Tax rules should be in plain language

A YOUNG UNIVERSITY student goes to his father for help on an accounting assignment from school. His father, after all, is very knowledgeable about accounting as he is a long-time public accountant and a former senior executive in one of the country’s biggest accounting and tax firms. The son explains to his father that he needs help as he couldn’t figure out the assignment.

The father listens carefully as the son reads out loud the details of the assigned case for resolution. The son then explains that despite reading the assignment several times, he cannot figure out the accounting problem that needed resolution. And thus, his difficulty in approaching the problem and deciding on an accounting solution.

The father looks at his son and then declares, "Son, your problem is not accounting. It’s not mathematics, it’s not the numbers. Your problem is English. You cannot understand what you read because either the case is poorly written, or you have poor reading comprehension. You cannot expect to begin solving the problem unless you first fully understand what it is."

This is a true story, by the way, relayed to me by the accountant’s son, who happens to be a friend. I recall the story now in light of recent controversy involving the use of new tax forms, as prescribed by the Bureau of Internal Revenue (BIR). The new forms are to be used by corporate and individual taxpayers starting this April, in filing tax returns for income earned in 2013.

Under BIR’s Revenue Regulation No. 2-14, starting this year, the BIR will use revised income tax forms with bar codes. Changes in entries will also make the forms readable by an optical character reader (OCR), for ease in scanning. In addition, the requirement for entering centavos in tax returns has been eliminated.

That part of the regulation seems to be clear enough. But some controversy arises from the use of these new tax forms with respect to the method of deducting allowable or permissible expenses from gross revenues or income, for the purpose of computing the net revenue or income subject to tax.

Kindly indulge me by taking time to read a copy of RR 2-14. I suggest you read through it carefully, and then ask yourself whether it is clear enough for most taxpayers to correctly understand. This is in light of the argument that tax laws should be plainly and correctly understood by all.

After reading, kindly ask yourself if the RR was clear to you? As a professional or self-employed individual taxpayer, do you fully and correctly understand how RR 2-14 applies to you? Some quarters claim RR 2-14 is illegal as it violates Section 34 of the tax code, which specifically allows professionals and self-employed individuals the option (without limits) to use "Optional Standard Deduction" or OSD in lieu of "Itemized Deduction" in computing taxable income.

I leave it to tax experts, accountants, and lawyers to argue the points for or against RR 2-14. It will most likely go to court. But having read the regulation, I believe confusion arises from the way RR 4-14 was worded. As it is, the RR can be seen as ambiguous and unclear, and whether this was intentional on BIR’s part is uncertain.

I present this case to prompt an argument in favor of the wider use of plain or simple English (which the official language of the law in the Philippines) in courts and in drafting government rules, regulations, policies, and laws, with provisions for translations to major regional dialects. It shouldn’t take a lawyer or an accountant or a judge or a government official to interpret or explain laws and rules to the public.

After all, any rule or law is not addressed to them only or have only them in mind as an audience or stakeholder. Laws, or tax rules in this case, covers every citizen of the Republic. Laws (or tax rules) should thus be written in a way that they can be plainly, correctly, clearly, and concisely understood by every citizen of the Republic -- with little room for misinterpretation. As far as practicable, laws (or tax rules) should not be left open to various interpretations by different "experts."

As a matter of policy, we insist that ignorance of the law is not an excuse. But how can we expect people to understand our laws or rules if these are not written in ways they can clearly comprehend? How can people be held accountable for violating tax rules they don’t even understand? Even farmers, no matter how lowly, with sufficient income must pay taxes.

Bear in mind the 10 commandments. Is there anything unclear or ambiguous about them? Can one ever misinterpret them? Translated into local dialects, even rural folks can make sense of them. And since they had been handed down, there were never any amendments to the "commandments," not unlike constitutions. They withstand the test of time and societal change. Why can’t our laws or tax rules be the same?

Yesterday morning, the traffic on Malugay St. in Makati City was a mess. The BIR compound on that street was packed with cars, and outside -- on Malugay St. -- cars were double-parked on both sides despite the fact that the street was a "no-parking/tow-away zone." The cars parked were presumably owned by people either working at the BIR or had some business to be there that morning.

And this prompted me to ask myself -- Even if the BIR can draft clear and concise tax rules for all of us, how can we expect BIR and taxpayers to read, understand, and follow them strictly when even presumably educated, well-heeled, people who own expensive cars can’t read and follow the simplest "no-parking" signs?

(Send comments to matort@yahoo.com.)

source: Businessworld