Ex-commissioner acknowledges potential for BIR’s LoA to be abused

FORMER Bureau of Internal Revenue (BIR) Commissioner Kim S. Jacinto-Henares said the agency’s use of Letters of Authority (LoA) to look into taxpayers’ books remains crucial in meeting revenue collection goals, but acknowledged the risk of such orders to be abused without proper controls.

“We have to recognize that a lot of people are not paying the right taxes. You really have to audit them and usually your collection from assessment will (make up) around 5% of the total collection of the BIR,” Ms. Henares said in a Nov. 24 appearance on The Big Story on One News.

In the first nine months, the BIR collected P2.65 trillion, equivalent of 82.35% of its P3.219-trillion collection target this year. Former BIR Commissioner Romeo D. Lumagui, Jr. has said the bureau may struggle to meet its collection target this year as sluggish government spending weighed on overall tax receipts.

Ms. Henares said that the LoA, which authorizes revenue officers to inspect taxpayer accounts, is a neutral tool, which can turn bad when used to harass taxpayers.

The BIR’s suspension of its audit operations including a freeze on the issue of LoAs and Mission Orders this week amid allegations that they are being used in extortion rackets.

Business groups have said the order sets the stage for the BIR to attend to other tax concerns.

American Chamber of Commerce of the Philippines (AmCham) Executive Director Ebb Hinchliffe said the BIR can turn its attention to other business-community concerns.

“For example, implementing the National Single Window System, which has long been a priority reform among the business community, would streamline processes and reduce opportunities for discretionary action,” he said via Viber.

The National Single Window system facilitates trade by consolidating Customs and other trade-related approvals, to be overseen by a one-stop shop.

Mr. Hinchliffe added that consistently enforcing the Ease of Paying Taxes Act is crucial to lowering compliance costs for all taxpayers and strengthening transparency and efficiency across the tax system.

The Makati Business Club also supported the BIR order noting that the business community has been complaining about the use of LoAs in squeezing more money out of responsible and legitimate taxpayers, as against more focused targeting of tax evaders.

“We note that the Bureau of Customs (BoC) has likewise suspended the issuance of LoAs,” it said in a statement on Nov. 25. The group said it met with Customs Commissioner Ariel F. Nepomuceno and discussed the concerns of the business community.

The German-Philippine Chamber of Commerce and Industry (GPCCI) said the field audit freeze showed the government’s commitment to transparency, accountability, and fairness in tax administration, among top risks by German companies in its AHK World Business Outlook Survey.

“Addressing these concerns is essential to strengthening trust in the Philippines’ regulatory environment,” it said in a statement Wednesday.

It said transparent and predictable audit procedures are crucial in sustaining investor confidence.

“We also note that recent discussions surrounding certain tax issuances have illustrated the need for consistent guidance and effective stakeholder consultations,” it said.

The GPCCI said ensuring clarity in such matters will further support efforts to enhance tax administration and reduce uncertainty for all investors.

Meanwhile, Benedicta Du-Baladad, founding partner, chair, and chief executive officer of the Du-Baladad and Associates noted that audits are typically suspended in December anyway.

“It begins every December 15 to avoid taxpayer contacts during Christmas season. So there is nothing too significant about it considering the timing,” she told BusinessWorld via Viber.

Ms. Du-Baladad also noted that previous suspension lasted between three and six months.

Asked if the suspension will affect revenue collection, she said the “BIR cannot sustain collection targets without an audit, which serves as a deterrent to abuses (like) incorrect declarations and payments,” noting that audits introduce an element of fear among taxpayers.”

“I heard that the collection from audits is only about 3-5% of total BIR collections, but its impact is in forcing taxpayers to be compliant and pay the right taxes,” she said.

In a statement, the Federation of Philippine Industries (FPI) said Wednesday that a transparent tax system will unlock the potential of industry.

“Industries have long carried their share in driving national development. Yet inconsistent practices have constrained their full potential. A fair and transparent tax system can unlock that potential, safeguard taxpayer rights, and build lasting trust for growth,” FPI  Chairperson Elizabeth H. Lee said in the statement.  — Aubrey Rose A. Inosante