Date: May 2003

BIR Computerized Audit System Shows its Teeth

The Bureau of Internal Revenue is using its computer auditing system to uncover tax cheats. Since the system was audited in late 2002, it has already detected more than 2,000 companies who have claimed excessive input tax credits into their VAT payment computations. By doing cross-company comparisons, using its new computerized system, the Bureau has uncovered many cases where a firms' declared tax credits (inputs) were higher than the combined amount of output VAT payments of their suppliers. Errant firms are now required to pay the higher BIR computed tax liability or face prosecution.

Charges have already been laid against five distributors of telephone cell cards as well as against a real estate developer and an air-conditioning contractor. The amount of the violations ranged from a low of P18 million (US$340,000) to a high of P4.3 billion (US$81 million).

Included in the BIR audit are a number of local department store chains that have paid abnormally low rates of VAT. In one case the net amount paid (Computed VAT on sales minus VAT paid on inputs) amounted to only 0.3%. According to the BIR, the norm for the industry is around two percent of gross sales and three percent of net. While the BIR was at pains to point out that its investigations were still proceeding, the spokesperson said that the probability of tax evasion was high.

The new BIR audit system analyzes the sales of individual businesses and compares them with the industry standard. While not able to detect every single case of tax evasion; by highlighting those companies that had reported results that, statistically, were a significant deviation from the norm, the Bureau now has the ability to pick out those firms whose reported results have a high probability of indicating tax was being evaded.

BIR has also set up a "war room: within its Quezon City headquarter office that will monitor the performance of the various revenue districts nationwide and allow early consolidation of corporate tax data reported throughout the country. This "tax mapping" operation started on April 2 and with the goal of checking on the compliance of 300,000 businesses nationwide before the end of the year. A new alliance forged with the Philippine Institute for Certified Public Accountants (Picpa) will enable the Bureau to widen the scope of its tax mapping operation in the future through a technical cooperation program. One proposal under consideration is to use Picpa members to consolidate information filed by companies with diverse government agencies and check the results for consistency.

While the audit program is designed principally to catch large-scale offenders, the Bureau is also investigating small and medium enterprises that fail to issue receipts or use unregistered cash machines.

As further evidence of the reformist attitude taking root within the Bureau, three senior officials have been charged with corruption related offenses including falsification of employment documents and making of false statements.

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