A Rose by Another Name

The author is a Former Undersecretary of the Department of Finance.

Commissioner Efren Plana is remembered for having undertaken the most
radical and comprehensive top to bottom restructuring of the BIR. In
the late 70s, he removed all BIR officials who were suspected to be
inefficient and corrupt.

Many people would say that the reorganization was possible because of
the martial law regime. But Commissioner Plana did not employ any
martial law tactic. His approaches are normal to a leader who is
committed to fight graft and corruption.

His first strategy was to use information to increase probability of
detection such as lifestyle checks, third party information, and a
strong internal control unit. Data were obtained on the lifestyles of
top BIR employees, e.g. accumulation of properties, membership in
exclusive clubs, and, travels abroad.

And then, he quickly punished the corrupt. Thirty-four officials were
dismissed including deputy commissioner, regional directors, and
revenue district officers. Commissioner Plana obtained criminal
conviction from courts and used other means of punishing them such as
furnishing the press with details on their corrupt activities.
Finally, Commissioner Plana installed a system where targets were set
for each examiner and rewards for performance was based on the amount
of assessments an examiner has made, how many of his assessments were
upheld, and the amounts that was actually collected.

Commissioner Plana demonstrated that reforms are possible with a strong
political will and an unwavering support from the Secretary of Finance
and the President. The strategies he used are not time-bound and could
be used by any well-meaning Commissioner.

Currently, there are mechanisms that provide government administrators
with the power to terminate the services of corrupt employees
particularly when 1) the employee receives an unsatisfactory rating for
two rating periods under civil service regulations, or 2) when there is
a prima facie case of misconduct which includes issuance of fake

letters of authority and receipts, forgery of signature, usurpation of
authority and, habitual issuance of unreasonable assessments.

The NARA Bill. What are the features of the proposed National Revenue
Authority (NARA) which are new and are expected to improve revenue

Creation of a Multi-sectoral Internal Revenue Board. This is its
weakest provision. It would make the BIR responsible not to any one
person, but to a “Board” where no individual member is held as
individually accountable or empowered to take action. In most
countries, the Secretary of the Treasury is held accountable for the
state of financing of government and the President either fires him or
he resigns if he is not able to manage it well.

Making the Secretary of Finance as “Chairman” of the Board does not
correct this limitation for even if he were a strong chairman, the
necessity for board approval would necessarily dilute, if not
eliminate, his or his ability to act decisively and effectively.
Conversely, a weak Treasury Secretary can always use the Board to hide
his inefficiencies.

Vesting the NARA with the authority to formulate policies and
recommendations on issues concerning taxation. This has long been the
cause of tension between the BIR and the Department of Finance. The BIR
Commissioner has often contradicted the Secretary of Finance on issues
of tax policies, which has been used to weaken the stance and efforts
of government on policy reforms. The examples are numerous and
horrendous: taxation of excise products, minimum corporate income tax,
simplified income tax on individuals, taxation of telecommunications,
fringe benefits tax, motor vehicle taxation.

The provision institutionalizes this tension. Under almost all systems,
it is the Finance Ministry who formulates tax policies in coordination
with all its offices. And rightly so, because it has the expertise and
the breadth. Tax policies encompass not only revenue goals, but also
equity and efficiency (or minimizing distortions on resource
allocation). The expertise of the Internal Revenue Service is on how to
enhance revenue collection and compliance.

Formation of Committees to identify and provide the data for the
forecasting of potential revenue collection of the independent BIR.
This is the dream of every BIR—to have the power to set its own revenue
targets. It wants to have its cake and eat it too.

Although this is not overtly said in the bill, this is one of its
goals. The forecasts of the DOF will be questioned based on the data
made by the committee assembled by the BIR.

The forecasts of the DOF are not sacred and have their own
limitations—the biggest of which is the inability of the BIR to provide
good data on which good forecasts can be made. As a result, the DOF had
to rely on macro-data, such as the input-output table to make forecasts
for the VAT because the Bureau could not supply any industry data.

The merit of giving a decent salary to all performing government
employees is well supported. However, treating an agency such as BIR
well above the rest should be viewed with the following considerations:

  1. It perpetuates inequity in government that is currently practiced
    with the exemption of government corporations from the salary
  2. It does not follow that an increase in salary will reduce
    corruption significantly. The now slightly richer official still will
    see that she can make more money by being corrupt.
  3. The performance bonus exists under the current law, but as
    practiced, its allocation is not given based on performance. Everybody
    gets a proportional amount. Thus, we are not lacking in incentives
    systems but we do not manage our powers well.

And finally, I strongly support the observation of former Secretary
Ernest Leung that the Philippine experience in handling independent
authorities is far from satisfactory. Consider the creation of many
government corporations with their independent boards. They had to be
rehabilitated with public funds and their debts and liabilities were
borne by the ordinary taxpayers.

The Present BIR Commissioner, Willie Parayno succeeded in cleaning the
Bureau of Customs by the institution of systems and transparent
procedures. We have two success stories (i.e. the Plana and Parayno
experience) in fighting corruption that are well documented and are
used as models in many countries. Why can’t we follow the Filipino
experience instead of copying what works well in Singapore, Australia
and New Zealand?

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