Finance Secretary Cesar Purisima's voice was forceful, his face stern. He was responding to a question on what he would do if someone told him to go slow in his crackdown on tax cheats or if he missed his self-imposed target of filing one case every Thursday.
"If I cannot perform my function, what's the point of staying?" he told NEWSBREAK.
Last March, Purisima launched a campaign called Run After Tax Evaders (Rate), the cause of much talk nowadays. As of writing, 16 have been charged with tax evasion before the justice department. Most of those charged are from the entertainment industry.
These cases have led other individuals, especially those with a high profile and high net worth, to check their own tax filings and payments for fear of being next on the Rate's list.
It's a scare tactic that seems to be working. Last April, the Bureau of Internal Revenue (BIR) reached an all-time high collection of P62.9 billion, exceeding the target for the month by P200 million. It was 18.8 percent higher than the collection for the same period last year, the highest growth ever recorded.
Rate's creation was one of Purisima's first moves when he assumed the post early this year. One of his conditions before accepting the transfer from the trade department to the finance department was that he be given a free hand in appointing the members of the economic team, and for Malacañang to support him in everything he would do as finance chief. "[President Gloria Arroyo] and I had long discussions about this," he said. When Malacañang got him, he added, they knew he was "passionate" about improving the country's fiscal status.
One person who knows how passionate he is about this campaign is Finance Undersecretary Emmanuel Bonoan, who is Purisima's right hand at the department for the Rate campaign. They used to work together at SGV & Co., the country's top auditing firm. "He is very militant with his follow-ups—there is not one day that he does not inquire about the progress of the Rate program." Bonoan described his boss.
Bonoan designed the Rate program. He patterned its basic strategies after the Revenue Integrity Protection Service (Rips), an anti-corruption campaign that compares the assets of government officials with their declared incomes.
Implementing the Rate program is the responsibility of the Bureau of Internal Revenue (BIR). Thus, Internal Revenue Commissioner Guillermo Parayno Jr. and Deputy Commissioners Kim Jacinto Henares and Licerio Evangelista are members of the Rate core team. The Rate team used to meet once a week, but lately, meetings have become more frequent as the cases attract attention—and heat.
Media Strategy
Parayno stressed that the Rate program does not imply that his bureau had not been doing its job. In fact, he said, more than 50 tax cases were filed last year, in two batches. By this he meant, these efforts were not designed to attract a lot of media attention. The BIR chief and his subordinates are realizing now that it pays to have a strategy.
While past efforts to improve tax collection were mostly the bureau's initiative, the BIR, under the Rate program, is backed by the machinery, resources, and even ideas of the finance department.
Consider how the media coverage is being managed. Bonoan's group prepared the press releases once cases were finalized by the BIR and presented to Purisima the day before they were filed with the justice department. Thus, members of the press now look forward to the tax officials' Thursday announcements on new cases filed as a source of story for the week. To prevent press releases from crowding out one another, cases under either Rips (against corrupt government officials) or Rats (against smugglers)—both complementing the Rate program—are filed every other Monday.
Purisima is in constant communication with the justice department to ensure that the tax cases get priority. He said the target is for the justice department to file the cases with the Court of Tax Appeals 60 days after the BIR turns the cases over to justice officials. Henares said: "On our level, we are pushing. On the top level, they are also pushing. It's really a team effort."
Purisima and Bonoan usually join a BIR team when it files a case with the justice department. Their presence shows the Rate campaign has political will behind it.
Clear Signals
In the past, there was little political will behind efforts to improve tax collection and efficiency. The bureau was sidetracked by internal corruption issues and moves to reform the tax structure. Besides, the BIR mindset before was to collect taxes soonest, not to put tax evaders in jail.
This time, it's totally different. "We have to change mindsets by sending a clear signal that we will enforce the law," Purisima said. Using the traffic situation for analogy, he explained: "There are 10 policemen on a street. But none of them is enforcing the law. So drivers will continue to violate [the law]. We must create an environment where people comply."
Philippine tax laws have both civil and criminal aspects. In the past, only the monetary or civil liability of most tax cases was tackled, and most of them ended in a compromise that enabled the tax cheat to pay his tax liabilities immediately or over a period of time. Sometimes, penalties and interests were even condoned just to hasten the tax collection.
Under Rate, the battle cry is "No Compromise."
Take the case of the financially embattled pre-need company College Assurance Plan (CAP), which did not remit to the BIR, and instead used for its operations, the P86 million worth of value added taxes and other taxes it had withheld from its employees. Some BIR officials felt that by filing a court case against CAP officials, they would be letting go of around P150 million in amortized payment that they could already collect from the company. But because of the Rate program, Parayno said the case should be filed.
"When people believe that they can compromise, they will do it again," Parayno said. "In fact, it will encourage others to do the same. It will spawn more people who evade taxes, knowing that if caught, they can compromise with the BIR anyway."
This time, too, the penalties will be pushed. Depending on the gravity of the offense, convicted tax cheats can be jailed for up to 10 years.
Driving It Home
The strategy of the Rate program is to make the cases something of a "personal experience" to every Filipino, or something he or she can relate to. In fact, the first criterion in filing a case is that the person to be charged should be a celebrity, or at least someone who is known among his peers. "If we [sue] somebody whom people know, they can relate and think that it can happen to them, too," said Bonoan.
Thus, while Eliseo Co is unknown to most Filipinos, he was slapped with a tax case because he is popular among his group in the markets of Divisoria. Soon, doctors in popular hospitals will be included in the Rate's list to set an example to their peers.
Another criterion for choosing a target under the Rate program is that it would be easy to establish prima facie evidence and therefore build a case—such as for non-filing of tax returns, under-declaration of at least 30 percent of total taxes due, or non-remittance of taxes withheld by a company. In short, the offense is so obvious or self-evident that it would be easy to prosecute the case.
Priority cases are those where the tax liability is at least P1 million so that these can be filed with the Court of Tax Appeals and not in the crowded regional courts.
Administration critics have pointed out that while the government has run after tax cheats, it has not aggressively pursued the tax evasion cases against people like tycoon Lucio Tan, a known campaign supporter of President Arroyo in the last elections. To this, Purisima would say: "It's important to create small victories first and build confidence." He promised that the campaign would not spare the big fish.
Not paying the right taxes is very rampant, Bonoan lamented.
"If only the 700,000 professionals and self-employed pay an additional P100,000 each, that's equivalent to P70 billion already," Purisima said.
One sticky aspect of tax collection is the fact that the tax system is largely based on self-declaration. And Rate members say that it is usually the rich or high earners who under-declare and don't pay the right taxes. Purisima said up to 60 percent of at least 600 doctors in Metro Manila had declared an income of less than P1 million each. He also noted that property and estate taxes, aside from income taxes, were not being paid properly. These will be the next on his agenda.
"Just by looking at the jewelry, fancy cars, and many houses of a person, I already know how much he should be paying," Purisima said. He used to be chairman of SGV & Co., which had an active tax division business. "We have a very small business community. It's very easy to compute how much taxes needed to be paid."
The Rate team says that they sometimes get calls from people on a fishing expedition, asking if their or their friends' names are on the list of those being investigated. Wrong move, it seems. The investigating team, headed by BIR Deputy Commissioner Evangelista, is alerted, and the caller's tax records are pulled out and scrutinized. Purisima himself makes it a point to check with the BIR the tax records of individuals in business groups who invite him for various occasions.
The Rate program is here to stay, Purisima vowed—at least while he is finance secretary. To skeptics who think that this will be another case of ningas cogon, he said: "We cannot argue with that. We just need to prove them wrong."
