BIR to conduct parallel tax fraud probe on flood control contractors

The Bureau of Internal Revenue (BIR) announced Tuesday that it has initiated a tax fraud investigation on contractors involved in anomalous flood control projects as identified by President Ferdinand “Bongbong” Romualdez Marcos Jr. in his ongoing audit.

In a statement, the BIR said Internal Revenue Commissioner Romeo Lumagui Jr. has directed all BIR offices to closely monitor developments in the President’s investigation and to conduct a parallel audit of contractors to be tagged.

“The BIR will undertake a parallel investigation of contractors implicated in irregular flood control projects. We will support the President’s crusade by auditing the tax returns and payments of these entities,” said Lumagui.

“Should any contractor be found to have underpaid or evaded taxes, the BIR will not issue an updated tax clearance to them. The contractor will be disqualified from participating in future government procurements, and the final settlement of their existing government contracts will be suspended,” added the BIR chief.

The taxman said Lumagui’s directive is in line with the provisions of Revenue Regulation No. 17-2024 (RR No. 17-2024), which mandates that government contractors must secure an updated tax clearance from the BIR prior to the final settlement of any government contract. 

The clearance must certify that the contractor has no outstanding tax liabilities and has duly filed and paid all applicable taxes. 

This updated clearance is distinct from the initial tax clearance required during the eligibility phase of the procurement process, according to the BIR.

The tax collection agency said failure to present the updated tax clearance should result in:

• Suspension of the final settlement of the relevant government contract
• Imposition of a tax lien over the contract amount in favor of the government

The BIR said such enforcement mechanisms are provided under Sections 2 and 3 of RR No. 17-2024 and are intended to safeguard public funds from contractors who fail to comply with tax obligations.

Moreover, Section 235 of the National Internal Revenue Code (NIRC) authorizes the BIR to conduct multiple audits within the same taxable year in cases involving fraud or irregularities, as determined by the Commissioner. 

The BIR said the provision is applicable to the contractors under scrutiny in connection with the anomalous flood control projects.

Lumagui also cited reports of “ghost” flood control projects or those that were fully paid for by the government and reported as completed, but which, upon verification, were never actually constructed. 

Upon receipt of official certification from the relevant government agencies confirming the non-existence of such projects, the BIR said it will be issuing deficiency tax assessments against the contractors involved.

“If the BIR, through certification or endorsement from the appropriate government agencies, confirms that a flood control project is a ghost project, we will disallow all related cost and expense claims. No project means no deductible expense. A tax deficiency assessment will be issued accordingly,” said Lumagui. — RSJ, GMA Integrated News