Bureau of Internal Revenue introduces honor-based compliance framework after evidence-based enforcement produced insufficient revenues to justify evidence collection

Bohiney Magazine | The London Prat

QUEZON CITY, PHILIPPINES — The Bureau of Internal Revenue launched Thursday its new Voluntary Compliance Enhancement Initiative, a tax amnesty program that waives penalties and surcharges for delinquent taxpayers who submit a signed declaration stating their “genuine commitment to future compliance,” a process BIR Commissioner Frederico Alcala-Santos described as “trust-based tax administration” and which critics described as “asking tax cheats to pinky swear” but which the Bureau said had already attracted 47,000 declarations in its first two days and was “exceeding early projections by a meaningful margin.”

How the Program Works

The Voluntary Compliance Enhancement Initiative, available to all taxpayers with outstanding obligations from fiscal years 2018 to 2023, allows eligible participants to settle their delinquent tax obligations at face value, with all penalties, surcharges, and interest waived, in exchange for completing a two-page declaration form that includes an attestation that the taxpayer “genuinely regrets prior non-compliance” and a section in which applicants describe, in their own words, “the circumstances that affected their ability to comply with their tax obligations,” which the BIR said was for “administrative learning purposes” and would not affect amnesty eligibility.

“We are asking people to be honest with us,” Commissioner Alcala-Santos said at the program launch, held at the BIR’s Quezon Avenue headquarters. “In return, we are offering them a clean slate. This is a relationship reset. We are not interested in looking backward. We are interested in building a new fiscal relationship going forward, founded on mutual trust and the understanding that taxes fund hospitals, roads, and schools, which people generally support in principle even when they prefer not to fund personally.”

The Revenue Expectations

The BIR projects the initiative will generate P18 billion in voluntary settlements over its six-month window, a figure based on modeling that assumes 15 percent of registered delinquent taxpayers will participate, that the average outstanding obligation is approximately P240,000, and that the psychological appeal of penalty waivers will overcome the equally strong psychological appeal of simply not paying anything and waiting to see what happens, a strategy that BIR data shows has historically been quite successful.

The Manila Bulletin noted that the BIR has run four previous amnesty programs since 2010, that actual collections in each case fell between 23 and 61 percent below projections, and that the primary beneficiaries of each program were large corporate taxpayers with the resources to take advantage of penalty waivers rather than the small businesses and self-employed individuals who constitute the majority of registration but generate a minority of potential recovery. The BIR said the current program had “improved targeting mechanisms” that would address this historical pattern, without specifying what those mechanisms were.

Who Is Applying

Of the 47,000 declarations received in the program’s first two days, BIR internal processing data shows that 31,000 came from individual taxpayers with obligations under P50,000, 9,000 from sole proprietorships with obligations under P200,000, and 7,000 from entities the BIR classifies as “large taxpayers,” a category accounting for less than 0.5 percent of registered taxpayers but approximately 60 percent of total potential recovery under the program.

The “circumstances affecting compliance” section of the declaration form has generated entries that BIR staff have been circulating internally with varying degrees of professional detachment, including one submission from a corporation with a P47 million obligation whose explanation cited “a challenging macroeconomic environment, increased operating costs, and a temporary prioritization of business continuity over fiscal obligations,” which Commissioner Alcala-Santos said represented “exactly the kind of honest reflection the program was designed to encourage.”

Tax Advocates React

Tax justice advocates noted that while amnesty programs generate short-term revenue, they also signal to persistent non-compliers that eventual forgiveness is available, a dynamic that can increase rather than decrease long-term non-compliance by establishing that the cost of evasion is periodic amnesty participation rather than consistent payment.

Commissioner Alcala-Santos said he was familiar with this critique and that the BIR took it “very seriously,” adding that the difference between this program and previous ones was the “genuine commitment attestation,” which he described as a “moral accountability mechanism” that previous programs had lacked.

Dr. Herminia Santos-Reyes of the Institute for Creative Government Accounting said the moral accountability mechanism was “a form that people sign.” She was asked whether she thought people who had evaded taxes for up to six years would be deterred from future evasion by having signed a form. She said she thought that was a very good question. She did not answer it directly. She said she admired the BIR’s optimism. Outside, forty-seven thousand people were signing their genuine commitment declarations, many of whom had done the same thing in 2019, 2016, and 2012. The program, all parties agree, is off to a strong start.

The BIR’s enforcement division, which operates separately from the amnesty program and continues to conduct regular tax audit and collection activities, reported this week that it had completed 1,400 audit assessments in the current fiscal year and collected P2.1 billion in additional assessments from examined taxpayers, a figure that sounds large until compared to the P180 billion revenue shortfall the bureau posted against its annual target. The enforcement division’s director, speaking on background, noted that the voluntary compliance program and the enforcement program operated on “fundamentally different theories of taxpayer behavior” and that it would be interesting to observe which theory the data ultimately supported, adding that this was a professional observation and not a political statement, and that he had nothing more to say on the matter. The amnesty declaration forms continue to arrive. The genuine commitment attestations are being processed. The bureau is cautiously optimistic. It has been cautiously optimistic about voluntary compliance since 2010.

Voluntarily compliant at The London Prat and Bohiney Magazine.

Also not paying taxes at The Onion | Waterford Whispers | NewsThump

SOURCE: https://bohiney.com/bir-tax-amnesty-program-promise-really-hard-to-pay-philippines/