Experts say tax amnesty acceptable only if it improves compliance

A TAX AMNESTY the government is considering will make sense only if it brings more delinquents into the fold, experts said last week. While collection of a one- time revenue increment may be a reason to offer a tax amnesty, the government should design the program to help expand the tax base, National Tax Research Center (NTRC) Executive Director Trinidad A. Rodriguez said in an e-mail late last week.

“Although generation of revenue is often the primary motivation in offering tax amnesty, its more important positive effect is for the taxpayers to have a clean slate and sustain their voluntary compliance with the tax laws after the tax amnesty,” Ms. Rodriguez said.

“The government should be able to capture and process information provided in the tax amnesty returns and maintain taxpayers’ database which tax authorities will find useful in enforcing tax laws.” Past governments had offered tax amnesties with varied results, according to the September-October 2016 NTRC Tax Research Journal issue, titled: “The Philippine Experience with Tax Amnesties.”

Finance Secretary Carlos G. Dominguez III had first publicly broached the idea of a tax amnesty in late September last year, saying it could — among others — “clear up” about 40% of cases pending with the Bureau of Internal Revenue ( BIR) and would be integral to a wider tax reform program.

Earlier this month, he said an amnesty may be offered only after the government makes an example of big suspected tax cheats in order to send the message to all that it means business.

In its journal, the NTRC noted that a number of tax amnesty proposals are pending in the current 17th Congress, including — among others — House Bill ( HB) Nos. 3655, 3832 and 4011, as well as Senate Bill (SB) Nos. 920 and 942 that all aim to cover all national taxes that have remained unpaid as of Dec. 31, 2015, for the taxable year 2015 and prior years.

And in February, the House of Representatives approved on third and final reading HB 4814, or the proposed Estate Tax Amnesty Law, and HB 4815 which sets a single rate for this levy compared to the existing range. The Senate has a counterpart to this bill in SB 293.

“There are proposals to grant tax amnesty for taxpayers with deficiencies in payment of property taxes, estate taxes, income tax and VAT ( value- added tax), and amnesty on pending cases, with the objectives of improving tax compliance by giving errant taxpayers the opportunity to comply with tax laws and enter the tax system on a clean slate, reducing administrative backlogs of tax enforcement agencies,

increasing the level of public tax consciousness and consequently, raising additional revenue,” the NTRC noted in its journal.

“If the proposed tax amnesty is pursued, it is important to establish a system that will capture and process information provided in the tax amnesty returns for fiscal policy analysis and future tax policy reforms.”

For Eleanor L. Roque, P& A Grant Thornton principal and head of Tax Advisory and Compliance Division, previous tax amnesty offers were largely unsuccessful since they did not lead to sustained improvements in the tax base.

“In our past experience, hindi nasusundan ng ( they were not followed up by) action. Usually when you offer tax amnesty, your [objective] is to bring everything into the net. And then moving forward, you’ll analyze what they declared, use that as basis for the tax payables for the following years,” Ms. Roque said by phone.

“For tax authorities, if ever there will be a tax amnesty again, they should be able to use the data. The BIR should ensure those taxpayers who used the tax amnesty that moving forward, they are able to follow and comply to our rules.”

For instance, NTRC’s Ms. Rodriguez recalled, the past tax amnesty program under Republic Act no. 9480, or the “Tax Amnesty Act of 2007”, did not capture type of tax for which amnesty was applied, making it difficult to keep track of beneficiaries’ compliance. “This time, tax amnesty returns must be carefully design[ed] to be able to generate necessary data and information for processing and effective use in tax enforcement,” she said.

She also backed the wisdom of a crackdown beforehand, saying: “Prior to the tax amnesty offer, it (the government) should push through with its prosecution of identified big tax evaders to instill fear among large taxpayers that they, too, might be caught cheating the government of taxes.”

“So they might as well take advantage of this offer of tax amnesty to settle their previously unpaid taxes,” Ms. Rodriguez said.

“After the tax amnesty, the government should seriously implement its tax enforcement program and prosecute those who continue depriving the government of correct tax payments,” she added.

“In this way, post- amnesty voluntary compliance will be sustained.”

For Emmanuel P. Bonoan, vice-chairman and chief operating officer of KPMG R.G. Manabat & Co., “[t]he basic thing about a tax amnesty program is that you don’t do it so frequently and you do it under very stringent provisions.”

“Because if you do it frequently, people wont believe you. So people will just say ‘ let’s wait for the next tax amnesty’,” Mr. Bonoan said in a phone interview.

Moreover, he cited allied concerns, such as the need to finally lift or at least ease restrictions on authorities seeking access to bank account information.

“Otherwise people will just hide behind the bank secrecy act; again, we’ll have the same problems as before.”