example, for VAP on one’s income tax liability for 1999 and prior years, payment is a) the highest of 20 percent of the tax due per return if the ratio of the tax due over the annual gross sales/receipts does not exceed 2.5 percent; b) for individuals, 0.5 percent of the tax sales/receipts less tax due and paid; for corporations, 1 percent; and (c) the minimum of P10,000 for individuals and P50,000 for corporations.

The amended reduction is obvious in the reduction of condition for corporations, from 2 percent to only 1 percent of total sales/receipts less tax due and paid per tax return filed in the covered year. Similar rate reductions were conceded for VAT and percentage taxes.

Another enhancement benefit taxpayers who are paying under preferential rates provided for by special laws. For them, the VAP amount is simply the higher of (a) 20 percent of the tax due based on their tax return and (b) the additional unpaid tax for the covered year which has not yet been recognized or recorded in the books of account of the taxpayer.

Finally, the unique situation of individuals who earn income from employment and compensation was addressed. VAP for compensation income only is generally unnecessary as the withholding tax system more or less ensures that the correct tax is paid. It makes more sense for those earning business income.

Prior to Revenue Regulations 10-2001, it was not clear if a taxpayer, who had both compensation and business income, could segment his tax liability and do the VAP only on his business income.

It is now clear that individuals deriving income both from employment and business may chose to avail themselves of VAP for compensation income alone, or business income alone, or both compensation and business income.

Revenue Regulation 10-2001 is most likely the last bargain that will be offered by Rene Banez. Better accept it before he closes the shop and starts auditing in earnest those who don’t..