Tax financing a bankrupt state T

Eighth part

he Bureau of internal revenue(bir) has this mantra that it should only collect the right amount of taxes, nothing more, nothing less. is this the kind of outcome that results from the tax audits conducted by the Bir?

Unfortunately, this is not the case for a large number of audit cases. Based on anecdotes and my personal experience as a consultant for my taxpayer clients, some tax audit cases result in the BIR either enforcing the collection of delinquent tax obligations or assessing deficiency taxes that taxpayers believe are arbitrary and not compliant with tax laws and rules. I have heard and encountered cases where taxpayers were assessed taxes after a BIR audit that exorbitantly exceeds the capital or assets of the business several times over!

It is apparent that when taxpayers are satisfied with the tax audit process that they encountered and they accept the resulting findings of the BIR regarding their tax liabilities, the tax revenues from this source will readily come faster and in the desired numbers. These can result in increases in tax collections that can contribute to financing the growing needs of government whether in a bankrupt or fragile state. Furthermore, another positive impact of this is that the leakages from tax collections arising from bribery of tax agents by taxpayers and the extortion of corrupt BIR examiners can be curtailed or minimized.

There are several means for taxpayers to avoid these problems with BIR audits. One approach is for the taxpayers to institute internal preventive measures to avoid tax problems during BIR audits. An effective way is for them to comply diligently with the tax rules and pay correctly (or to the best extent possible) their taxes. These can include the hiring of competent and knowledgeable tax and accounting staff; regular training for tax updates of these staff; engaging the tax professionals to undertake a tax compliance assessment of existing tax practices, and consultations with these professionals on complicated issues affecting the company.

Taxpayers should promote ethical practices in engaging with the BIR examiners. They should avoid the temptation of offering bribes or accommodating the extortion attempts of BIR examiners to reduce their arbitrary tax assessments. It is good to remember that “evil begets evil” when such anomalous practices prevail in the taxpayers’ dealings with the BIR. Taxpayers who engaged in these encounters with the BIR have confirmed that they have become perennial victims of BIR audits practically every year. As we say in the vernacular, “Naging suki na sila ng BIR.”

There are also institutional or structural solutions to these problematic Bir-taxpayer audit issues. These measures are to be instituted by the BIR and other government agencies, with the assistance of taxpayers, advocacy groups, and tax professionals.

This will be discussed in next week’s column.

To be continued

Joel L. Tan-torres is the Dean of the University of the Philippines Virata School of Business. Previously, he was the Commissioner of the Bureau of Internal Revenue, the chairman of the Professional Regulatory Board of Accountancy, and partner of Reyes Tacandong & Co. and the Sycip Gorres and Velayo & Co. He is a Certified Public Accountant who garnered No. 1 in the CPA Board Examination of May 1979.

This column accepts articles from the business and academic community for consideration for publication. Articles not exceeding 600 words can be e-mailed to