Something good is happening in Pakistan’s tax collection system that is worth emulating in the Philippines if the government sincerely wants to shore up its revenue intake and raise more money for basic services.
On March 31, Pakistan’s Federal Board of Revenue (FBR) will publish a tax directory of all parliamentarians to reveal their tax details, including tax payments. The public can have access to the tax directory on the official website of FBR.
The move came after the independent Center for Investigative Reporting in Pakistan (CIRP) reported last December 23 that 45 percent of its lawmakers did not pay taxes while 31 percent of those who claimed they paid taxes were shown to have paid much lower than what they declared.
In the Philippines, it is quite difficult, if not near impossible, to determine who among the 24 senators and 289 congressmen are paying the correct amount of taxes and those who are not because of the law prescribing confidentiality of tax records.
But if 20 congressmen, four governors, 26, mayors and 374 other local officials who won in the May 2013 mid-term elections did not submit reports on their donors and expenditures within the deadline set by law, would it not be possible that they were also remiss or dishonest in their income tax payments?
The Philippines ranks higher than Pakistan in Transparency International’s annual survey of corruption across the globe. Last year, the Philippines was 94th and Pakistan was 127th of 177 countries. Both countries showed improvements in their ranking from 129th in 2011 and 105th in 2012 for the Philippines, and 139th for Pakistan.
Afghanistan, North Korea and Somalia were perceived as the world’s most corrupt countries while Denmark and New Zealand were nearly squeaky-clean, based on the graft watchdog’s survey.
The Philippines has a tax effort or total tax revenues as a percentage of gross domestic product (GDP) at 13.58 percent in the first half of 2013, from 13.3 percent in the same period in 2012. The Department of Finance credits the improving revenue collection performance of the Bureau of Internal Revenue (BIR) for the increase in the tax effort.
Pakistan’s tax-to-GDP ratio is one of the worst in the world at 8.5 percent in 2012-2013, down from 9.1 percent in 2011-2012.
Both countries are under pressure from donors and lending agencies to institute drastic tax reform measures and tougher penalties on tax evasion to raise more money, presumably to make sure that they can pay back their loans and grants.
The Philippine government is heavily relying on withholding income tax from the rank and file employees while professionals like doctors, lawyers, engineers, accountants and consultants who collect exorbitant service fees but get away with tax payments by under-declaring their incomes.
The withholding tax system ensures continuous and steady collection of revenues for the government. It minimizes tax evasion and avoidance for individual taxpayers because income taxes are automatically deducted from the payroll.
A study by the National Tax Research Center (NTRC) in 2008 showed an average income tax gap of P37.17 billion annually from 2002 to 2006, substantially due to uncollected taxes from self-employed and professionals.
In March last year, President Benigno Aquino 3rd chided members of the Filipino Chinese Chambers of Commerce and Industry for not paying taxes, noting that 424 of its 552 members had tax identification numbers but only 185 filed income tax returns. And of those who filed income tax returns, at least 14 filed returns with zero tax due.
Aquino also noted that only 54 of their 207-member organizations filed tax returns, and 38 of these filed returns with zero tax due.
Perhaps, businessmen, professionals, and the self-employed would be encouraged to declare their true income and pay the correct taxes if those in government, particularly in the Cabinet and in Congress, show good examples that are worth emulating.
Pakistan has shown the way to improve tax collection: require all electoral candidates to file their certificates of candidacy with their income statements and tax records for the past three years. The FBR, which is the equivalent of the Philippines’ BIR, was also required to provide the candidates’ income and tax details.
The information from both the FBR and the candidates were posted on the Election Commission’s website. It provided the opportunity to analyze the income and tax records of candidates and examine their tax compliance of those who were elected.
The CIRP’s analysis showed that of Pakistan’s 1,070 lawmakers elected to the national and provincial assemblies, only 1,016 complied with the required tax information. Of those 1,016 lawmakers, 45 percent or 461 did not pay tax and 54 percent or 550 claimed they paid taxes. The report also said that 123 lawmakers did not have national tax numbers.
Of the 550 lawmakers who said they paid tax, the tax claims of 31 percent or 171 contradicted the FBR data. The report said it found several discrepancies in the politicians’ income declarations. Of the 680 lawmakers who declared their income, 25 percent or 169 declared figures that conflicted with what was reported in tax returns on file with the FBR.
Pakistan is not the only country that is being transparent in its tax payments. Sweden, Finland and Norway have earlier made public the tax records of their officials.
Opposite to the openness in these countries, the Philippine Congress had made tax records inaccessible.
In 1997, Congress passed and then President Fidel Ramos enacted the Tax Reform Act or Republic Act No. 8424 that provides for the privacy of tax information in the country. Sections 270 and 278 of the law provide penalties, including imprisonment, on BIR officers and employees who would disclose tax-related information such as income or estate of any taxpayer, the secrets, operation, style or work, or apparatus of any manufacturer or producer, or confidential information regarding the business of any taxpayer.
Transparency in tax payments by lifting the confidentiality rule on Income Tax Return (ITR) under the National Internal Revenue Code (NIRC) and repeal of RA 8424 is not a new proposal.
When he was congressman, Herminio Teves, the 94-year-old father of former Finance Secretary Margarito Teves, repeatedly advanced his call to exempt public officials, including those in elective positions, from the confidentiality rule to help promote good governance and address the country’s fiscal woes.
The old Teves believed that the confidentiality provisions only protect the rich, reinforce graft and corruption in the BIR and perpetuate dishonesty in tax declaration/tax payment.
With Pakistan showing the way, it is not too late for the Philippine government to take the necessary steps toward transparency in the tax records of its officials.
That is not only showing good leadership by example. That is the right path toward the Tuwid na Daan.