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Audits to be prioritized for those paying less than P200K in taxes

Posted on March 18, 2013 11:52:22 PM [ BusinessWorld Online ]
By Bettina Faye V. Roc, Reporter
SELF-EMPLOYED individuals, small business owners and professionals (SEPs) who pay less than P200,000 in income taxes annually will be prioritized for audit by the Bureau of Internal Revenue as the government seeks to improve its finances.
"I signed a revenue memorandum circular, basically stating that although all taxpayers will be audited, the priority that will be audited are those business taxpayers whose average payment are below P200,000," said Kim S. Jacinto-Henares, Bureau of Internal Revenue (BIR) commissioner, in a briefing yesterday.
"We’ll look at those who pay less than that and whose growth rate in their income tax payment is below 35% and gross revenues reported did not go up by more than 40%," she added.
The circular, once released, will be effective "immediately."
The BIR chief said this was part of the government’s drive to widen the collection base and increase the overall tax effort.
"Our data shows that about 1.8 million are registered as SEPs but only 402,934 of those filed returns, paying an average of P33,441 annually. We want to find those missing 1.4 million registered as SEPs," Ms. Jacinto-Henares said.
She added that 1.8 million was also a "conservative" number.
"PRC (Professional Regulatory Commission) registrations show two million active professionals, while in the DTI’s (Department of Trade and Industry) database, there are 816,759 registered micro, small and medium enterprises," she noted.
Apart from accounting for all registered SEPs, average payments must also be increased, Finance Secretary Cesar V. Purisima said.
"The current average annual payment of P33,441 implies a monthly income of P23,647. This is unbelievable considering the lifestyles of most entrepreneurs and professionals. It is reasonable to expect the average to reach P200,000," he said.
The Finance chief said visits to the BIR’s revenue district offices revealed extremely low tax payments.
"There were doctors in Pangasinan that paid only P800 for the year, lawyers in Mindoro who paid only P121, a radio and TV practitioner in Quezon City who paid only P400 and a businessman in Cagayan de Oro who paid only P1,000," he said.
"This implies that these professionals earn even less than minimum wage earners. These numbers are ridiculous."
He said the BIR was also looking into benchmarking average tax payments by profession and industry.
Ms. Jacinto-Henares added that aside from ongoing initiatives to improve operational efficiency, the BIR will also use existing information from various organizations in order to effectively monitor taxpayers, such as looking into business permits issued at the local level and looking into memberships in professional organizations.
BIR data showed that total individual tax collections amounted to P223 billion last year, 14.95% higher than the P194 billion recorded in 2011. Of this, P181.7 billion or 81.5% came from taxes withheld on wages of compensation income earners. In comparison, SEPs only accounted for P15.1 billion or 6.8%.
The ratio of payments made by the sector to the bureau’s total tax take from individuals, the BIR noted, declined from 8.4% in 2010 and 6.9% in 2011. Collections from SEPs currently only account for 0.13% of the country’s gross domestic product (GDP), Mr. Purisima also said.
"We want to increase this to 2.1% of GDP or P360 billion by 2016," the Finance chief said.
"This will help us in achieving our total tax effort ratio goal of 16% of GDP by 2016."
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KNOWING YOUR BIR REGULATIONS AND ISSUANCES

Revenue Regulations (RRs)
are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes

Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing.

Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio

Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.

Revenue Bulletins (RB) refer to periodic issuances, notices and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain specific issues of law or administration in relation to the provisions of the Tax Code, relevant tax laws and other issuances for the guidance of the public.

BIR Rulings are official position of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.