A tax campaign that cures, not ails

YOU MUST HAVE heard or read about the controversial tax campaign of the Bureau of Internal Revenue (BIR) aimed at professionals, particularly medical doctors who are not properly reporting their taxes.

A doctor is liable for two major taxes, income tax and business tax, which is either the 12% value-added tax (VAT) or the 3% percentage tax for those considered small taxpayers. These taxes are dependent on the amount of gross receipts that doctors report.

Professionals with annual gross receipts exceeding P1,919,500 are mandated to register under the VAT system. As VAT taxpayers, they are liable for 12% output tax on their gross receipts after deducting the 12% input VAT passed-on to them by their VAT suppliers -- e.g., rent, electricity, medical and office supplies and equipment, landline and mobile phone charges, motor vehicles, car repair and maintenance, representation expenses, domestic travel and other business expenses.

What kind of practice would make a doctor a VAT taxpayer? Assuming 50 working weeks in a year and six clinic days in a week, or 300 clinic days in a year, it would require professional fees totalling P6,399 per day to reach the P1,919,500 VAT threshold. As consultation fee of doctors in Metro Manila and most urban areas nowadays averages P500, the doctor needs about 13 patients a day to become a VAT taxpayer. Of course, this sample computation excludes higher fees charged for medical procedures.

Given the threshold, we may really encounter doctors who are not VAT-registered. For instance, rural doctors’ annual gross receipts do not exceed the VAT threshold because of their lower consultation fees and are therefore not subject to VAT. As such, they are just paying the 3% percentage tax on their gross receipt. At the P1,919,500 threshold, such percentage tax could amount to a maximum of P57,585. Unlike VAT, the percentage tax is considered a business expense and can be deducted in computing the doctor’s taxable income.

Even the amount of income tax that a doctor should pay is dependent upon the amount of gross receipts.

Hence, to be subject to the correct tax, doctors must voluntarily declare their correct gross receipts, which can only be monitored if they issue official receipts.

Doctors are required to issue official receipts without the patient requesting for the same. Section 237 of the Tax Code, as amended, mandates that an official receipt be issued for each sale or services rendered valued at P25 or more. Further, Section 264 of the same Code penalizes non-issuance of an official receipt, upon conviction, with a fine set at a maximum of P50,000 and imprisonment of up to four years.

Moreover, official receipts are not just pieces of paper or prescription pads where the doctor acknowledges that he "received the amount of Pxxx from patient xxx". Valid official receipts are serially printed receipts that are registered with the BIR.

The misdeed of some doctors of not issuing official receipts is perpetuated by their patients’ lack of interest in obtaining official receipts whenever the latter make payments.

Most patients are individuals. For individual taxpayers, personal medical expenses are not among those expenses that may be deducted from their gross income subject to tax since these are "personal" in nature and not in any way connected to the conduct of business.

If you’re an employee of a company that provides reimbursable medical benefits, maybe these receipts would be useful to you.

While some patients are conscious to demand official receipts when paying for the professional fees, they are sometimes discouraged. In certain cases, professional fees are higher when patients ask for official receipts because the tax that the doctor is supposed to pay is shifted to the patient. There are also instances when patients will be asked to come back some other day to get the official receipts since the receipts are not available in clinics other than the doctor’s main clinic. Note that under the Tax Code, as amended, official receipts are required to be kept in the place of business, including branches where business is conducted.

Whether these official receipts maybe of use to us, or not, and despite some difficulties encountered when demanding for official receipts, let us just think that, as citizens of this country, we need to do our part in helping the BIR collect the correct amount of taxes from our fellow taxpayers.

For the part of the BIR, let’s hope that future tax campaigns will be focused more on educating specific industries on their tax obligations, rather than making a mockery of those professionals who are allegedly not paying correct amount of taxes. It is also internationally recognized that there are hard-to-tax sectors, and special tax regimes are actually being implemented in other countries for such taxpayers.

Sometimes, the reality is, taxpayers, including doctors, are willing to pay taxes; it is just that they are not knowledgeable on what taxes to pay, how much tax they should pay and how to comply with the requirements.

The author is a manager with Punongbayan & Araullo’s tax advisory and compliance division. P&A is a member firm within Grant Thornton International Ltd.

source:  Businessworld

Tax treatment of individuals employed by the UN and its specialized agencies

FOREIGN governments, embassies, diplomatic missions and international organizations located in the Philippines are granted immunity from taxes on their employees’ salaries, regardless of the workers’ nationality. In other words, such organizations are not treated as withholding agents of the Philippine government.

Such immunity is based on international comity as embodied in several international agreements to which the Philippines is a signatory, such as the Convention on the Privileges and Immunities of the United Nations and the Convention on the Privileges and Immunities of Specialized Agencies ( "SA Convention"), among others.

In recognition of this immunity, Section 2.78.1(B)(5) of Revenue Regulations (RR) No. 2-98 provides exemption from the withholding tax system of the remunerations paid by foreign governments and international organizations to their employees who are residents or nationals of the Philippines.

In the past, there has been a misconception that this exemption from withholding tax under RR 2-98 equates to the exemption from paying the tax on such income. Thus, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 31-2013 providing guidelines on the taxation of individuals employed by foreign governments and international organizations situated in the Philippines.

RMC 31-2013 clarified that the immunity from withholding taxes on employee compensation pertains only to the duty to collect tax and therefore does not carry with it the exemption from paying the income tax itself.

In recognition that most international agreements also grant exemption to officials and employees from paying income tax on their salaries and emoluments, the RMC emphasized that such exemption applies only to those officials and employees who are expressly and unequivocally identified in international agreements and laws, and does not cover those that are not specifically mentioned as tax exempt.

Accordingly, those not specifically granted income tax exemption under the international agreements or laws are subject to the general tax rules on their compensation income.

Recently, the BIR issued RMC 73-2013, which amended certain provisions of RMC 31-2013. It provided the following additional guidelines on the taxation of compensation income of individuals employed by international organizations, specifically the United Nations (UN), its specialized agencies and the International Committee of the Red Cross (ICRC):

(1) Compensation income of officials of the UN and its specialized agencies, regardless of their nationality or place of residence, shall be exempt from Philippine income tax, provided their names have been communicated to the Philippine government (through the Department of Foreign Affairs).

For the tax exemption under the SA Convention to apply, the Philippine government should have acceded to the terms of the SA Convention and indicated the names of the specialized agencies in the instrument of accession.

The specialized agencies are covered by proper instruments of accession include the International Labour Organization (ILO); Food and Agriculture Organization (FAO); UN Educational, Scientific and Cultural Organization (UNESCO); International Civil Aviation Organization (ICAO); International Monetary Fund (IMF); International Bank for Reconstruction and Development (IBRD); World Health Organization (WHO); Universal Postal Union (UPU); International Telecommunication Union (ITU) and International Finance Corp. (IFC).

Specialized agencies not included in the instrument of accession may be covered by the SA Convention upon submission of subsequent written notification by the Philippine government to the Secretary General of the UN. Tax exemption of officials of specialized agencies not covered by proper instrument of accession or written notification will be evaluated based on the terms of their respective constitutional instruments.

(2) Compensation income of ICRC Swiss delegates and alien employees, including their spouses and dependent members of their families, shall be exempt from Philippine income tax.

The new RMC also provides guidelines on the tax filing obligations of individuals employed by foreign governments and international organizations. Philippine nationals and alien individuals who qualify for tax exemption or immunities are enjoined to file their annual income tax returns using BIR Form 1700 or BIR Form 1701, as may be applicable, on or before the 15th day of April of each year.

As an alternative form of systematic filing, they have the option to submit their annual income tax returns through the duly authorized or designated personnel of the foreign governments or international organizations which employ them. Under this option, the International Tax Affairs Division (ITAD), in coordination with the Department of Foreign Affairs, must inform the concerned BIR Revenue District Office (RDO) of the willingness of the foreign/international organization to file its employees’ income tax returns.

Similarly, individuals who are not covered by tax exemptions under duly recognized international agreements or laws are required to file their annual income tax returns on or before April 15 each year.

However, foreign governments or international organizations, in their capacity as employers, may opt to act as withholding agents for the Philippine government and file the income tax returns of their non-exempt employees through substituted filing. Under this filing mode, the foreign governments or international organizations shall register with the RDO having jurisdiction over their principal office and shall follow the prevailing procedures and requirements on withholding of taxes and substituted filing of income tax returns.

Foreign governments and international organizations situated in the Philippines and/or their respective employees not covered by RMC Nos. 31-2013 and 73-2013, but who wish to avail of tax immunities under international agreements or laws, are required to file an application for confirmation of tax exemption with the ITAD of the BIR.

With the issuance of these RMCs, the confusion on the tax treatment of salaries and emoluments of individuals employed by foreign governments and international organizations should have been clarified.

The author is an assistant manager at the tax services department of Isla Lipana & Co., the Philippine member firm of the PwC network. Readers may call (02) 845-2728 or e-mail the author at laverne.a.bacaser@ph.pwc.com for questions or feedback. The 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 the article.

source:  Businessworld

Enough talks, catch tax cheats

Enough talks, catch tax cheats

Commissioner Kim Henares appears on the right tract in running after tax evaders and delinquent taxpayers to boost government revenue collection.

But the Bureau of Internal Revenue (BIR) commissioner has too many obstacles to hurdle, both legal and administrative. There are laws that need to be repealed or amended for the BIR to dramatically increase its tax collection rate.

In July last year, Budget Secretary Florencio Abad estimated that the government was unable to collect roughly P388 billion in potential revenues due to rampant tax evasion by self-employed individuals, or professionals like doctors, lawyers, accountants, and engineers who dictate their own service fees on their patients or clients.

Abad noted that of the 1.8 million registered taxpayers in 2012, only 402,000 self-employed, business and professionals filed their tax returns. Data show that they paid an average of P33, 441 or a total of P13.4 billion, which accounts for only 0.13 percent of gross domestic product (GDP).

A few days ago, Henares said the government lost at least P61 billion in foregone revenues in 2011 from income tax holidays enjoyed by domestic and international business firms in free ports and economic zones.

The figure could be two to three times bigger because the P61 billion represents only the foregone revenues from 1,318 firms, or just 29 percent of the 4,581 firms registered in economic zones, whose 2011 income tax returns have been reviewed by the BIR.

To further illustrate the serious leakages in the country’s tax system, the Department of Finance and the BIR had made public an info graphic with data showing “ridiculously low tax payments” of self-employed professionals in Makati City in 2012.

The info graphic posted on the government’s Official Gazette showed that one out of two self-employed professionals in Makati paid less tax than a public school teacher. It revealed that 54 percent of 2,031 self-employed accountants, doctors and lawyers in four district offices of the BIR paid less than P35, 000 in taxes in 2012. A public school teacher earning P21, 500 monthly paid more tax of P35, 952 every year.

The same info graphic, which is part of the BIR’s Tax Watch project, showed that one of the 1,179 physicians in the city paid only P10 in taxes while one out of 534 lawyers paid only P200.

Two accountants also paid only P138 and P120 in taxes, amounts that are lower than the minimum wage in Metro Manila.

The discrepancies are too obvious to ignore. Laws prescribing penalties on delinquent taxpayers and tax evaders, be they in government positions, in Congress, in business, or ordinary citizens, ought to be given more teeth.

Simultaneously, measures must be in place to address corruption in the ranks of tax law enforcers like BIR assessors, treasurers, collectors and other tax agents to prevent them from working on compromise agreements with taxpayers and getting a share in the amount paid, which directly goes into their pockets.

Henares needs the cooperation of Congress to get legislative measures passed. But it appears that Congress is the biggest stumbling block to the enactment of bills like waiving the confidentiality rule on tax records once a person enters public office.

Well, there is no such bill pending in Congress right now. There were attempts in the past but none ever prospered even at the committee level.

Just a few days ago, news reports quoted Rep. Magtanggol Gunigundo of Valenzuela City raising a howl over a new BIR directive that required income tax filers to state their passive income, such as interests earned from bank deposits, in filing their income tax returns (ITR).

The congressman said Revenue Regulations 2-2014 (New Income Tax Forms) effectively compels a citizen to allow violation of his rights under the laws on secrecy of bank deposits, anti-money laundering and the tax code.

Gunigundo has a point. The BIR is attempting to secure information that would help compute a taxpayer’s bank deposits, then, match it with his income sources to check if he is paying the correct amount of taxes.

Republic Act No. 1405, enacted in September 1955, grants absolute confidentiality on bank deposits, including investments in government-issued bonds. The intention was to encourage people to save their money in banks and to discourage private hoarding so that the money can be used for productive purposes.

The 59-year-old law penalizes bank officials and employees who would provide bank information, except when the depositor agrees in writing, or in cases of impeachment, or upon court order in cases of bribery, dereliction of duty or when the deposits or investments are subject of litigation.

Henares is probably aware that a repeal of RA 1405 is a long shot. But it is what the country needs.
Remember that in the impeachment cases against former president Joseph Estrada and former Supreme Court chief justice Renato Corona, what brought them down were records of their bank deposits from unexplained sources.

Here is a chance for President Benigno Aquino 3rd and Congress to prove their sincerity and determination to curb corruption and finally adhere to the oft-repeated policy of transparency and openness by enacting a measure that will compel candidates in public office and appointees in government positions to sign a waiver on the confidentiality rule on bank deposits and investment.
They should have nothing to fear if they are entering public service to work for the public interest, as they always claim when campaigning but conveniently forget once they assume office.

Like what I said in my column last week, this is not an impossible dream. Pakistan is showing that it can be done.

A South Asian country that is perceived as more corrupt and with lower tax collection rate than the Philippines, Pakistan has shown the way to improve tax collection: require all electoral candidates to file their certificates of candidacy with their income statements and tax records for the past three years.

Last February 15, Pakistan’s Federal Bureau of Revenues made public in its website a tax directory with the details of the tax records as of June 2013 of the members of its parliamentarians and national and provincial assemblies.

The FBR provides a link to a PDF file that shows how much income tax each member of Pakistan’s parliament paid in 2013. On March 31, tax payments of private citizens will also be available in the website.

“This precedent has set high standards of transparency,” said Senator Mohammad Ishaq Dar, Pakistan’s minister for finance, revenue, economic affairs, statistics and privatization. As of Feb. 15, he said 1, 072 out of Pakistan’s 1, 172 parliamentarians have filed their income tax returns. “For the remaining parliamentarians, due process is being undertaken,” he said.

The Filipino electorate has heard enough promises for good governance from political candidates. The time calls for drastic action now.

source:  Manila Times Column by TITA C. VALDERAMA

Tax-treaty Relief: Deutsche Bank wins tax case ‘with finality’ vs BIR

The Supreme Court (SC) has upheld with finality the tax-treaty relief of Deutsche Bank AG Manila branch. It was, thus, cleared to collect refund from the Bureau of Internal Revenue (BIR).

In the Entry of Judgment dated January 24, 2014, the SC First Division denied “with finality” a motion for reconsideration filed by the BIR on the High Court’s decision, dated August 19, 2013, granting tax-treaty relief to Deutsche Bank.

The SC ordered the “respondent Commissioner of Internal Revenue to refund or issue a tax credit certificate in favor of petitioner Deutsche the amount of P22.562 million, representing the erroneously paid BPRT [branch profits remittance tax ] for 2002 and prior taxable years.”

SC’s decision should prompt the Philippines to start honoring international agreements and stop the BIR’s practice of consistently denying tax-treaty relief applications on the grounds of noncompliance of the 15-day-period requirement.

The case stemmed from global financial-services provider Deutsche Bank’s initial noncompliance with the BIR procedure under Revenue Memorandum Order (RMO) 01-2000, requiring that an application to claim tax treaty benefits should be filed at least 15 days prior to a transaction.

The SC nullified the rule in RMO 072-2010, which contends that failure to file a tax treaty relief application within the prescribed period will result in its disqualification.

The High Tribunal explained that the BIR must not impose additional requirements that would negate access to relief as provided under international agreements.

The SC held that the period of application of tax treaty compliance as outlined in RMO 01-2000 should not operate to divest entitlement to the relief.

It added that to deny access would constitute a violation of the time-honored international doctrine of pactasuntservanda (Latin for “agreements must be kept”) whereby agreeing states or nations comply in good faith with their treaty obligations.

The obligation to comply with a tax treaty must take precedence over administrative rules and procedural requirements.

source:   Business Mirror

BIR rejects licensed professionals, artists pretending as marginal income earners

Internal Revenue Commissioner Kim Jacinto-Henares has issued a memorandum circular clarifying that marginal income earners, who enjoy certain tax exemptions, do not include licensed professionals, consultants and the like.

Henares issued Memorandum Circular 7-2014 which said that licensed professionals, consultants, artists, sales agents, brokers and other similarly situated cannot be registered as a “minimum income earner” as defined by the laws.

Under Revenue Regulations No. 7-2012, a marginal income earner is defined as “those individuals whose business do not realize gross sales or receipts exceeding P100,000 in any 12-month period.”

The new memorandum circular provided additional qualifications for an individual taxpayer to be considered as a marginal income earner.

“The individual referred to in that section is an individual not deriving compensation as an employee under an employer-employee relationship but who is self-employed and deriving gross sales or receipts not exceeding P100,000 in any 12-month period,” the circular said.

It said that the activities of the marginal income earner should also be principally for subsistence or livelihood.

“The marginal income earner, as herein defined, shall include but not limited to agricultural growers/producers [farmers/fishermen] selling directly to ultimate consumers, small sari-sari stores, small carinderias or turo-turos, drivers/operators of a single-unit tricycle and such, but shall not include licensed professionals, consultants, artists, sales agents, brokers and other similarly situated, including all others whose income have been subjected to withholding tax,” the circular said.

A marginal income earner enjoys privileges and minimum registration and tax compliance requirements, such as, exemption from the Annual Registration Fee of P500, and exemption from payment of business taxes.

source:  Manila Times

Romance with the BIR

IT’S the month of romance! Whatever kind of relationship you may be in today, it is time to fuel up, celebrate, and maybe reflect on what makes your relationship work.

A successful relationship rests on a certain amount of give and take. The same goes with our relationship with the government -- it’s a mutually beneficial relationship. However, when the government starts to take every single penny of the taxpayer -- issuing layers and layers of regulations -- the taxpayer starts to drop the honorifics and question the morality of the government’s actions.

One big blow to the taxpayer is the Bureau of Internal Revenue’s (BIR) issuance of Revenue Memorandum Circular (RMC) 08-2014 on Feb. 7, requiring exempt individuals and entities to present tax exemption certificate or ruling before they are to be exempted from withholding tax.

Let us recall that, under the provisions of existing tax laws and administrative issuances, some individuals, entities and transactions are considered exempt from imposition of taxes on income and, consequently, from withholding taxes.

The BIR, in its creative idea, ordered the concerned withholding agents to require all individuals and entities claiming such exemptions to provide a copy of a valid, current and subsisting tax exemption certificate or ruling before payment of the related income. Failure on the part of the taxpayer to present the said tax exemption certificate or ruling shall subject the payment of appropriate withholding taxes due on the transaction. On the other hand, the withholding agent’s failure to withhold without the tax exemption certificate or ruling shall be a case for the imposition of penalties.

Let’s digest slowly what was provided in the said issuance.

COVERAGE
The said RMC covers those exempt entities, individuals and transactions. Philippine Economic Zone Authority (PEZA) and Board of Investment (BoI) enterprises that are covered by the provisions of Republic Act (RA) 7916 and the Omnibus Investments Code of 1987, respectively, are sample entities that are, by law, exempt from direct tax. Income derived by a depository bank under the expanded foreign currency deposit (EFCD) system from foreign currency transactions with non-residents, offshore banking units in the Philippines, and other depository banks under the EFCD system are exempt from all taxes under the Tax Code. Are the exemptions already provided under these laws not sufficient to exempt the said entities or transactions from withholding tax?

FAILURE ON THE PART OF THE TAXPAYER
Once the income payee fails to present the required certification or ruling, the payment is subjected to withholding tax. Accordingly, the taxes withheld are remitted to the BIR by the withholding agent.

On the part of the payee, the remitted taxes are initially recorded as an asset. However, since the income of the payee is exempt from income tax, the creditable taxes withheld remain unutilized until such time that there is income subject to regular tax rate. Until then, this is a receivable from the BIR.

It seems that a taxpayer has two options to recover the said taxes that are already in the hands of the BIR. First, check the refund option in the income tax return and apply the same from BIR within the prescriptive two years. This move should be initially evaluated by the taxpayer considering the cost and the benefit of refunding the same. Second, write it off or expense it out. However, will this be allowed as deductible expense in the income tax return? Note that there should be a due diligent effort to collect the receivable before the taxpayer is allowed to write off receivables. Should the taxpayer then send a collection letter to the BIR?

In the two options, it turns out that the taxpayer has no option but to shoulder the burden of refunding or disallowing the expense.

WITHHOLDING AGENT’S FAILURE TO WITHHOLD
Although it was provided that the withholding agent shall be penalized, there has been no penalty indicated in the said RMC.

We assume that penalties for non-withholding shall be imposed under the Tax Code. That is, expenses not subjected to proper withholding taxes at the times required by law are non-deductible for income tax purposes. For the disallowance of deduction, there shall be deficiency income tax plus 20% interest per year. Likewise, the tax not withheld shall be assessed as a deficiency tax and collected subject to interest of 20% per year. In light of this, will the penalties as mentioned in the RMC prevail in this case?

PERIOD FOR SECURING CERTIFICATE OF EXEMPTION OR RULING
An initial concern of a taxpayer-supplier is his income during the period when the ruling had not yet been issued.

Will the BIR have the capability to process the application and issue a ruling soon enough to cover these payments? Meanwhile, should the withholding agent defer the payment to the supplier pending the approval of the ruling? The supplier may need the collections for working capital purposes, especially if the amount is substantial.

There is also the question of whether a certificate or a ruling, once secured, is perpetually valid or if an annual revalidation is required. Notably, the documentary requirements for securing a ruling are not mentioned anywhere in the RMC.

Obviously, there are issues that have to be clarified even before the requirement is implemented.

Considering the seemingly never-ending regulations that taxpayers have to comply with, the BIR should humbly give taxpayers much needed leeway when abiding by the new regulation. A few months’ or a year’s grace period, taking into consideration the capability of the BIR to process the rulings, should give taxpayers assurance that they will not be disadvantaged if they are truly entitled to the exemption. After all, a successful relationship involves a certain amount of give and take.

The author is a senior with Punongbayan & Araullo’s tax advisory and compliance division. P&A is a member firm within Grant Thornton International Ltd.

source:  Businessworld

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