Women at the Helm - Planters Development Bank

SME FocusTaxationAre you upfor a tax auditinvestigation?By Charity MandapAs one of the primary agencies mandatedby the government to implement its inherentpower of taxation, the Bureau of InternalRevenue (BIR) continues to introduceinnovative processes aimed at ensuring ourcountry’s ultimate goal of fiscal equilibrium.With the abovementioned responsibility inmind, coupled with the fact that it is notuncommon for us to hear news concerningthe BIR’s failure to hit its supposed collectiontarget for a specified period of time, it seemsthe BIR has resolved to address whatevershortcomings it may have had in the past byimplementing policy transformations andemploying vigorous efforts in performing itsassigned tasks.In line with this mandate, the Office of theCommissioner of Internal Revenue issuedRevenue Memorandum Order No. (RMO)4-2013, which outlined the BIR’s tax auditcriteria for taxable year 2012. With theissuance of RMO 4-2013, the BIR seems tohave set the bar a notch higher by having thesaid order issued at this early part of the year,and more importantly, by clearly identifyingthe specific class of taxpayers that shall moreor less undergo tax audit investigations.Even as RMO 4-2013 specified thatall taxpayers are considered possiblecandidates for tax audit, prudencedictates that taxpayers belonging to thosecategories or classes specifically identified inthe issuance have more reason to be extracautious and must therefore ensure theircompliance with the necessary reportorialobligations and tax payments.Following a series of declarations by the BIRCommissioner and even the Secretary ofFinance, the country’s tax governing bodynow directs much attention to practitioners,professionals, and sole proprietors who fallwithin the predetermined criteria: a. incometax due is less than P200,000 per annum;b. gross revenue is less than 40 percentcompared to the previous year’s reportedgross revenue; c. tax payment for each taxtype is less than 35 percent compared to theprevious year’s tax payment.A deeper consideration of the aforementionedcriteria would show that the BIR seems to haveset a benchmark not only for the tax paymentsof professionals and sole proprietors but alsofor their respective taxable incomes. In otherwords, once the taxable income declared bypractitioners, professionals, and sole proprietorsfalls approximately below P700,000 for taxableyear 2012, such taxpayers run a greater risk ofbeing subjected to tax investigations.RMO 4-2013 further identified the industriesthat shall be prioritized by the differentRevenue District Offices of the BIR inconducting tax audits for taxable year 2012.Among those included were importers,manufacturers, wholesalers, and/or retailers ofwrist watches and jewelry. Obviously, the BIRis now going after taxpayers involved in thesale and distribution of luxury items, which asidentified in this case include high-end wristwatches and pieces of jewelry that only theaffluent can afford to purchase.Operators of hotels, motels, pension houses,lodging houses, inns, dormitories, boardinghouses, and those engaged in the real estateindustry are also included in the BIR shortlist. Itwould seem that all those taxpayers involved inthe hotel industry, or provide accommodationsto guest and/or boarders, are now enjoined toorganize their respective accounting recordsand prepare themselves for audit.Petroleum and/or gasoline dealers, whichnecessarily includes those stations that providerepair and maintenance services, are likewiseincluded in the RMO 4-2013 shortlist. It isexpected that the BIR shall further enhancethe conduct of its surveillance and stocktakingcapabilities involving the aforementionedtypes of taxpayers in view of the recent claimsof rampant oil smuggling in Subic and ClarkFreeport Zones.The list of taxpayers provided under RMO 4-2013likewise includes schools (particularly those thatcater to foreigners), review centers, contractors,retailers and wholesalers. It is noteworthy thatschools and training centers that offer Englishcourses, which are currently very popular amongKoreans, were expressly mentioned.Other taxpayers/industries listed in RMO4-2013 mainly involve those that are engagedin businesses that may have something todo with information technology, servicecontracting, leisure, and extravagant lifestyle.Among the industries explicitly identified bythe BIR are:a. restaurants, fast food chains, cateringservices, bars, coffee shopsb. hospitals, clinics, medical/dental laboratoriesc. establishments/clinics for beautyenhancementsd. manufacturers/dealers of beauty andhealth supplemente. amusement/entertainment/event centersf. advertising agenciesg. business process outsourcingh. e-commerce industryi. manpower and other recruitmentservices agenciesj. other industries peculiar to the area ofjurisdiction of the district officeFinally, RMO 4-2013 further mandated that BIRpersonnel prioritize the conduct of tax auditinvestigations of the taxpayers who fall belowthe established benchmark of tax complianceand those who maintained an ending inventoryvalued at 100 percent or more of suchtaxpayer’s gross sales. In this regard, industriesin which the BIR has previously set thecorresponding benchmarks of reported taxableincome or even tax payments such as thoseinvolved in the stock market trading must makecertain that their accounting records are intactand reliable so that in the event that they donot meet the benchmark, they shall be able toestablish and prove the reasons for such failure.Truly, taxpayers may view the BIR as anadversary, which can cause them a lot ofstress, and of course additional expensesespecially when they conduct tax auditinvestigations. However, taxpayers musttry to understand that the authority of theBIR to conduct audit and ascertain thatthe correct and proper taxes are paid alsoensures that the government will have thefunds to finance its expenditures; in otherwords, taxes are really the lifeblood of thenation. Hence, the best thing that taxpayerscan do is not to hope that they be sparedfrom the conduct of audit investigations, butensure that they have compliant, adequate,and dependable accounting records.The author is a Tax Manager withPunongbayan & Araullo’s (P&A) Tax Advisoryand Compliance Division. P&A is a leadingaudit, tax, advisory and outsourcing servicesfirm and is the Philippine member of GrantThornton International. For comments andinquiries please e-mail Oliver.Beltran@ph.gt.com or call 886-5511.SME | 17