Audit Performance Measurement

January 30, 1989 REVENUE MEMORANDUM ORDER NO. 06-89 SUBJECT : Audit Performance Measurement TO : All Internal Revenue Officers and Others Concerned I. Purpose This revenue memorandum order prescribes guidelines for measuring the audit performance of individual revenue enforcement officers assigned to audit internal revenue tax liabilities for which letters of authority are issued. The audit effort ratio computed under these guidelines will be considered as one of the factors in determining the semestral performance rating prescribed under Revenue Memorandum Order No. 5-87, which is in the process of revision. cdt II. Reporting requirements - revenue enforcement officers All revenue enforcement officers assigned as examiners shall prepare a monthly report in a form prescribed in Annex "A" which shall contain the following data: A. Name of taxpayer B. Letter of authority number C. Date of issue of letter of authority D. Date reported E. Taxable period F. Tax voluntarily declared and/or paid G. Total amount of deficiency tax determined 1. Assessment (not paid before issuance of assessment notice) 2. Collection (paid without issuance of assessment notice) H. Correct tax due = (F + G1 + G2) I. Audit effort 1. Assessment: G1/H (multiplied by 100%) 2. Collection: G2/H (multiplied by 100%) J. Total audit effort: I1 + I2 In case more than one revenue enforcement officer is assigned to audit a taxpayer as in the case of a joint or coordinated examination, each revenue enforcement officer must accomplish Annex "A". No apportionment or sharing of audit effort ratio shall be made. cd The audit performance report should be accomplished by the revenue enforcement officer only for cases, the audit and investigation of which are already terminated and the report actually submitted to the revenue district officer or to the chief of the audit division/unit, as the case may be. III. Reporting requirements - RDOs or Heads of audit/investigation units All revenue district officers and heads of audit divisions and investigation units shall prepare a monthly summary of Annex "A" submitted by his revenue enforcement officers in a form prescribed in Annex "B". The head of the audit/investigation unit shall rank each revenue enforcement officer on the basis of the audit effort ratio in descending order, that is, from the highest to the lowest audit ratio or percentage. cd IV. Definition of terms The "taxes voluntarily declared and/or paid" shall include the amounts paid with or without the requirement of filing an internal revenue tax return, such as documentary stamp tax, excise tax, etc., undiminished by any form of tax credits. (See Example 1) The revenue enforcement officer must ascertain the amount of internal revenue taxes voluntarily paid by the taxpayer for the taxable year. A list of such internal revenue taxes and the amount thereof shall be attached to and shall form part of the audit report (Annex A-1). The total amount of deficiency tax determined but not paid before assessment (G1) means the amount representing the total of all internal revenue taxes which were found due from the taxpayer as a result of the audit to which the taxpayer may or may not have agreed but has not been paid as of the date the report of investigation was submitted and thus the said deficiency tax will be assessed. The total amount of deficiency tax paid before assessment (G2) means the amount which was found due as deficiency tax or taxes to which the taxpayer has agreed and which was actually paid without the issuance of a formal notice of assessment. The correct tax due means the sum of the tax voluntarily declared and/or paid (F) and the total amount of deficiency tax determined (G1 plus G2). In the case of value added tax, the correct tax due shall mean the output tax per investigation. Deficiency tax for VAT shall be determined by taking the difference between the output tax per investigation and the sum of input tax per investigation and the payment per VAT return in the form of cash and/or tax credit certificates (See Example 2). However, if the VAT returns covered by the audit shows an excess input tax carried over to the immediately succeeding quarter not covered by the audit, the said excess input tax shall be added further to the amount so determined (See Examples 3, 4 and 5). V. Submission of reports Revenue enforcement officers shall submit Annex "A" and Annex "A-1" to their respective heads of offices not later than the 5th day of the following month. Revenue district officers and other heads of audit units/divisions concerned shall submit Annex "B" to the Assistant Commissioner (Planning and Research), Rm. 503, National Office Building, not later than the 10th day of the following month. VI. Effectivity This revenue memorandum order shall apply to audit reports submitted beginning February 1, 1989. JOSE U. ONG Commissioner of Internal Revenue EXAMPLE 1 A taxpayer has the following tax payments and/or declaration for tax year 1988: Income tax due P1.2M Less: quarterly tax payments P0.6M creditable withholding taxes 0.2M (0.8M) Income tax payable P0.4M ====== Excise taxes paid P0.55M ====== Documentary taxes on issuance of shares of stock P0.20M ====== Output tax (VAT) P1.8M Less: input taxes applied (1.4M) Amount paid P0.4M ===== Withholding taxes remitted as withholding agent P0.75M ===== The taxes voluntarily declared and/or paid undiminished by any form of tax credits (F), shall be computed as follows: aisa dc Income tax P1.2M Excise tax 0.55 Documentary stamps 0.20 Output tax 1.8 Withholding taxes remitted 0.75 ---- Total (F) P4.50M ======= All of these information shall be included in Annex A-1 EXAMPLE 2 Assume that a taxpayer filed a VAT return wherein he reported the following output and input tax (Column 1). Upon audit, the correct input tax and output tax determined are shown in Columns A to E, each representing a different and independent case. Case where there is no excess input tax credits (carried over to period not covered by audit) per VAT return filed. ------------------------- : Per Return : Per Investigation ------------------------- : 1 : A B C D E ------------------------- Output tax : 5 : 6 5 5 6 6 Input tax : (3) : (3) (2) (4) (2) (7) Due and paid : 2 : : === : Less payments : : per VAT : : return : : (2) (2) (2) (2) (2) Deficiency VAT : : 1 1 (1) 2 (3) : : === === === === === Per return, the taxpayer paid P2 for the period covered by the return. There is no excess input tax credits carried over to period not covered by the audit. cd Case A : The correct output tax per investigation is P6, while the input tax is P3. To determine the deficiency VAT, the sum of the correct input tax per investigation of P3 and payments made per VAT returns of P2 (total is P5) should be deducted from the output tax per investigation of P6. The resulting deficiency VAT is P1. Case B : The correct output tax per investigation is P5, while the input tax is P2. To determine the deficiency VAT, the sum of the correct input tax per investigation of P2 and payments made per VAT returns of P2 (total is P4) should be deducted from the output tax per investigation of P5. The resulting deficiency VAT is P1. cdt Case C : The correct output tax per investigation is P5, while the input tax is P4. To determine the deficiency VAT, the sum of the correct input tax per investigation of P4 and payments made per VAT returns of P2 (total is P6) should be deducted from the output tax per investigation of P5. There is an excess VAT of P1. Case D : The correct output tax per investigation is P6, while the input tax is P2. To determine the deficiency VAT, the sum of the correct input tax per investigation of P2 and payments made per VAT returns of P2 (total is P4) should be deducted from the output tax per investigation of P6. The resulting deficiency VAT is P2. Case E : The correct output tax per investigation is P6, while the input tax is P7. To determine the deficiency VAT, the sum of the correct input tax per investigation of P7 and payments made per VAT returns of P2 (total is P9) should be deducted from the output tax per investigation of P6. There is an excess VAT of P3. cdt EXAMPLE 3 Assume that a taxpayer filed a VAT return wherein he reported the following output and input tax (Column 1). Upon audit, the correct input tax and output tax determined are shown in Columns A to F, each representing a different and independent case. Case where there is an excess input tax credit (carried over to period not covered by audit) per VAT return filed. -------------------------- : Per Return : Per Investigation -------------------------- : 1 : A B C D E F -------------------------- Output tax : 5 : 7 5 5 7 7 7 Input Tax : (6) : (6) (2) (7) (5) (8) (7.5) Excess input tax carried : : over to period not : : covered by the audit : (1) : -- -- -- -- -- -- : : Balance : : 1 3 (2) 2 (1) (0.5) : : Add: excess input tax : : carried over to : : period not covered : : by tax audit : : 1 1 1 1 1 1 : : -- -- -- -- -- -- Deficiency : : VAT : : 2 4 (1) 3 0 0.5 : : === === === === === === Per return, the taxpayer has an excess input tax carried over to the subsequent period not covered by the audit amounting to P1. Case A : The correct output tax per investigation is P7, while the input tax is P6. To determine the deficiency VAT, the sum of the correct input tax per investigation of P6 and the payments, if any, made per VAT return of P0 (total is P6) should be deducted from the correct output tax per investigation of P7. From this resulting balance of P1, the excess input tax carried over to period not covered by the audit of P1 should be added, to arrive at the deficiency VAT of P2. Case B : The correct output tax per investigation is P5, while the input tax is P2. To determine the deficiency VAT, the sum of the correct input tax per investigation of P2 and the payments, if any, made per VAT return of P0 (total is P2) should be deducted from the correct output tax per investigation of P5. From this resulting balance of P3, the excess input tax carried over to period not covered by the audit of P1 should be added, to arrive at the deficiency VAT of P4. Case C : The correct output tax per investigation is P5, while the input tax is P7. To determine the deficiency VAT, the sum of the correct input tax per investigation of P7 and the payments, if any, made per VAT return of P0 (total is P7) should be deducted from the correct output tax per investigation of P5. From this resulting balance of (P2), the excess input tax carried over to period not covered by the audit of P1 should be added, to arrive at the excess VAT of P1. Case D : The correct output tax per investigation is P7, while the input tax is P5. To determine the deficiency VAT, the sum of the correct input tax per investigation of P5 and the payments, if any, made per VAT return of P0 (total is P5) should be deducted from the correct output tax per investigation of P7. From this resulting balance of P2, the excess input tax carried over to period not covered by the audit of P1 should be added, to arrive at the deficiency VAT of P3. Case E : The correct output tax per investigation is P7, while the input tax is P8. To determine the deficiency VAT, the sum of the correct input tax per investigation of P8 and the payments, if any, made per VAT return of P0 (total is P8) should be deducted from the correct output tax per investigation of P7. From this resulting balance of (P1), the excess input tax carried over to period not covered by the audit of P1 should be added, to arrive at the deficiency VAT of P0. Case F : The correct output tax per investigation is P7, while the input tax is P7.5. To determine the deficiency VAT, the sum of the correct input tax per investigation of P7.5 and the payments, if any, made per VAT return of P7.5 (total is P7.5) should be deducted from the correct output tax per investigation of P7. From this resulting balance of (P0.5), the excess input tax carried over to period not covered by the audit of P1 should be added, to arrive at the deficiency VAT of P0.5. EXAMPLE 4 A taxpayer filed VAT return for the first and second quarter of his taxable period as shown below. In the first quarter, there is a payment of P1, after deducting the input tax of P4 from the output tax of P5. In the second quarter, there is an output tax of P4 and input tax of P6, resulting in an excess input tax credit of P2 carried over to the subsequent quarter. casia ------------------------ : Per Return : Per Investigation ------------------------ : 1Q 2Q : 1st semester ------------------------ Output tax : 5 4 : 9 Input tax : (4) (6) : (7) : -- -- : Due (Excess) : 1 (2) : Less payments per VAT : : return : : (1) : : -- Balance : : 1 : : Add: Excess input tax : : carried over to : : subsequent quarters : : not covered by audit : : 2 : : -- Deficiency VAT : : 3 : : ==== In the audit for this first semester of operations it was ascertained that the total output tax per investigation is P9, while the input tax is P7. To determine the deficiency VAT, the sum of the correct input tax per investigation of P7 and the payments made per VAT return of P1 (total is P8) should be deducted from the correct output tax per investigation of P9 to arrive at a balance of P1. The excess input tax of P2 carried over to the subsequent quarter not covered by the audit should be added to the balance to arrive at a deficiency VAT of P3. cd i EXAMPLE 5 A taxpayer filed VAT returns for the first and second quarter of his taxable period as shown below. In the first quarter, there is an excess input tax credit of P1 after deducting the input tax of P6 from the output tax of P5. This is carried over to the second quarter and is included in the input tax credit of P3 which is deducted from the output tax of P6. The balance of P3 was paid the second quarter. ----------------------- : Per Return : Per Investigation ----------------------- : 1Q 2Q : 1st semester : : Output tax : 5 6 : 11 Input tax : (6) (3) : (7) : -- -- : Due (Excess) : 1 (3) : : === === : Less: payments per VAT : : return : : : : (3) : : -- Deficiency VAT : : 1 : : ==== For the audit for the first semester of operations, it is ascertained upon audit that the total output tax per investigation is P11, while the input tax is P7. To determine the deficiency VAT, the sum of the correct input tax per investigation of P7 and payments made per VAT return of P3 (total is P10) should be deducted from the output tax per investigation of P11. The resulting deficiency VAT should be P1. casia It will be noted that the excess input tax of P1 in the first quarter was not added back inasmuch as it did not represent an excess input tax carried over to the subsequent quarter not covered by the audit; rather, this was taken up as part of the input tax credited in the quarter (period) under audit. ANNEX A REVENUE ENFORCEMENT OFFICER AUDIT PERFORMANCE REPORT For the month of _______________________ ------------------------------------------------------------------------------------------------------------------------------------------- LA DATE TAX- AMOUNT DEFICIENCY* AUDIT REPORT TOTAL TAX NUM- DATE REPOR- ABLE OF TAX ASSESS- COLL- CORRECT ASSESS- COLL- AUDIT PAYER BER ISSUED TED PER- VOLUN- MENT ECTION TAX DUE MENT ECTION REPORT IOD TARILY DEC- LARED OR PAID ------------------------------------------------------------------------------------------------------------------------------------------- A B C D E F G-1 G-2 H I-1 I-2 J H=F+G1+G2 (G1/H) (G2/H) J=I1+I2 100 100 ------------------------------------------------------------------------------------------------------------------------------------------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- -------- ---------- ----------- -------- ------------- ----------- ----------- -------------- ----------- ----------- ----------- T O T A L S ------------------------------------------------------------------------------------------------------------------------------------------- _____________________________________________ REVENUE ENFORCEMENT OFFICER * Refers to basic deficiency, excluding increments such as interest, surcharge, etc. SUMMARY OF REO AUDIT PERFORMANCE MEASUREMENT For the month of ____________________________ * Refers to basic deficiency, excluding increments such as interest surcharge, etc.