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>TAX-FILES : >No income tax return, no business > >Joel L. Tan-Torres, SGV & Co. >Inquirer News Service / Mar. 18, 2005 > >THE RECENT issuance of two revenue regulations gives >us a preview of what to expect in the near future. >Revenue Regulations No. 3-2005 and 4-2005 were issued >by the Department of Finance and Bureau of Internal >Revenue (BIR) last February. These two regulations >prescribe the submission of tax returns as a >pre-condition for transacting with banks and >government offices. > >Revenue Regulations No. 3-2005 mandates that all >entities entering into government contracts must >submit, along with the bid documents, the latest copy >of the income tax return and business tax returns. >Meanwhile, Revenue Regulations No. 4-2005 requires >that all borrowers applying for a loan with banks must >first submit a copy of its latest income tax return >and financial statements. These new regulations >clearly indicate that the BIR now is closely >coordinating with other institutions to ensure that >the parties that they are dealing with are paying >their correct taxes, or at least, filing their tax >returns. > >Right step > >The cooperation between the BIR and the government >offices and banks is a step in the right direction. >Various studies and reports have indicated that there >are substantial tax leakages arising from those not >reporting their correct taxes. Various reports >indicate that tens of billions of tax leakages occur >each year. This to a great extent is contributing to >the growing fiscal problems of our country. In 2004, >the budget deficit amounted to P186 billion. > >Therefore, efforts that are directed to plugging tax >loopholes are necessary. This requirement of >submission of tax returns as a condition for >transactions with banks and government offices will >help in reducing tax leakages. > >Transactions with government > >Revenue Regulations 3-2005 states "only tax compliant >entities are allowed to enter into contracts with >government." > >Implementing the mandate of Executive Order No. 398 >which was signed by the President on Jan. 12, 2005, it >is now required that "all persons, natural or >juridical, local or foreign, desiring to enter into or >participate in any contract with the government, its >departments, bureaus, offices and agencies, including >corporations, government financial institutions and >local government units shall, as a pre-condition, >submit, along with their proposal and/or bid, a copy >of their latest income tax and business tax returns." >Once this is fully implemented, hundreds of thousands, >if not millions, of tax returns will be submitted by >government contractors. > >The Regulations provides that all entities before >entering into contracts with government offices must >submit their latest > >(1) annual income tax return, > >(2) value-added tax or percentage tax returns covering >the previous six months, and > >(3) tax clearance to be issued by the Collection >Enforcement Division of the BIR. For new >establishments that have no annual income tax return >yet, the quarterly income tax returns may instead be >submitted. > >It is also required that beginning May 1, 2005, only >tax returns filed under the BIR's electronic filing >and payment system (EFPS) will be accepted from >government contractors. > >The government office must check the authenticity of >the tax returns and clearance submitted. This can be >checked by telephone at the BIR contact center or >through the BIR portal. Furthermore, these offices >must submit to the BIR a list of contracts and >payments made to these contracting parties. The BIR >can then use this to verify if these contracts are >being reported for tax purposes. > >Loans with banks > >Revenue Regulations 4-2004 has practically the same >requirements from bank borrowers. These regulations >and Bangko Sentral ng Pilipinas (BSP, the central >bank) Revised Circular No. 47 Series of 2005 mandate >that a credit applicant and co-maker must submit a >copy of their latest income tax return and financial >statements. A borrower must also submit a waiver of >confidentiality of client information and/or an >authority of the bank to conduct random verification >with the BIR in order to establish the authenticity of >the tax return and financial statements. > >The banks must check the authenticity of the income >tax returns and financial statements submitted. This >can be checked at the BIR Contact Center or through >the BIR portal. > >The banks must then consider the data/figures in the >tax return and financial statement in the evaluation >of the financial capacity and credit worthiness of the >credit applicants. The BSP circular also provides that >if the documents submitted prove to be spurious or >incorrect, the bank may terminate the loan granted on >the basis of these documents. The bank shall then have >the right to demand immediate repayment of the >obligation. > >Factors to consider > >Once these procedures are implemented, the BIR Contact >Center and the Collection Enforcement Division (CED) >will surely be receiving a lot of requests for tax >clearances and authenticity check. These BIR offices >should be in a position to respond on a timely and >convenient manner. Failure to do so will unduly delay >the implementation of business plans and transactions >of affected parties. If these arise, complaints will >be forthcoming. > >The requirement for government contractors to submit >tax clearances is not contained in EO 398. This was >included only in RR 3-2005. Securing a tax clearance >is a long process and involves several steps: > >First, a government contractor files an application >with the BIR. Hopefully, the BIR will find a >convenient way of accommodating applicants from far >away locations, such as Mindanao like allowing >submission of applications by fax or mail. > >Next, the BIR will process applications received. It >is important that the BIR allot resources to handle >the volume to applications received. > >Then, government offices with contracts will have to >authenticate the tax clearance submitted by >contractors with the BIR. Some implementation issues >that may crop up include: What if a government >contractor is shown to have an unpaid tax liability? >What if the unpaid accounts arose from cases protested >by the taxpayer and which the BIR has not yet >resolved. Will the contractor be barred from >submitting a bid because of this unpaid account? > >EO 398 and RR 3-2005 both do not specify what the >government office will do with the tax returns >submitted by contract bidders. > >It is not clear whether the information in the tax >returns will be considered by the government offices >in the evaluation of the capacity of the contractor to >qualify for the bid or contract. > >In government contracts that will be funded by foreign >loans, it is expected that foreign contractors will >submit bids. If a foreign contractor is not operating >presently in the Philippines, it will not be able to >submit a Philippine tax return that is a pre-condition >to submitting a bid. How will this be handled? > >Government offices are required to submit a list of >contracts awarded and payments to the BIR. There is no >similar provision for banks to submit to the BIR a >list of loan transactions. > >The trend > >The trend has started. More and more, the BIR is >coordinating with other parties to monitor the >transactions of taxpayers by requiring the submission >of tax returns. News accounts even mention that the >Department of Finance and the BIR will soon be asking >the foreign embassies to require visa applicants to >present the income tax return as a pre-requisite for >the approval of the visas. > >Following this trend, is it a matter of time when we >will have to first present our tax return before we >can buy a car, open a bank account, purchase a house, >invest in a club share, or fly abroad? > > >M. I. B. >http://insidebuzz.tripod.com > >" So Regine fans and local music fans >will be better informed. "

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