The author is the senior policy analyst and a member of the Management Collective of Action for Economic Reforms.

Last June 24, Internal Revenue commissioner Rene Banez presented his
Bureau of Internal Revenue (BIR) reform program to some members of the
NGO community. The title of his presentation – “The BIR Transformation:
Plugging the Leaks in Tax Administration” – captures the focus of his
reform agenda. It embodies a realization that defects in tax
administration account for a large part of BIR’s poor revenue
performance. His presentation also commits to introduce major
organizational changes.

The commissioner bases his realization on the observation that
substantive reforms in the past (such as the Comprehensive Tax Reform
Package or CTRP) have failed to make a difference. While many will
disagree with this premise (to be sure, a lot of substantive reforms
are also needed), the focus on tax administration reforms for the near
term makes very good sense from a policy-sequencing viewpoint. Indeed,
Philippine experience has shown that good substantive measures are
often diluted at the point of administration. Addressing administration
problems should allow the BIR to realize the theoretical advantages of
past substantive reforms, and primes it for other substantive reforms
in the future. There is also a growing awareness that tax
administration is key, and the new BIR focus should allow it to convert
such awareness – and consensus – to much-needed political support for

Advocates of tax administration reforms will find common cause with
many of the elements of the envisioned organizational changes. The
reform program identifies eight “dimensions of organizational change,”
in particular: organizational structure; core business processes;
information and communications technology; key management systems;
human resources; leadership; group processes; and culture.

Looking at the specific measures (such as taxpayer segmentation, better
database, upgrading compensation, performance-based contracts for top
management, new filing and payment media, service orientation) within
the “dimensions” of change, we can say that they do address
long-standing problems in tax administration. They address problems in
leadership, incentive structure, payment convenience, operational
coordination and focusing of programs.

Regrettably, however, the commissioner stumbles when he labels his
reform program as the “corporatization” of the BIR. The distinctive
character of profit corporations lies in the unique way that they are
able to raise capital, limit the liability of investors, and allocate
power and control between owners and managers. The commissioner’s
reform agenda does not involve a transformation of the BIR in this
sense. Rather, they generally refer to the areas of leadership and
management system, the organizational culture, the structure of
incentives and programs. Not only do these areas vary across
corporations, the development of new approaches to these areas does not
necessarily come from corporations.

The problem becomes even more pronounced since it comes at a time when
corporate governance itself is under very critical scrutiny – even from
an efficiency standpoint. In the past, the discourse on corporate
irresponsibility focused mainly on the lack of social responsibility of
corporations. Corporations pursued their exclusively profit orientation
even if it meant doing damage to the environment, displacing
communities and maintaining unfair labor standards. At least the view
then was that corporations remained good at maximizing profit, and it
was the government’s fault that it failed to rein in the negative
externalities of corporate operations. But with the Asian crisis, and
more recently, the Enron and dot-com scandals, the discourse on
corporate responsibility (or, irresponsibility) now covers its private

Analyses now focus on the instances of failure in the corporate system
of accountability, such as those where management intentionally hid
from its investors the true state of the corporation’s financial health
until its collapse. One might say that in the end, it is the substance
and not the label of the commissioner’s reform agenda that counts. We

By mislabeling the reform agenda, the commissioner betrays his belief
that all government intervention is bad and profit corporations are
necessarily good. Thus, after examining the problems in tax
administration, and proposing reforms, he arrives at the generalization
that the reforms constitute “corporatization.” This is the same
“private is necessarily better” syndrome that afflicts many of our
policy makers, often with the disastrous result of either
privatization/deregulation/liberalization programs being hijacked by
vested interests, or the policy options being dogmatically narrow.

The stress on “corporatization” results in a failure to emphasize the
importance in tax administration of the commissioner’s effective
exercise of powers that are incidental to the distinctly government
power of taxation. For instance, the success of taxpayer segmentation
will require the complementary effective exercise of the commissioner’s
powers under sections 5 (power to obtain information, to summon,
examine and take testimony of persons) and 6 (power to make assessments
and prescribe additional requirements for tax administration and
enforcement) of the National Internal Revenue Code. These important
elements of tax administration reform would not have been overlooked if
the commissioner broke from the restrictive framework of

There is time to rethink the “corporatization” label of the BIR
commissioner’s reform agenda. The “corporatization” phase of the
transformation program commences in 2004 yet, and the detailed measures
have yet to be finalized. Equally important, the strategy of
corporatization should not distract from the more urgent task of
arresting the decline in revenues. The earlier the commissioner snaps
out of the corporatization syndrome, the greater the opportunity to
expand policy options and implement reforms for a better BIR.