Finance Secretary Carlos Dominguez III has underscored the urgency of harmonizing and constantly updating tax policies and administration practices across the Asia-Pacific region to combat tax evasion against the backdrop of an increasingly borderless world.
Dominguez cited, in particular, the cigarette manufacturing industry, where harnessing new tools for surveillance, the improved documentation of tax payments, and closer cooperation between tax and customs authorities are needed to check against tax fraud.
In the Philippines, Dominguez said the improved collection of taxes and enforcement of revenue-related laws resulting from the optimal use of these three imperatives have enabled the Duterte administration to nail down cigarette manufacturer Mighty Corporation on tax deficiency charges.
“As economic boundaries begin to fade in the face of globalization, and as corporations inevitably expand their operations to straddle political borders, it becomes urgent for countries and jurisdictions to constantly update policies and practices in order to prevent tax evasion. Governments are dependent on revenues. Globalization of business operations should not serve as a means to defraud governments or avoid liabilities,” said Dominguez told tax experts in a recent speech read for him by Finance Undersecretary Antonette Tionko before local and foreign tax administrators from various Asian countries.
Dominguez noted that in the Philippines, the government was able to collect P30 billion from Mighty Corp.’s offer to settle its tax liabilities and the sale of its assets to Japan Tobacco Inc. (JTI) owing to the joint drive by the Bureaus of Internal Revenue (BIR) and of Customs (BOC) against the erring cigarette firm, which Dominguez said led to the country's biggest tax settlement ever from a single corporate entity.
“Cigarette manufacturing has always been a troublesome sector as far as collecting proper taxes is concerned. With new tools for surveillance, documentation of tax payments, and cooperation between tax and customs authorities, this should be a smaller problem in the future,” he said.
According to Dominguez, the concerted effort by the BIR and BOC against Mighty has now enabled the government to collect an extra P2 billion in "sin" taxes each month, with Mighty Corp.'s new owner--JTI--expected to pay some P40 billion in excise taxes starting 2018 or almost a third of the estimated P118 billion in projected annual revenue from tobacco products this year.
“At the moment, we are collecting more sin taxes than projected. This is a good sign. It is a tribute to the men and women of our revenue agencies,” Dominguez said. “I look forward to more accomplishments similar to the case of Mighty Corp. These accomplishments highlight the vigilance and professionalism of our revenue agencies.”
These taxes collected from “sin” products such as cigarettes go to improving health services for the country’s poor,” Dominguez said.
To further improve tax administration and enhance cooperation among tax agencies across the region, Dominguez emphasized the need to develop human resources along with utilizing advances in information technology.
“All of us should soon move to more intensive digital governance to ease the burdens of compliance and provide fast and efficient delivery of taxpayer service. It is important that we exchange notes on data analytics and best administrative practices,” Dominguez added.
As a result of improvements in tax administration, the BIR was able to surpass its target for January to February 2018 by 16 percent as collections reached a total of P280.69 billion, which is P38.55 billion over the goal of P242.137 billion for this two-month period.
Propped up by the improved performance of both its Large Taxpayers’ Service (LTS) and regional offices, the BIR’s January-February collections this year marked a 10.8 percent increase over the target of P253.25 billion for the same period in 2017.
Tobacco excise tax collections of P24.04 billion from January to February overshot the BIR’s goal of P14.93 billion by 61 percent or by P9.11 billion for this period. Compared with the same period last year, tobacco excise tax collections represented a 74.3 percent improvement over the actual collections of P13.79 billion.
Total excise tax collections imposed on various products for the January-February period amounted to P44.49 billion as against the target for this period of P38.53 billion, or an excess of P5.95 billion. Compared with actual collections of P25.53 billion in 2017 for the same period, this represented an increase of 74.23 percent.
The adjustments in the excise tax rates under the Tax Reform for Acceleration and Inclusion Act (TRAIN) for automobiles, minerals, alcohol, and tobacco led to surpassed collection goals for these products over the January-February period.
For alcohol, actual collections for the first two months of the year reached P9.82 billion, which exceeded by P1.51 billion the BIR’s goal of P8.31 billion for this period. Excise tax collections on automobiles amounted to P810.31 million, which is over the target of P643.86 million, while for minerals, collections totaled P464.23 million as against the goal of P307.64 million.
Petroleum accounted for P4.79 billion; sweetened beverages, P4.53 billion; and non-essentials P15.65 million of the rest of the excise tax collections for the same period.
Tax revenues grew by 14 percent in 2017, with BIR collections increasing by 13 percent and Bureau of Customs collections rising by 16 percent, which exceeded the 9.1 percent nominal GDP growth.