Restoring BIR’s credibility

One of the first decisive acts of Frederick Go as the new secretary of the Department of Finance (DOF) was to order the suspension of all field audits and related operations of the Bureau of Internal Revenue (BIR), in response to the clamor of taxpayers who have accused the agency of weaponizing letters of authority (LOA) and mission orders to extort, harass, and bribe taxpayers and business owners.

“We hear the people. We hear your concerns and are immediately acting on them. The people deserve better,” declared Go, adding that the DOF was “committed to protecting our taxpayers from potential abuse through a comprehensive review of our existing policies and procedures.”

Sen. Erwin Tulfo described the BIR as “the second most corrupt” government agency next to the flogged Department of Public Works and Highways (DPWH) as crooked BIR officials have been “making money” out of the LOAs that authorize BIR personnel to look at the books of individuals and businesses to determine compliance with tax laws.

“If the DPWH has flood control projects, the BIR has what they call the LOA,” said Tulfo, “They’re even going after the small ones. Even those that aren’t corporations—single-proprietorship businesses—they target them and issue a LOA.”

Level playing field

Sen. JV Ejercito has likewise received reports of some revenue officers and regional directors getting as much as 70 percent of what is supposed to be collected from the LOAs, with only 30 percent remitted to the government.

Even ambassadors have been harassed by the BIR through the LOAs that have stained the country’s diplomatic relations.

The Makati Business Club also pointed out that the business community has long been complaining about the “weaponization of these instruments to squeeze more money out of responsible and legitimate taxpayers, instead of targeting tax evaders.”

Foreign chambers of commerce have likewise raised grave concerns over “excessive and irregular” LOA issuances, an odious practice that has turned off potential investors who demand a level playing field and predictable rules and regulations before they even consider investing in a country.

“They are weaponizing LOA for corruption,” Ejercito lamented.

More examples of corruption in action were revealed during the Senate blue ribbon committee investigation that kicked off earlier this month, from issuance of LOAs for taxable years that had already been settled, issuance of multiple LOAs during a single year, and baseless and “bloated” tax assessments.

Egregious amounts

Even micro, small, and medium scale enterprises (MSMEs) that account for some 99 percent of registered companies in the Philippines have not been spared.

Sen. Bam Aquino said MSMEs would get the LOAs at random and they question the basis for the often egregious amounts being charged. Unscrupulous BIR personnel would then offer to bring down the fee in exchange for a bribe.

According to the newly installed BIR Commissioner Charlie Mendoza, the BIR issued 62,462 letters in 2023, another 75,510 in 2024 and then from January to October of this year alone, the count surged to 82,145, with the bulk coming from the Manila, Caloocan, Quezon City, South National Capital Region, and Makati City revenue regions.

As to how many of these are legitimate and if there were more that were unauthorized and just issued to shake down hapless individuals and enterprises is now subject to the welcome audit by the new officials at the BIR and the DOF.

Mendoza stressed that the goal is to create processes that are predictable, evidence-based, technology-driven, and fair. These systems are meant to protect taxpayers while helping the BIR perform its mandate, which this year means collecting P3.1 trillion.

Partner in nation-building

Go has also expressed plans to centralize the issuance of LOAs so that only the commissioner or deputy commissioner can approve the LOAs and mission orders, unlike today when multiple departments are allowed to issue these feared documents.

Another reform is to create a centralized digital registry of LOAs so that taxpayers can verify online whether the LOA they received is legitimate.

These are long-awaited reforms that the DOF and the BIR must lose no time to formalize into department orders and standard operating procedures and, most importantly, consistently and strictly enforced as taxpayers start to prepare their books at the close of 2025.

Indeed, LOAs are legitimate documents that the BIR should issue to penalize erring taxpayers, thus, the abuse of its power damages the credibility of the agency on which the country depends for some 78 percent of the country’s total tax collection.

Revised rules, strict implementation, and greater adherence to transparency and accountability will go a long way in restoring the BIR’s damaged credibility and thus encourage more individuals and businesses to pay their right taxes to the agency that is supposed to be a partner in nation-building, not a hostile force.