Wednesday, October 2, 2013

A Professional’s Plea

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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