BIR reforms: welcome success story for 2003

The author is Coordinator of Action for Economic Reforms.

The much-maligned Bureau of Internal Revenue (BIR) is fashioning a newimage: that of a professional, efficient, transparent and innovativeinstitution. This image is becoming a reality under the leadership ofCommissioner Guillermo Parayno, Jr. The good news – amid all theuncertainty, jitters, and antagonism in the pre-election period – isthat BIR achieved its collection target for 2003.

In fact, the preliminary data show BIR surpassed by P1.3 billion itshard target of collecting P425 billion. The growth rate of BIRcollection in 2003 also outdid the rate of growth of the gross domesticproduct for the same period. This reversed the trend for 1998-2002, inwhich the growth of the economy in nominal terms exceeded the growth inBIR collection by more than twofold. Simply put, BIR’s performance in2003 was the best in the last five years.

It is likewise remarkable BIR has made a quick turnaround. Before Mr.Parayno became commissioner, it was in deep disarray, with revenuecollection plunging and the mass of personnel revolting in light of itsproposed reorganization and “corporatization.”

Mr. Parayno thus faced formidable challenges: 1) Arrest the decline inrevenue collection, and meet the revenue targets despite thestructural, policy and political constraints. 2) Revive the morale ofBIR personnel and enlist their support to meet the revenue targets. 3)And have BIR gain a modicum of respect from the public.

Despite success, BIR’s and the Bureau of Customs’ recentaccomplishments were not enough to decisively address the problem ofthe budget deficit. The burden of stemming the fiscal crisis thusshifts to the President and the Cabinet and to Congress. Sadly, theGloria Macapagal-Arroyo administration and Congress have notcomplemented the efforts of revenue-collection agencies, having failedto implement policies or legislation that could have enhanced revenuecollection.

Of course, much still has to be done towards institutionalizing acomprehensive set of reform measures that the Parayno leadership hasset in motion. BIR is still infested with crooked and incompetentcollectors who occupy sensitive posts. Its personnel receive lowcompensation, which thus makes them vulnerable to corruption.Implementing rules and operational policies are hampered by thepolitical agenda of those in power. These are but a few examples of theproblems that must be addressed to transform BIR into an efficient,responsive and respectable institution.

Yet, its fine performance in 2003, despite the odds, gives us hope that the institution can be reformed.
A few key strategies resulting in BIR’s fine performance are worthciting. The first is the BIR’s use of information technology todisseminate information, facilitate payments and compliance, andpromote transparency. The benefits are huge. To name a few: Taxpayerscan get and submit the required tax returns and other forms through theWeb. Corporate taxpayers can make their tax payments electronically.Employees with pure compensation income whose companies have madearrangements with BIR no longer need to file their annual income taxreturns. Corporations can now submit electronically their list ofemployees, together with an indication of the amount of tax withheldfor each employee.

Diversion of tax payments has likewise been minimized as BIR useselectronic means to notify in two days taxpayers about its receipt ofpayment. For BIR, too, information technology has strengthened itscapability to monitor tax compliance in relation to income taxes andvalue-added tax.

The second strategy is the forging of partnership with the privatesector and civil society. In early 2003 Commissioner Parayno createdthe BIR-Private Sector Joint Project Monitoring and Implementing Unit.Through this mechanism, the private sector and nongovernmentalorganizations contribute to what is called “Good and Honest GovernancePrograms of the BIR.” Top corporations, chambers of commerce andbusiness associations, television networks, and other private entitiescontributed in various ways to promote or disseminate BIR’s taxcampaign.

It is rare to find civil society organizations cooperating with anagency that is publicly seen as corrupt and inefficient. “HuwagTaxsil,” a civil society network, took the courageous path ofcollaboration, while maintaining its independence to critique BIR. Ithas conducted a series of forums to promote public discussion oftaxation issues and reforms, launched a website to promote taxconsciousness and monitor BIR performance, and written policy papers.

Furthermore, it has worked with BIR in the implementation of reformswith regard to the withholding tax system and BIR’s internal andexternal audit system. The network is composed of academics from theUniversity of Asia and the Pacific, reform-oriented middle-levelofficials in the Department of Finance, and advocates from Action forEconomic Reforms and E-Lagda.

The third strategy is the adoption of innovative schemes that hasresulted in an increase in tax collection and compliance. For example,BIR has been able to include in the tax net the ubiquitous tiangges byimposing an advance payment for business and income taxes.

A meticulous study of existing laws and regulations also led BIR toextract additional tax payments from some firms manufacturing brandedcigarettes. Another innovative scheme is “BIR on Wheels,” in which BIRsets up a one-stop booths in places frequented by hard-to-taxprofessionals. BIR on Wheels attracted public attention for includingin its coverage showbiz personalities.

The fourth (but not necessarily the last) strategy is for the BIRleadership to get consistent and steadfast support of the rank and fileto effectively advance the tax campaign. As earlier said, BIR personnelhad an antagonistic, confrontational relationship with the previousleadership. This arose from a controversial proposal to legislate theabolition of BIR and the establishment of a new “corporatized” revenueauthority. Inevitably, the internal crisis led to the resignation ofMr. Parayno’s predecessor.

Keeping in mind the immediate objective is to significantly increaserevenue collection in light of the fiscal crisis, Mr. Parayno knew hehad to forge a cooperative relationship with employees and stem thedisappointment, not to mention the demoralization, within the ranks. Hethus had to de-emphasize the issue of the abolition of BIR in order toget the support of the rank and file. Lo and behold, BIR personnel wererejuvenated. And Mr. Parayno removed a stumbling block for BIR torelentlessly pursue the tax campaign and meet the targets.

Mr. Parayano’s specific attributes have served him well in making BIR asuccess story for 2003. As an engineer, he is very thorough with theprocesses and systems, but does not lose sight of the general goals. Asa psychologist, he knows how to combine carrots and sticks. As amilitary strategist, he waits for the opportune moment to attack anddoes not fear taking a tactical retreat. And as a technocrat, he hasdisdain for political partisanship. He will not use the office topromote the incumbent or to demolish the opposition.

It is not surprising, then, that an opposition candidate for thepresidency, Raul Roco, has announced to businessmen that in the eventof his victory, he would retain Mr. Parayno as BIR commissioner. Wehope the other presidential candidates make the same pledge.

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