Objectives and Overall Strategy for Effective Tax Administration

May 5, 1986 REVENUE MEMORANDUM ORDER NO. 08-86 SUBJECT : Objectives and Overall Strategy for Effective Tax Administration TO : All Revenue Service Chiefs, Revenue Regional Directors, Division Chiefs, Chiefs of Branches, Revenue District Officers and Others Concerned I. PURPOSE This Revenue Memorandum Order seeks to spell out the main policies and objectives to be adopted and the main thrusts to be pursued by the Bureau of Internal Revenue under the new administration. Through this issuance, the new management hopes to provide direction to the activities of the revenue men and women who collect the much-needed revenues of the government throughout the country. II. BROAD STATEMENT OF POLICY AND DEFINITION OF OBJECTIVES A. To increase tax collection and meet the assigned collection target. B. To improve the image of the BIR. These twin objectives shall constitute the principal thrusts of the new BIR management and everything else shall be subordinated to the attainment of those main goals. III. IDENTIFICATION OF APPROACHES AND STRATEGY A. Increased Collection. - The efforts to further upgrade our tax collection efficiency should be pursued with greater vigor and unrelenting determination. All available avenues should be explored to increase the revenue yield of our tax collection activities. 1. Voluntary compliance which is the heart of our tax system should be enhanced thru all available means. 1.1. Tax Information and Education Campaign - The campaign to disseminate tax information should not be limited to the income tax filing period, although such period usually coincides with the observance of tax consciousness month. Our tax information drive should be carried out on a whole year basis by utilizing the print, broadcast and other media of information dissemination. 1.2. Effective Audit and Enforcement Program - An effective audit and enforcement program can increase the level of voluntary compliance to an appreciable degree. When tax laws and regulations are enforced fearlessly and fairly, the taxpayers can be better disposed to comply with their tax obligations thru honest self-assessment and voluntary compliance. A thorough audit program that ferrets out non-compliance and violations and applies all available criminal and civil sanctions can go a long way in enhancing greater voluntary compliance. 1.3. Intensified Tax Fraud and Criminal Prosecution Program - The detection of tax evasion practices and consequent criminal prosecution of the erring taxpayers shall have a very strong deterrent effect on taxpayers relative to their norm of compliance with the tax laws and regulations. Tax fraud cases should be developed against taxpayers coming from a cross-section of the different sectors of the taxpaying public so that ripple effects can be felt throughout all the segments of our taxpaying public. 1.4. Program to Ferret Out Non-Filers and Unregistered Withholding Agents - The survey of taxpayers to update taxpayers' master files and to build up existing data banks should be done on a continuing basis. But what is more important is that the information collected and compiled should be utilized to identify, potential taxpayers and thereby broaden the taxpayers' base, so that all who are liable to tax can be made to shoulder their share of the tax burden. 1.5. Closer Monitoring of Tax Compliance We should have a system of monitoring that will enable us to determine those who are complying with their tax obligations and those who are not. This will enable us to take action early enough by calling the attention of the erring taxpayers and to compel them to do what is required of them under the law and regulations. These efforts will improve our chances of narrowing the gap between revenue potential and actual collection of taxes. 1.6. Verification of Remittances of Taxes Withheld by Withholding Agents - We should pursue a current verification of compliance by withholding agents with their duty to withhold and remit taxes as required by existing law. The more up-to-date such verification could be conducted, the less chances there will be of taxes already collected remaining unremitted to the government. Taxes withheld constitute money already within the reach of the government which are only held in trust by the withholding agent. We should, therefore, spare no efforts to insure that such government money actually find its way into the treasury. 2. Audit and Investigation. An effective audit and investigation program, aside from enhancing voluntary compliance, can also maximize the revenue yield thru the collection of deficiency taxes. 2.1. Selective and Quality Audit to Produce Optimum Effect - Tax audit should be conducted on a selective basis only. Selective audit can be expected to produce quality results. We should therefore continue with the development of appropriate audit selection criteria so that only those cases that really need verification shall be subjected to a thorough and comprehensive investigation. Such a selective audit program should be consistent with the capabilities of our manpower resources. 2.2. Reporting of Cases Investigated - All tax investigations should be properly reported. A quality audit should culminate in a quality report. Proper documentation should be observed so that in case of protest, either administrative or judicial, there will be little or no difficulty in establishing the validity and legality of the disputed assessment. Even a very good assessment can be lost by careless and haphazard reporting. 2.3. Timely Assessment and Collection of Deficiency Taxes - There are many instances when the right of the government to assess and/or collect deficiency taxes has been lost thru prescription. The damage done to the government thru inaction or delay can be incalculable. Accordingly, the law and regulations governing the timely assessment and collection of taxes should always be followed and all necessary steps taken to avoid any loss of revenues thru prescription of government action. 3. Collection of Delinquent Accounts. Receivable accounts keep mounting year in and year out. The number and volume of delinquent accounts have been growing by leaps and bounds. They have been clogging our files for the last so many years and they therefore deserve our closer attention. We should be able to convert receivables into revenues, and the sooner we can do that, the better for the government. 3.1. Administrative and Legal Remedies - Let us exhaust all remedies available in order to cleanse our delinquent accounts list. Administrative or legal action or both should be resorted to in accordance with law and regulations. If we pursue the said means of collecting delinquent accounts with forceful determination, we will be able to collect due but unpaid accounts and at the same time deter attempts to delay the payment of legally collectible taxes. acd 3.2. Settlement by Compromise or Abatement - We shall explore all possibilities for the collection of as many delinquent accounts as possible thru compromise or abatement. Whenever it would be to the best interest of the government to have a tax liability compromised or abated, we will not hesitate to have recourse to that authority granted by law. 4. Speedy Resolution of Disputed Assessments. The clogging of our files with contested assessments is a perennial problem that has defied solution thru the years. We should now make special efforts to act with dispatch on all disputed assessments so that the government can collect the revenues as early as possible. 4.1. With a view to the expeditious resolution of disputed assessments, we are going to study a proposal from the private sector for the creation of a committee to be constituted by revenue officials and representatives from the private sector to decide on issues of protested cases, especially those involving big assessments. B. Improvement of BIR Image. 1. Decrease in Graft and Corruption. The BIR has always been a very much maligned agency. Revenue officials and employees have been subjected to public contempt and ridicule, although not deserved in many instances. The negative image of the BIR in the public mind is a formidable problem that we have to overcome. 1.1. Reorientation of Attitudes of Revenue Personnel and of Taxpayers - The problem of graft and corruption necessarily implies a collusion between revenue personnel and taxpayers. To eradicate this problem, there should be a change in the attitudes of both the taxpayers and tax collectors. 1.1.1 Personal Appeal to BIR Officials and Employees - We should like to appeal to all officials and employees of the BIR to forget the ways of the past and to inaugurate a new norm of conduct in dealing with taxpayers. We know that the greater majority of BIR officials and employees are basically good and judicious government functionaries. Let us not allow the BIR image to be soiled and tarnished by a small minority. To protect our collective image, we should exert a concerted effort to prevent any corrupting influence, both from internal and external forces, from tainting the quality of public service that you and I can render. Let us strive thru leadership by example to guide all those who are within the sphere of our influence to have a fresh outlook in the performance of our respective tasks. 1.1.2. Appeal to Taxpayers - We should exert a parallel effort to plead with taxpayers to pay the correct taxes due from them which the government needs very badly. We can make this appeal thru the business, trade, civic and professional organizations so that our goal of engendering truthful voluntary tax compliance can seep down to the lowest members of the taxpaying public. 1.1.3. Moral Regeneration - Let us call for a moral rebirth both in the public and private sectors. The leadership in the revenue service as well as in the different segments of the taxpaying population can provide the examples that can forge a high level of tax morality which, hopefully, can withstand any and all attempts at graft and corruption. 1.2. Plugging Revenue Leakages - There are certain defects in the tax system that require correction in order to plug the leakages of Revenues that prejudice the interest of the government. 1.2.1. Improvement in Administrative Procedures - There are certain procedures in tax administration that can stand improvement. Definite steps in that direction should be taken in order to do away with bureaucratic red tape that has spawned an atmosphere conducive to graft and corruption. Compliance by taxpayers should be made as simple and easy as possible, so that tax payment can be very convenient for them. 1.2.2. Legislative Reforms - Reforms of the tax system towards plugging revenue leakages shall be resorted to whenever appropriate. Loopholes in the law should be removed or plugged to protect the rightful revenues of the government and to obviate any possibility of perpetrating frauds upon the revenue. 1.2.3. Elimination or Lessening of Area of Discretion and Negotiation - There is a very discernible trend towards restricting the areas of discretion on the part of tax personnel thereby limiting the opportunity for negotiation between revenue personnel and taxpayers. In line with this, we shall pursue the establishment of zonal or area valuation for internal revenue purposes as authorized under the law. This will have the salutary effect of insuring uniformity in tax treatment of similar transactions or similarly situated taxpayers. 1.2.4. Strengthening of Performance Audit, Internal Audit, Inspection Activities In order to fuel the momentum for a graft-free tax administration, we shall intensify as may be necessary appropriate audit and inspection activities performance audit and inspection activities will place all personnel always on their toes, and they will be better disposed to perform their jobs as they ought to do. 1.2.5. Activation of Reports Evaluation Committee. - The evaluation committee created to review investigation reports shall be activated to provide additional impetus to quality investigation and reporting of tax cases. This will further be a disincentive to sloppy examination of taxpayers' liabilities and haphazard reporting of the results thereof. 2. Improvement in Concept of Government. Our concept of government service should undergo a reorientation process so that the promotion of the public good can be given the main thrust over and above private interest or personal advantage. 2.1. Public Office as a Public Trust. - This age-old cliche could be given a fresh coat of meaning and significance. Many have already forgotten the impact of this behest upon public servants. They have learned to consider public office as private property, thus placing individual goals over and above organizational objectives. Only those who earn and deserve the public trust should be considered worthy of holding public office. Individual private interest should be subordinated to superior public good and welfare. 2.2. Taxpayers' Acceptance. - The image of the BIR should be refurbished to erase the negative perception that has been indelibly etched in the public awareness. We should project the BIR as a friend extending a helping hand to the taxpayer and not as an adversary seeking to entrap the taxpayer for ulterior purposes. 2.3. Service at the Counters. - The counters usually serve as the points of contact between taxpayers and the BIR, and it is usually in these places where the BIR's image is either enhanced or tarnished. To have a positive impact in the public mind, our counter service should be systematic and orderly, courteous and evenhanded. There should not be even the slightest trace of the arrogance of power and authority. Red tape or unreasonable delay should be minimized, if not totally eradicated. Our paramount concern is for the taxpayer's ease and convenience in complying with his tax obligations. 3. Trimmer and Efficient Work Force. - To attain our objectives of meeting our tax collection target and improving the BIR image, we should have to develop a corps of competent and dedicated civil servants who will put public service above personal benefit at all times. Towards that end, our recruitment and training programs should be improved to make certain that only the technically and morally fit are allowed to enter and remain in the revenue service. There should be continuous upgrading of knowledge aptitude and skills at all levels. 3.1. Better Pay. - The pay scale of BIR personnel is admittedly not commensurate with the duty and responsibility assigned to our tax collection agency. We will continue to exert efforts to have that compensation scale raised to a level that can approximate that of personnel of financing institutions. We recognize that adequate compensation can in a very large measure help in stamping out graft and corruption in the revenue service. We will certainly work for better pay for our personnel. 3.2. Better Working Conditions. - Physical facilities and working environment should be conducive to effective performance. Mutual trust between and among officials and employees must be developed thru constant dialogue and effective communication. All these objectives shall be pursued with dedication. 3.3. People at Their Desks When Needed. - Our officials can play a very critical role by providing leadership by example in laying greater stress on punctuality and strict observance of office hours. Tardiness and absenteeism should be discouraged and minimized. 3.4. Availability of Information. - Information is a very potent tool in any human activity or endeavor. Tax administration is no exception. We need information. We should, therefore, exert efforts to upgrade our computer capability to fully service the Bureau's needs. There should be a continuous build-up of our data banks. The taxpayers' masterfiles need to be constantly updated, but most important of all, we should make optimum use of available data and information to assess and collect all taxes due the government. The foregoing statement of policy, objectives and strategy is intended only as a guide to chart the course of conduct that we should observe in the performance of our mission to raise revenues for the government. They are not intended to exclude any means or approaches that you can devise and implement in order to arrive at the said objectives. We will rely on your ingenuity and resourcefulness in improving our tax collection effort and the BIR's image at the same time. On our part, we will issue additional specific instructions and guidelines along the way whenever considered imperative. cdt IV. PUBLICITY This Revenue Memorandum Order should be given the widest publicity in your respective jurisdiction to insure that the message embodied therein shall reach all concerned for their information and guidance. cd V. EFFECTIVITY This order takes effect immediately. (SGD.) BIENVENIDO A. TAN, JR. Commissioner