Computer-assisted tax audits to start this June

REPORT FROM BUSINESSWORLD Starting June, large companies in Metro Manila and Cebu won’t have to deal in person with Bureau of Internal Revenue (BIR) examiners under a landmark World Bank assisted-program that will computerize the way tax payments are audited. Rules for the BIR’s Computer-Assisted Audit Program (CAAP) have been endorsed for the Department of Finance’s approval and are expected to be released in May, said Virginia L. Trinidad, the bureau’s deputy commissioner for operations. The computerized audit will do away with the tedious and lengthy manual audit that the BIR has been doing for years, allowing firms to submit books of accounts and other accounting records in electronic form, stored in recordable compact discs or other optical media. Ms. Trinidad said tax returns would be audited with the use of "computer-assisted auditing tools and techniques" or CAATTS, particularly a computer software, called the Audit Command Language or ACL. The CAAP, funded with a $250,000 financial assistance from the World Bank and developed with the help of SGV & Co., promises to reduce audit time to one month from as long as six months. The BIR’s timetable calls for the implementation of the CAAP by June for taxpayers under the agency’s large taxpayers unit, the national investigating division, and all computerized district offices in the Makati, Quezon City, Manila, and Valenzuela revenue regions. A total of 361 revenue officers and supervisors have been trained in CAATTS, Ms. Trinidad said -- 230 in the BIR headquarters, 16 in Manila, 40 in Quezon City, 50 in Makati, and 25 in Cebu. A unit under the office of BIR Commissioner Jose Mario C. Buñag has been formed to review the results of the computerized audit scheme. Ms. Trinidad said CAAP implementation would make the examination of company records "objective" and data analysis "efficient and reliable." Because of minimized contact with taxpayers, the audit is expected to be "stress-free," reducing if not removing "irritants" between taxpayers and BIR examiners, she added. As of now, smaller taxpayers won’t have to worry because the computerized audit covers only big firms with computerized accounting systems and mostly those in Metro Manila, Ms. Trinidad said, noting that the software to be used by field officers is "expensive." Tax revenues are expected to increase "through the discovery of taxpayers’ sophisticated schemes in understating tax liabilities," she said. The BIR begins the audit process with the issuance of a letter of authority or LA allowing examiners to go over a company’s books. LAs are issued, for example, when a company claims tax credits or refunds of more than P100,000. Tax returns or estates are also examined if the gross estate is more than P10 million. Other "red flags" are tax returns indicating no business operation, property buyers who do not file income tax returns, taxpayers with income below industry standards, and those who declare a break-even or net loss for two consecutive years. Also, examiners dig deeper into firms who pay less taxes versus the previous year, companies who increase assets but report a net loss, and those with "abnormal" inventories of 100% or more than gross sales. -- Felipe F. Salvosa II/BusinessWorld