THIS ARTICLE was inspired by the 2015 tax campaign launched by the Bureau of Internal Revenue (BIR) Large Taxpayers Service (LTS) on Feb. 17 at the PICC Reception Hall. Since large taxpayers are already familiar with their own situation, this is probably more for the information of us smaller taxpayers.
During the campaign kick-off, large taxpayers were called heroes. While there are only a little over 2,000 large taxpayers in the country, they contribute about 60% of the total BIR collections. For 2015, the BIR expects the large taxpayers to raise P1.05 trillion out of the P1.704 trillion target of the bureau. Quite a huge expectation!
This phenomenon, of course, is nothing new. The Pareto principle -- also known as the 80-20 rule, or the law of the vital few and trivial many -- states that for many events, roughly 80% of the results come from 20% of the causes. Many natural phenomena have exhibited this distribution. Even the distribution of income and wealth exhibits the 80-20 rule. Applied to business, 80% of sales come from 20% of the clients. Hence, businesses would normally closely monitor and take very good care of those clients belonging to the minority from whom they generate most of their sales or profit.
Following the Pareto principle, the BIR consolidated the reporting and monitoring of large taxpayers under three district offices -- the Makati Large Taxpayers District Office (LTDO) for large taxpayers in Makati, the Cebu LTDO for those in Cebu, and the LTS at the National Office for those in other revenue regions all over the country. The original target was to capture the large taxpayers contributing 85% of total collections.
To be closely monitored, large taxpayers are mandated to enrol with the electronic filing and payment system (eFPS) and, therefore, file their returns and pay their taxes through the electronic platform. This means that their filings are immediately monitored by the LTS and LTDOs and any decline can be noted right away. In fact, LTS personnel regularly conduct analyses of the performance of the large taxpayers in their account. Large taxpayers often receive love letters from their LTS officers inquiring about the declines and whether recovery is expected or not.
To ensure the accuracy of their accounting for revenues and expenses, large taxpayers are required to maintain a working and duly accredited computerized accounting system (CAS). The accreditation of the CAS for large taxpayers is much more stringent compared to the procedures in the regular district offices. The reviewers keep track of the flow of revenue and expenses in the accounting system, and ensure that the taxes payable to the BIR are properly recognized and accrued for every transaction. The reviewers see to it that the records that the CAS will produce can be relied upon during a tax audit.
To take advantage of the wide reach of large taxpayers in terms of customers and suppliers, large taxpayers are required to withhold taxes on all their expenses -- i.e., all purchases of goods and services. Hence, on top of the income payments subject to withholding as enumerated in the withholding tax regulations, they are obligated to withhold 1% on all purchases of goods and 2% on all fees paid to service providers. With this strategy, the BIR is assured that taxes have been withheld on a significant amount of taxable transactions. This always proves to be a big challenge for large taxpayers. The consequence of failure to perform the function of a BIR collection agent is heavy: the penalty is equivalent to the tax not withheld plus interest and non-deductibility of the expense.
Large taxpayers are often relied upon to lay down the audit trail for their customers and suppliers/service providers. Under the BIR matching program, reports of large taxpayers on their sales, purchases and withholding taxes are used to check the correctness of the sales and purchases reported, on the other side, by their customers and suppliers. In many cases though, the large taxpayers become victims of the audit trails they have laid down. How? In case of discrepancies from the reports of their customers and suppliers, the large taxpayers are also made to explain and account for the discrepancies, with the risk of being assessed for deficiency taxes.
Do you think large taxpayers have the privilege of being exempt or not being the top priority for tax audit? Sorry, they don’t. They are also included in the BIR audit selection criteria and their audit is, in some cases, even more thorough than the audit conducted for regular taxpayers.
For 2015, the collection goal from large taxpayers represents a 14.75% increase from last year. This is the bigger challenge! Given the single-digit economic growth forecast, the BIR should identify more large taxpayers to help out in achieving this increased target. It may not be fair to just rely on the existing large taxpayers to bring this forward.
The LTS is not even in the Pareto distribution yet. In 2013, for example, there were 179,665 annual corporate income tax returns filed. Under simplistic assumptions, the Pareto distribution suggests that 20% of that number or about 35,900 corporate taxpayers would contribute 80% of the BIR’s revenues. The 2,000+ large taxpayers currently contributing about 60% of the total revenues is a far cry from that 35,900.
The official criteria for selection as large taxpayers are not very difficult to achieve. In fact, I’ve met some corporate taxpayers asking whether they should already register as large taxpayers considering that they have met some of the financial or tax performance criteria. We would, of course, always say that they should wait for the BIR to identify and notify them, with the note that they should think twice before even dreaming of becoming a large taxpayer. It’s always great to be a big income earner, but not necessarily convenient to be classified as a large taxpayer.
To the large taxpayers, we should say “thank you.”
Lina P. Figueroa is a Principal with the Tax Advisory and Compliance division of Punongbayan & Araullo.
source: Businessworld
No comments:
Post a Comment