BIR, Customs scramble to plug tax leaks

THE Philippines’ two main revenue-generating agencies are scrambling to implement new measures to turn the tide of slipping tax collections around.

In a memorandum, the Bureau of Internal Revenue (BIR) said it will impose a higher value-added tax (VAT) on primary producers of nonfood agricultural, marine and forest products as well as cotton and cotton seeds.

The BIR said those products were subject to a 10-percent VAT from November 2005 to January 2006 but the government raised the rate to 12 percent beginning February last year on the strength of a new law.

Besides the tax collected from those products, the bureau, which accounts to at least two-thirds of the government’s total tax revenues, will also collect taxes from landowners producing the same.

The BIR said Republic Act 9337 introduced the changes. In Revenue Memorandum Circular 53-2007, Lilian B. Hefti, the agency’s officer in charge, said that prior to the enactment of R.A. 9337, the sale of nonfood agricultural products, marine and forest products, cotton and cotton seeds in their original state, were exempted from the VAT.

“As such, these taxpayers are expected to have already filed their VAT declarations and paid the VAT due on these newly covered VAT transactions beginning that period,” Hefti said.

To collect the right taxes, Hefti directed all revenue district officers to review VAT returns filed by the taxpayers beginning November 2005 and onwards and check whether these previously exempt transactions have been declared for VAT purposes.

The BIR said it will issue deficiency assessments if those identified taxpayers failed to comply with the law.

In a bid to boost its own collections, the Bureau of Customs (BOC) will soon mark imported kerosene and fuel that enter tax- and duty-free to prevent their diversion to the domestic market.

“There are reliable reports that tax- and duty-free articles entered the domestic market illegally without payment of the proper duties and taxes that resulted to huge revenue losses to the government and legitimate oil companies,” Finance Secretary Margarito B. Teves said in his order.

Teves said other countries have adopted the same system and have been successful in preventing oil sale diversions and tax leakages.

“The main objectives of this initiative is to properly identify and track fuel oils that enter the Philippines without tax payments, plug the leakages of duties, and provide necessary tool and evidence for the prosecution of people involve in this kind of activity,” he added.

The mandatory marking will initially be implemented in Subic Bay Freeport, Clark Special Economic Zone and the Port of Batangas.

The two bureaus’ recent moves come on the heels of criticisms about their failure to hit first-half collection targets. Their poor performance led the National Economic and Development Authority to forecast the government would exceed this year’s P63-billion budget deficit ceiling by a wide margin.

The Department of Finance assured the country’s creditors that this year’s deficit goal would be met with a slew of asset sales, including state stakes in San Miguel Corp., Philippine National Oil Co.-Energy Development Corp., and Manila Electric Co.

Lenders such as the World Bank and credit rating firm FitchRatings Inc. however criticized the government’s resort to fire sales, as this would only be helpful in the short term.
By Angelo S. Samonte Manila Times Reporter