Tax amnesty approved

REPORT FROM BUSINESSWORLD Tax cheats could soon have a chance to redeem themselves and begin dealing with tax collectors with a clean slate as the Senate on Wednesday approved a bill granting a "general, one-time" tax amnesty for delinquent taxpayers who wish to settle their dues with the government. Time is running out however, for the next stage in the lawmaking process - deliberations with the House of Representatives to craft a final bill - with a senior House leader indicating the tax amnesty could still be months away. House Bill 2933, sent to the Senate in October 2006, was unanimously approved but after several amendments including increasing the tax amnesty rate to 5% from 3%. The rate will be charged on a taxpayer’s net worth as reflected in the statement of assets, liabilities, and net worth required of those who want to get a tax amnesty. The tax amnesty rate will settle unpaid taxes for 2005 and prior years. Those interested on the amnesty will be required to submit a Tax Amnesty Return together with a statement of assets, liabilities and net worth as of December 31, 2005 to allow the Bureau of Internal Revenue (BIR) to clean and expand its database of taxpayers and establish benchmarks for tax assessment, among others. If approved, the law will take effect within six months. The BIR will publish the statements to validate any claims by companies or individuals availing of tax refunds, credits, or incentives. The tax bureau is also mandated to prepare a list containing the names of all taxpayers, their gross income and amount of income taxes paid a year later for publication in at least two national newspapers. The tax amnesty, however, will not be applicable to those with pending criminal tax cases, as well as those found to have violated the Anti-Money Laundering Law and the Anti-Graft and Corrupt Practices Act. Tax cheats who avail themselves of the amnesty won’t be haled to court for tax liabilities in 2005 and previous years. Senator Ralph G. Recto, proponent of the measure in the Senate, said that since Congress goes on recess by the weekend, there was not enough enough time for a bicameral conference committee to consolidate the Senate and House versions of the bill. The House should accept the changes, he said. "It’s a take-it-or-leave-it [bill] ... It’s up to them (the House), I did my work, I had it passed, this is certified [as urgent]. My colleagues saw this and they agreed that the Senate version is better, so they passed this," he said. Originally, the Senate proposal called for a 10% tax amnesty rate, but reduced to 5% last Tuesday. The House ways and means committee was non-committal. When asked if he would accept the Senate version, the committee chairman, Negros Oriental Rep. Herminio G. Teves, told BusinessWorld his committee was still working with Mr. Recto’s staff and studying the provisions one by one. Mr. Teves said he was expecting Mr. Recto to send an e-mail last night containing more amendments. "[If this e-mail does not arrive], I might not be able to manifest it in the plenary. It may be carried over to the 14th Congress," he added. If the House adopts the Senate version, a bicameral conference committee won’t be needed and the measure will go straight to the President for signature. Reactions from the business sector were mixed, but some business leaders said a tax amnesty law would send the "wrong" signal that the government is not serious in improving tax collections. Makati Business Club Executive Director Alberto A. Lim said a tax amnesty was "a sign of weak tax administration." "The discipline of paying taxes regularly is lost if the government will allow tax amnesty... If they’re not consistently running after the tax evaders - that’s the real pest," he said in a phone interview. "The government is hoping to raise revenues, the thing is... there may not be too many takers because 5% of net worth is quite large... But if it’s too low, it doesn’t encourage regular payment," he added. The government would raise P11 billion to P32 billion from the amnesty, but information on the program must be widespread, Mr. Recto said. The Philippine Chamber of Commerce and Industry (PCCI) threw its support behind the bill. "It’s good. The bill will encourage people to flush out their hidden wealth," PCCI Chairman Donald G. Dee said. Paul Y. Santos, vice-president of the Philippine Retailers Association, said that the tax amnesty is a "practical" move to raise revenues even as the country’s overall tax compliance is poor. "In terms of overall tax compliance, the tax compliance of Filipinos is poor ... On one hand, the government might want to be more stringent in collecting taxes, but [it] also need[s] to be practical," he said. Mr. Dee said the bill must contain a provision that would bar future tax amnesties, to avoid encouraging more tax cheats. "[Congress] must make it clear [that] we we won’t have to do this after two to three years," he said. The measure permanently bars the BIR from implementing its own tax amnesties. However, Mr. Recto said the only safeguard against another legislated tax amnesty would be "better judgment." "At the end of the day the reason why you’re proposing an amnesty is that you’re telling the public, the citizenry, the taxpayers that ’Okay, I’m giving your last chance to wipe your slate clean but you pay this big amount’," he said. Mr. Recto claimed the amnesty would not diminish efforts by the government to run after tax evaders. Under the measure, the required payment for Individuals is P50,000 or 5% of net worth, whichever is higher. Other juridical entities such as cooperatives and foundations must also pay an amnesty tax of P50,000 or 5%, whichever is higher. The schedule for corporations is as follows: - for corporations with capital of above P50 million, 5% or P500,000, whichever is higher; - with capital of P20 million to P50 million, 5% or P250,000; - with capital of P5 million to P20 million, 5% or P100,000; and - with capital below P5 million, 5% or P25,000 — RDTand ADBR/BusinessWorld Pardon must be last legislated The tax amnesty bill approved by the Senate could be taken by habitual tax evaders as another "license to cheat" unless there is an explicit notice to the public that the latest reprieve will be the last, experts warned on Wednesday. Joel L. Tan-Torres, a tax partner at SGV & Co., and Tomasa "Tammy" H. Lipana, chairman of Isla Lipana & Co., said there are advantages and disadvantages, but a tax amnesty might encourage people to continue cheating since another amnesty might be offered in the future. "There must be an indication that this amnesty will be the last," Mr. Tan-Torres said. "It will serve as notice to taxpayers that there will be no amnesty in the future, and henceforth, they must be honest in their tax compliance." An amnesty, though, will provide an opportunity for taxpayers to "come clean" now that the Bureau of Internal Revenue (BIR) has vowed to be serious in running after tax evaders. "At the same time, the BIR will realize more revenues," he said. "It will also have the advantage of using the statement of assets, liabilities and net worth as starting point in determining tax compliance and monitoring increases in net worth. It can begin concentrating its scarce resources on industries that are not complying [with tax laws]." Ms. Lipana said a tax amnesty would allow the tax bureau to put more taxpayers under the tax net. But a tax amnesty is "inconsistent to a certain extent" with initiatives to improve tax administration, she added. "I assume the legislators got feelers from some organizations that are lobbying for a tax amnesty, or organizations whose members are willing to avail of an amnesty," she said. A 10% tax amnesty rate, however, is "too high" while 5% is "still high." The Senate bill settled for a 5% tax on net worth as reflected on the statement of assets and liabilities required of those who want to avail themselves of the tax amnesty. "A 10% rate assumes that taxpayers did not pay any tax at all," she pointed out. The definition of net worth, Ms. Lipana added, must be clearly defined. "Net worth might increase because of the fair market value of properties and not because of actual income earned." There have been numerous tax amnesty laws in the past but the government implemented "administrative tax amnesties," or programs that forgave tax delinquents in exchange for higher tax payments, to increase collections. Last year, for instance, the BIR implemented the No Audit Program. It extended the deadlines of the tax abatement program, which offers lowered penalties, and the Improved Voluntary Assessment Program, to March 30 this year. Multilateral agencies such as the World Bank and the International Monetary Fund are opposed to tax amnesties, arguing that they discourage tax compliance. The Finance department on Wednesday said it was opposed to a tax amnesty as it runs counter to initiatives to improve the BIR’s administration and collection efficiency. "It’s difficult for the Secretary of Finance to be advocating for a tax amnesty," Finance Secretary Margarito B. Teves said. Mr. Teves had a closed door meeting with Senator Ralph G. Recto and Negros Oriental Rep. Herminio G. Teves, chairmen of the Senate and House ways and means committees, and other senators and congressmen after the hearing of the Congressional Oversight Committee on the Comprehensive Tax Reform Program Wednesday. During the hearing, Mr. Recto asked Mr. Teves if the executive branch was still interested in the tax amnesty bill. The senator pointed out that a tax amnesty rate of 10% will yield revenues ranging from a low of P22 billion to a high of P65 billion. This will be enough, he said to cover for lost revenues in case the sale of the government’s stake in the Philippine Telecommunications Investment Corp. (PTIC) fails to push through. Mr. Teves then asked for an executive session, held behind closed doors. "My preference is to work on tax administration and collection efficiency," Mr. Teves reiterated. "This will result in realizing the objectives of the tax amnesty bill, which are to expand the taxpayer database and generate additional revenues." "I’m just concerned [that passing the tax amnesty bill] will produce a mixed signal." BIR Jose Mario C. Buñag, in his presentation to the oversight committee, enumerated the following as among the tax bureau’s "priority programs" for the year: -expansion of the taxpayer database and use of third party information in aid of audit; -cleaning up or collection of delinquent accounts or accounts receivables; -sale of forfeited properties; -industry profiling and benchmarking; -computerization of all revenue district offices; -implementation of the Run After Tax Evaders program; -implementation of the attrition law; and -strengthening of internal audit and human resource information systems. — Judy T. Gulane/BusinessWorld