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Who is cheating on taxes?
Nov 23, 2001
 

Business headlines last Wednesday (Nov. 21, 2001) attributed to the Department of Finance the admission that the Government is losing about P242 billion every year in taxes that should have been paid. One paper (not the Meteor) said this revelation was made by the DOF "in a study presented recently to Congress" and the reason for the loss is that "individuals and corporations were cheating the government".

Banks were identified as among the big corporate cheaters in the area of both the documentary stamp tax (loses amounting to P6.4 billion in 1998 alone) and the withholding tax on deposit interest (P1.8 billion lost here). But the biggest loss, allegedly according to DOF estimates, "is incurred in the collection of tax on personal income where the tax leakage rate is a high of 56 percent, representing a loss of P98.951 billion yearly and has a potential revenue collection of P177 billion". We are, in short, a nation of tax cheaters, according to the DOF.

I rise in defense of kith and kin as well as, though they are more than capable of defending themselves, my clients and creditors. And I challenge those who are responsible for the study to come out into the open and answer some questions.

To them, I ask:

Question # 1: How did you arrive at the amount that ought to have been collected? It seems that different studies have different starting points resulting in the different estimates of the tax loss. Thus, IMF supposedly estimate the loss at P74.86 billion; the National Tax Research Center at P113.08 billion; the Philippine Institute of Development Studies at P198.1 billion; and the DOF, who should have the best access to the most reliable data, at P242.47. I assume all the studies have the same figure for taxes actually collected so the variance must be accounted for by the difference in "should have been collected" figures. So, what was that figure and where did it come from? "Estimates" are not defenses; they are as useless to us as estimates of your telephone numbers.

Question # 2: How do you define what "should have been paid"? Do you recognize the fine line between tax avoidance and tax evasion? Take this year-end, for instance. I intend to recommend, to my friends and clients, who plan on giving their children a gift totalling P200,000 this season to split their gifts as follows: give, on Christmas day, or anytime before the last second of Dec. 31, 2001, P100,000; then, give, the remaining P100,000 on the first second of Jan. 1, 2002. Result, my friends and clients will not be paying donor’s taxes at all. If they were to give all of the P200,000 on Christmas of 2001 or all of it on New Year’s day of 2002, they would have to pay P2,000 in donor’s taxes. By your definition, would the P2,000 that those who take my advice will not pay to the government, be a "loss"? In my book, that amount of P2,000 was not the government’s in the first place because the tax laws themselves permit gift-splitting.

Question # 3: How did you get that figure about the banks? The banking industry, almost be nature, is one of the most, if not the most, addicted industry to record keeping. They keep a record of everything and they even keep records of their records. Deposit figures of banks and the interest they pay (and do not pay) are no secret. Bank transactions needing documentary stamp taxes are not covered by bank secrecy laws. Although the deposits themselves are covered by the laws on the secrecy of bank deposits, the totality of interest paid banks on their deposits (deductible as they are from the banks’ gross income) are supplied by banks to the Bureau of Internal Revenue. So, what’s keeping the revenue authorities from collecting the proper tax?

I could go on and on with lengthy questions. But for now, I pause for a reply while I recommend to my clients that they put their money in long-term deposits or investments. Hold them to maturity, and the interest is tax-free.

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