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 new
image: that of a professional, efficient, transparent and innovative
institution. This image is becoming a reality under the leadership of
Commissioner Guillermo Parayno, Jr. The good news – amid all the
uncertainty, jitters, and antagonism in the pre-election period – is
that BIR achieved its collection target for 2003.

In fact, the preliminary data show BIR surpassed by P1.3 billion its
hard target of collecting P425 billion. The growth rate of BIR
collection in 2003 also outdid the rate of growth of the gross domestic
product for the same period. This reversed the trend for 1998-2002, in
which the growth of the economy in nominal terms exceeded the growth in
BIR collection by more than twofold. Simply put, BIR’s performance in
2003 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 revenue
collection plunging and the mass of personnel revolting in light of its
proposed reorganization and “corporatization.”

Mr. Parayno thus faced formidable challenges: 1) Arrest the decline in
revenue collection, and meet the revenue targets despite the
structural, policy and political constraints. 2) Revive the morale of
BIR 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’ recent
accomplishments were not enough to decisively address the problem of
the budget deficit. The burden of stemming the fiscal crisis thus
shifts to the President and the Cabinet and to Congress. Sadly, the
Gloria Macapagal-Arroyo administration and Congress have not
complemented the efforts of revenue-collection agencies, having failed
to implement policies or legislation that could have enhanced revenue
collection.

Of course, much still has to be done towards institutionalizing a
comprehensive set of reform measures that the Parayno leadership has
set in motion. BIR is still infested with crooked and incompetent
collectors who occupy sensitive posts. Its personnel receive low
compensation, which thus makes them vulnerable to corruption.
Implementing rules and operational policies are hampered by the
political agenda of those in power. These are but a few examples of the
problems 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 worth
citing. The first is the BIR’s use of information technology to
disseminate information, facilitate payments and compliance, and
promote transparency. The benefits are huge. To name a few: Taxpayers
can get and submit the required tax returns and other forms through the
Web. Corporate taxpayers can make their tax payments electronically.
Employees with pure compensation income whose companies have made
arrangements with BIR no longer need to file their annual income tax
returns. Corporations can now submit electronically their list of
employees, together with an indication of the amount of tax withheld
for each employee.

Diversion of tax payments has likewise been minimized as BIR uses
electronic means to notify in two days taxpayers about its receipt of
payment. For BIR, too, information technology has strengthened its
capability to monitor tax compliance in relation to income taxes and
value-added tax.

The second strategy is the forging of partnership with the private
sector and civil society. In early 2003 Commissioner Parayno created
the BIR-Private Sector Joint Project Monitoring and Implementing Unit.
Through this mechanism, the private sector and nongovernmental
organizations contribute to what is called “Good and Honest Governance
Programs of the BIR.” Top corporations, chambers of commerce and
business associations, television networks, and other private entities
contributed in various ways to promote or disseminate BIR’s tax
campaign.

It is rare to find civil society organizations cooperating with an
agency that is publicly seen as corrupt and inefficient. “Huwag
Taxsil,” a civil society network, took the courageous path of
collaboration, while maintaining its independence to critique BIR. It
has conducted a series of forums to promote public discussion of
taxation issues and reforms, launched a website to promote tax
consciousness and monitor BIR performance, and written policy papers.

Furthermore, it has worked with BIR in the implementation of reforms
with regard to the withholding tax system and BIR’s internal and
external audit system. The network is composed of academics from the
University of Asia and the Pacific, reform-oriented middle-level
officials in the Department of Finance, and advocates from Action for
Economic Reforms and E-Lagda.

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

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

The fourth (but not necessarily the last) strategy is for the BIR
leadership to get consistent and steadfast support of the rank and file
to effectively advance the tax campaign. As earlier said, BIR personnel
had an antagonistic, confrontational relationship with the previous
leadership. This arose from a controversial proposal to legislate the
abolition of BIR and the establishment of a new “corporatized” revenue
authority. Inevitably, the internal crisis led to the resignation of
Mr. Parayno’s predecessor.

Keeping in mind the immediate objective is to significantly increase
revenue collection in light of the fiscal crisis, Mr. Parayno knew he
had to forge a cooperative relationship with employees and stem the
disappointment, not to mention the demoralization, within the ranks. He
thus had to de-emphasize the issue of the abolition of BIR in order to
get the support of the rank and file. Lo and behold, BIR personnel were
rejuvenated. And Mr. Parayno removed a stumbling block for BIR to
relentlessly pursue the tax campaign and meet the targets.

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

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

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