2000 Audit Program for Excise Taxpayers

June 23, 2000 REVENUE MEMORANDUM ORDER NO. 30-00 SUBJECT : 2000 Audit Program for Excise Taxpayers TO : All Regional Directors, Revenue District Officers (RDO), Chiefs of the Assessment Divisions, Heads of Revenue Data Centers (RDCs) and all Internal Revenue Officers Concerned In view of the significant share of Excise Taxpayers Service in the overall collection of this Bureau and the need to closely monitor the same, the audit plan thereof for the year 2000 is hereby established. I. OBJECTIVES 1. To increase collection and enhance a high degree of voluntary compliance through the performance of quality audit. 2. To broaden the tax base through identification of untapped excise taxpayers. 3. To establish the business profile of each particular type of industry subject to excise tax. 4. To ensure proper application of laws through the adoption of fair and uniform rules and procedures in the tax treatment of certain industries. II. COVERAGE This Audit Program covers investigation of 1999, 1998, and unverified prior years internal revenue tax returns including returns of fiscal-period taxpayers whose taxable years ended any day from June 1, 1999 to July 31, 2000 for taxpayers whose business are primarily engaged in the manufacture, production, importation and distribution of articles subject to excise tax. All Letters of Authority to be issued pursuant to this Order shall be based on the following selection criteria: A. Mandatory 1. Taxpayers retiring from business regardless of amount of gross assets, sales or receipts. 2. Taxpayers requesting for merger/consolidation/split-up and other types of corporate reorganization. 3. Claims for tax credit/refund of internal revenue taxes (except excise tax) of excise taxpayers, in which case the results thereof shall be consolidated with the regular audit where the amount of claims exceeds P200,000 and the gross sales/receipts exceeds P200,000. ETCcSa 4. Excise taxpayers selected for audit based on third-party information. 5. Prescribing tax cases. B. Short Audit The Asst. Commissioner for Excise Taxpayers Service shall conduct a short audit on the cases described below for purposes of undertaking immediate resolution/action thereof. 1. Inconsistencies of sales and purchases declared in .VAT return against third party information. 2. Taxpayers with substantial reduction in gross sales/receipts/tax payments and/or substantial increase in costs of sales and expenses. For this purpose, the phrase "with substantial reduction in gross sales/receipts/tax payments" will mean at least twenty percent (20%) reduction in the current year's gross sales/receipts/tax payments from that of the immediately preceding year's while "with substantial increase in costs of sales and expenses will mean at least twenty percent (20%) increase in claimed cost of sales and expenses over and above the increase in costs and expenses attributable to increase in gross sales/receipts. 3. Inconsistency between VAT payment vis-a-vis excise tax payment. 4. VAT Input is greater than VAT Output for at least two (2) consecutive quarters. 5. Unverified taxpayer's declaration of substantial increase in gross sale or revenue as per their own press release or publication. 6. Reported violations of the provisions of excise tax laws, rules and revenue regulations pertaining to production/removals of excisable articles. C. Regular Audit Audit of excise taxpayers that covers income, VAT, percentage, withholding and other taxes that shall be selected according to the following order or priorities: 1. Filing of break-even returns or returns showing net loss for at least two (2) consecutive years. 2. Excise taxpayers with asset growth but reported net loss. 3. Excise taxpayers with history of low/non-compliance. 4. Multinational-corporate excise taxpayers. 5. Other selected excise taxpayers. Non-LA cases shall be covered by Tax Verification Notices (TVNs) or Memoranda, as the case may be, based on the following criteria: 1. Claims for tax credits/refunds of internal revenue taxes (except excise tax) of excise taxpayers where the amount of claim do not exceed P200,000 and the gross sales/receipts do not exceed P200,000,000. 2. Claims for tax credits/refund of excise tax paid, regardless of the amount, by oil companies, embassies/legates, international agencies and other tax-exempt entities. 3. Protested cases for re-investigation. 4. Transfer of property in exchange for shares of stocks and other sale/exchange of stocks not listed in the stock market. 5. Excise taxpayers requesting change in accounting period. 6. Excise taxpayers change in the inventory method. 7. Excise taxpayers requesting in status from VAT to Non-VAT. 8. MCIT verification. 9. Final withholding tax verification on the following: a. Fringe benefit tax b. Dividends 10. Other cases that may be identified for immediate verification. III. Audit Policies and Procedures 1. The Chief, Excise Taxpayers Operations Division shall draw a list of taxpayers selected for audit. The list shall state the name of taxpayer selected for audit, the nature of business, the amount of gross sales/receipts, the selection code, the PSIC code, and the corresponding amount of tax paid for the period. The said list shall be submitted to the Assistant Commissioner, Excise Taxpayers Service for pre-approval. The pre-approved list shall then be forwarded to the Commissioner of Internal Revenue, thru the DCIR for Operations, for final approval. 2. One Letter of Authority (LA) shall be issued for each taxable year. 3. All Letters of Authority shall be issued and approved by the Commissioner of Internal Revenue. 4. Reports of investigation on closed and terminated cases wherein the deficiency taxes per investigation were paid shall be prepared and submitted to the Deputy Commissioner of Internal Revenue (DCIR) Operations Group for appropriate review within ten (10) days from the date of taxpayers' payment of such deficiency tax assessments. Reports of investigation/verification on cases for assessment shall be submitted to the DCIR, Operations Group for review at least six (6) months before the prescription date of the cases. 5. All Tax Verification Notices shall be issued and approved by the ACIR, Excise Taxpayers Service unless otherwise delegated in writing to the Chief, Excise Taxpayers Operations Division in order to facilitate the verification and processing of tax returns requiring the immediate issuance of certificates/clearance. However, the ACIR, Excise Taxpayers Service may revoke anytime in writing the authority of the Chief, Excise Taxpayers Operations Division to sign Tax Verification Notices when he deems it necessary. aATHES 6. Letters of Authority/Tax Verification Notice shall be issued only when the duplicate copy of the tax returns of the taxable period/s covered by the LA/TVN is attached thereto, except where the basis for the issuance of the LA/TVN is the result of a third party information. 7. A Revenue Officer/Group Supervisor shall not audit/investigate the same taxpayer for two (2) consecutive years/periods. 8. Revenue officers shall conduct the audit within one hundred twenty (120) days from date of issuance of LA and submit their corresponding report of investigation thereon. If the final report is not completed within the 120-day period, the revenue officers shall submit a progress report and shall request for the revalidation of said LA. The revalidation shall be limited to one issuance only and shall be done by issuing a new Letter of Authority. However, for short audits, the investigation and submission of reports shall be completed within sixty (60) days from the date of issuance of LA. 9. Revenue Officers shall follow the procedures and guidelines provided under existing revenue issuances on audit. IV. Audit Reports Audit reports shall comply with the requirements under the existing rules and regulations prescribing the procedures for the review, reporting, and approval of cases under the Excise Taxpayers Service. V. Reporting Requirements The following reports shall be submitted: 1. For Revenue Officers a. Progress report of audit/investigation. For short audits, the progress shall be submitted every two (2) weeks; b. Field Audit/Investigation Reports; c. Monthly Summary of audit activities, to include nature of discrepancies, industry issues and amount collected/assessed; d. Monthly Report on Pending Inventory of Cases/Dockets The foregoing reports shall be submitted to the Group Supervisor not later than the 3rd day of the following month. 2. For Group Supervisors a. Consolidated progress reports of the Revenue Officers on each tax case; b. Consolidated list of field audit reports submitted by Revenue Officers; c. Consolidated report on audit activities; d. Consolidated progress reports. 3. For Chief, Excise Taxpayers Operations Division a. Monthly List of LAs/TVNs Issued This report shall contain the name of the taxpayer, LA/TVN numbers, date of issue, audit case selection code, and the taxable period covered. b. Monthly Status of LAs/TVNs Issued and Acted Upon The report shall include reassignment, loss, cancellation or spoilage of LAs/TVNs, and referrals to other Offices, and reporting of cases covered by LAs/TVNs. Cases still pending audit or investigation as of the end of the month and/or terminated cases where no official reports thereon have yet been rendered and duly transmitted to the Excise Taxpayers Service shall not be included in this report. AcHEaS c. Monthly Summary of Assessment and Collection Activities The summary shall contain the detailed information on the results of the audit/investigation conducted per case and per tax type, including the processing of claims for tax credits/refunds. It shall include the number of cases acted upon; and terminated by the Office during the given month including original investigation/verification cases, and dockets returned by the Excise Taxpayers Service for compliance of certain reporting requirements. Only cases/dockets actually transmitted for review to the Excise Taxpayers Service as of the end of each month shall be included in this report. This report shall not include collections arising from voluntary payment of capital gains. d. Monthly Inventory of Pending Cases This report shall contain a summary of the Revenue Officer's Monthly Report of Pending Inventory of Cases/Dockets. It shall indicate the number of pending cases per tax year, the inventory of pending cases at the beginning of each month, the number of new dockets/cases started during the month, the number of returned dockets, the number of closed/reported cases, and the total number of pending inventory as of the end of the month. It shall also include an aging analysis in number of months of the pending cases/dockets. The foregoing reports shall be submitted to the Asst. Commissioner for Excise Taxpayers Service not later than every 10th day of the month. 4. For Assistant Commissioner, Excise Taxpayers Service a. Monthly List of LAs/TVNs issued; b. Monthly Status Report of LAs/TVNs issued; c. Monthly Report on cases/dockets received for review, returned to the Chief, Excise Taxpayers Operations Division and forwarded to CIR for approval; d. Monthly Summary of Taxes Assessed/Collected; e. Monthly List of Pending Cases. VII. Penalty Clause Violations of any provision of this Order or any unauthorized deviations from the foregoing policies and instructions will be dealt with accordingly. Any violation hereof shall be referred by the ACIR. Excise Taxpayers Service to the Inspection Service for appropriate action. In this regard, the ACIR, Excise Taxpayers Service may recommend to the Commissioner of Internal Revenue the transfer, reassignment, or relief of any Revenue Officer and Official violating any of the provisions prescribed in this Order. ADHaTC VII. Effectivity This Order shall take effect immediately. (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue