Modest relief for some taxpayers
In these financially challenging times, a small measure of relief coming from the Bureau of Internal Revenue (BIR) may be welcome news to some individual taxpayers and micro, small and medium-scale enterprises (MSMEs).
Last week, the BIR issued Revenue Memorandum Order No. 11-2026, which aims to “rationalize the collection enforcement efforts when continuous collection is no longer economically feasible.”
In a nutshell, the order states that if the amount of final, executory and demandable accounts receivable or delinquent accounts is less than P80,000, the BIR shall write off the uncollected amount and will not take further enforcement action against the taxpayer.
The earlier threshold on the cost to collect small tax liabilities was P20,000, an amount which, in light of the present high cost of living, may, tax collection-wise, be considered a pittance and therefore not worth the BIR’s time and effort.
The principle that the recoverable amount of taxes should outweigh the cost of recovering them also applies in cases where the taxpayer is already deceased, insolvent or cannot be located despite diligent efforts.
The BIR order is illustrative of a cost-benefit analysis where the expected costs or expenses of a proposed action are matched against the possible benefits that would result from it. If it’s merely break even or, worse, less, drop it.
The idea is that the BIR has better things to do in raising much-needed funds for the government than sweat the small stuff. Going after the big fish in the tax pool, limited as it is at present, instead of targeting the small fry, would be more productive.
This is the rationale behind the BIR’s Large Taxpayers Services (LTS) section that handles businesses with gross sales exceeding P1 billion and whose collection accounts for approximately 60 percent of the BIR’s total annual tax collections.
In line with an earlier BIR order, the authority to decide not to pursue further enforcement action on unpaid taxes that fall within the P80,000 threshold will be decided by the regional director, assistant revenue commissioner–collection service or the assistant revenue commissioner–LTS.
If properly implemented, the upward adjustment of the threshold on tax collection would give a lot of breathing space to taxpayers who, without malice or ill intent, commit errors in the preparation of their tax returns.
Note that in the MSMEs’ case, they have to declare their revenue and list whatever deductions they may be entitled to in relation to the business that they are engaged in.
When allowed, those deductions could significantly reduce their tax obligations, something they need to maintain their financial viability.
And this is where the problem often arises.
Because engaging the services of tax consultants or accountants would be expensive, the MSMEs often prepare the returns by themselves or, when feasible, seek the assistance of third parties who may have some experience in their preparation. Something like, if it worked for them, then it should work for me, too.
This do-it-yourself approach sometimes results in the entry of erroneous data or the submission of the wrong supporting documents that, in the process, make them susceptible to getting tax assessment notices from the BIR.
If the inaccurate returns would result in the payment of a tax less than P80,000, they should, under the BIR order, be spared from further tax enforcement action.
It is common knowledge that receipt of any letter from the BIR often causes unease or sleepless nights because of its possible adverse financial implications.
Whether or not that new threshold would be honored in its form and spirit remains to be seen. Some BIR personnel are known for their ability to find ways and means to use their personal advantage measures that are meant to benefit taxpayers.
