IF YOU ASK children about their career
ambitions in life, the likely response would be the occupations of
doctor, lawyer, dentist or other professionals. Even at a young age,
cultural dictates have created an abstraction of professionals -- noble
vocations held in esteem and admired for their self-giving role to
society.
Professionals play a vital role as stewards
in the preservation of society, serving public interest or the welfare
of the populace. For most professional occupations, the standards and
ideals of their practice are enshrined in their stringent codes of
conduct, their oath of honor to abide by their ethical responsibilities,
and by the rules of the Professional Regulation Commission (PRC).
Though they may aspire, not many are called to become professionals. To
prepare in the discipline, additional years of formal education and
training must be completed to acquire a level of competence necessary to
perform the role. It requires considerable investment of time and
resources, and commitment all throughout the professional’s career. For
instance, physicians, accountants and engineers devote long and
countless hours in hospitals, offices and in the field, in which time is
effectively taken away from loved ones. Such work habit is borne of the
profession’s higher duty of delivering the highest standard of
professional service to clients. For some professions, as in the case of
lawyers and medical practitioners, the duty extends to advocacy and aid
regardless of whether the client is able to remunerate them for
services rendered.
Recently, the Bureau of Internal Revenue (BIR) identified professionals
as one of its priority areas for tax audit. Consistent with its
continuing initiative to implement new measures for increasing tax
collections across industries, the BIR issued Revenue Memorandum Order
No. 4-2013, which identified business taxpayers, consisting mainly of
self-employed individuals, small business owners and professionals whose
annual income tax payments average below P200,000, as priority audit
targets.
Barely a month ago, professional practitioners raised concerns regarding
the BIR’s proposed measure of requiring professional rates to be posted
at a prominent place inside their clinics and offices. The proposal is
in response to observations and complaints from clients or patients
about how some professionals -- for instance, doctors and lawyers --
were imposing additional charges (such as value-added tax) on top of
their regular fees whenever clients asked for official receipts.
Further, tax compliance in this sector is considered low, based on BIR
data, since only around 400,000 of the 1.8 million individuals (22%) who
are registered as self-employed, professionals or small business
owners, file their income tax returns, with an average payment of just
P33,441.
Apparently, the BIR takes the view that once professional rates are
posted in public, tax examiners will be able to verify the amounts of
fees reflected in the professional’s issued receipts. Under the proposed
measure, professionals would include medical practitioners, lawyers,
accountants, engineers, architects and real estate brokers. Even
assuming that the BIR’s observations and data are correct, publishing or
posting professional rates in public may not be a feasible solution if
the BIR’s intention is to curb tax evasion. Under its legal authority,
the scope of the BIR’s powers and duties extend only to the assessment
and collection of national internal revenue taxes, fees and charges, and
to the enforcement of all forfeitures, penalties and fines arising from
them. While the BIR Commissioner has the power to secure information
from taxpayers, such is limited only to ascertain the correctness of the
taxes that they are liable to pay. There is no provision in our tax
laws that authorize the BIR to compel taxpayers to publicly disclose
confidential information, such as their professional fees. In my
opinion, the transaction between a professional and his client is a
private contract governed by ethical considerations of trust and
confidence between them. Thus, any information in that contract should
be held confidential by the parties.
Moreover, posted professional rates may not necessarily correspond to
charged rates or actual fee payments. In the case of doctors and
lawyers, for example, professional fees may be charged based on
socialized payment schemes or on contingency basis in consideration of
the patient or client’s financial capacity. As a consequence of the
BIR’s proposed measure, legal and medical professionals may feel
constrained to follow their published rates for fear of a tax backlash,
without regard to indigent patients or pauper litigants.
Another downside to the proposed circular is that it may eventually
result in the degradation of the professional practice, diminished as a
price-driven commodity rather than a vocation deserving respect. This is
something that the codes of conduct of most professions try to avoid by
putting restrictions on how professionals present their services to the
public.
For instance, in the case of lawyers, the Code of Professional
Responsibility admonishes counsels from soliciting legal business. Time
and time again, the Supreme Court has reminded lawyers that the practice
of law is a profession and not a business. Hence, lawyers stand to be
disbarred from the profession should they advertise their practice as
vendors would advertise their wares in the open market. To require the
posting and advertising of legal fees would commercialize and degrade
the legal profession, encouraging the furtherance of business interest
over social justice.
Lastly, publishing or posting rates in public does not fully guarantee
effective identification by the BIR of professionals who intentionally
under-declare their income to evade taxes. Professional rate/fee is but
one factor, among others, that one considers in assessing taxes. Tax
examiners must likewise validate the volume and nature of transactions
entered into by a professional over a period of time to determine the
correct amount of taxable income.
As a professional, I acknowledge the BIR’s earnest efforts to improve
policies that strictly monitor tax payments and plug the loopholes in
tax collections. However, I still believe that other available options
should be explored to strike a balance between the BIR’s campaign
against tax evaders and the need to preserve the dignity of
professionals. One measure would be to provide incentives for compliant
taxpayers -- applying the principle of ruling by the carrot rather than
the stick. On the other hand, I also hope that, regardless of
incentives, all professionals become responsible taxpayers, so the
government need not impose tight measures of control.
As former US President Bill Clinton aptly said in his inaugural speech,
“Let us all take more responsibility, not only for ourselves and our
families but for our communities and our country.”
The author is a tax director at the tax services department of Isla
Lipana & Co., the Philippine member firm of the
PricewaterhouseCoopers global network. Readers may call 845-2728 or
e-mail the author at joel.roy.c.navarro@ph.pwc.com
for questions or feedback. Views or opinions presented in this article
are solely those of the author and do not necessarily represent those of
Isla Lipana & Co. The firm will not accept any liability arising
from such article.
source: Businessworld
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