#AskTheTaxWhiz: Tax amnesty and holiday the way forward?

Dear Mr Tax Whiz,

Are campaign expenditures taxable? How about the excess campaign funds? Senate President Aquilino "Koko" Pimentel III filed Senate Bill No 296 to impose tax on excess campaign contributions. Do you agree?

Yes. In fact, campaign expenditures are subject to 5% expanded withholding tax and the political parties and/or candidates are required to withhold and remit this to the Bureau of Internal Revenue (BIR). 

The question really is whether they declare all the contributions and expenditures in their Statement of Contributions and Expenditures (SOCE), and whether their campaign donors are paying their taxes correctly to give significant campaign contributions.

Under Revenue Regulation 7-2011, excess campaign funds are subject to income tax. This will form part of the candidates' taxable income in the same taxable year.  Failure to declare excess campaign funds as part of their income and subsequent failure to pay the corresponding income tax make them  liable for tax evasion.

Senate Bill No 296 may no longer be necessary. Instead, the Senate President should enact a law that will make sure candidates and their donors declare the complete and correct contributions and expenditures, and impose a grave penalty like impeachment or death penalty for betraying public trust. We need to increase the bar of excellence and integrity first among our public servants to institutionalize genuine reform in government. 

What is a tax holiday? Is there any tax relief for the micro and small entrepreneurs? Can the BIR simplify its tax compliance requirements to allow the MSMEs to comply without incurring additional costs for hiring accountants? 

A tax holiday is a temporary period during which the government removes or reduces certain taxes like value added tax (VAT) and income taxes on individuals and businesses in certain areas.

Senator Paolo “Bam” Aquino IV recently filed Senate Bill No 169 or the Small Business Tax Reform Act, which aims to lower the income tax rate for small businesses. As the MSME champion in the Senate and an advocate of a simplified tax system for MSMEs, Aquino is pushing for simpler bookkeeping, special lane and assistance desk, exemption from regular tax audit, annual filing of returns and payment in installment, among others, to stimulate growth of our MSMEs which comprise 99.6% of total businesses in the country. 

On the part of tax administration, Commissioner Caesar “Billy” Dulay already met with Trade Secretary Ramon “Mon” Lopez to discuss how they can help the MSMEs. This is aligned with the mandate of President Duterte to simplify government processes so the public will not have to go back and forth from government offices like the DTI and the BIR. 

This is a welcome development as we expect to finally experience a “One-Stop Shop” in terms business registration. And with the bill of Senator Bam to allow annual compliance for small businesses, we can really help promote inclusive growth through ease of doing business, especially for MSMEs.

What is a tax amnesty? Will it help stop corruption in the BIR? Will it encourage taxpayers to pay the right taxes or as what others are saying, will it not be subject to abuse? Can we really enjoy a tax-free lifestyle as what your group is promoting?

Tax amnesty is defined as a measure that condones the liabilities incurred by a taxpayer due to his incorrect or non-payment of taxes on condition that the tax filer complies with certain requirements such as the mandatory filing of a statement of assets, liabilities, and net worth (SALN).

Yes it can help curb corruption, especially now that BIR audit has been suspended. This can actually complement the upcoming comprehensive tax reform which includes lowering income tax rates as tax amnesty will definitely result in additional tax collections without investigation.

Unfortunately, corruption in the BIR is embedded in the tax system, especially in tax audits. With less than 2% collection from audit and investigation, we can readily forego this effort and let taxpayers voluntarily declare their unpaid taxes to stop corruption and promote honesty in paying taxes.

In the meantime, the BIR must extend all possible assistance without harassment to ensure that most if not all taxpayers are compliant.

Afterwards, BIR examiners must be trained to conduct forensic and fraud audits of large corporations based on risk-based audits to increase their significant contributions, which currently stands at 65% of total income tax collections.

Yes, every Filipino taxpayer can definitely enjoy a tax-free lifestyle – a lifestyle not free from taxes but free from the unnecessary burden of penalties and compromises.

Through the Citizen Tax Planning (CTP) Certification Program, taxpayers are given 3 years to improve their voluntary compliance, and comply with all BIR rules and regulations without the fear of a BIR audit. The certification program covers 9 taxable years including a comprehensive tax audit of the last 5 years to assess the level of compliance or non-compliance of the company.

At the end of the 3-year strategic tax planning which follows the 5-year comprehensive tax audit, companies are awarded a “Seal of Honesty” in partnership with the Integrity Initiative, which we hope later on will be recognized by the BIR  as a private-public initiative to promote honest tax payment. – Rappler.com

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Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country's first social consulting enterprise, the Abrea Consulting Group, which offers strategic finance and tax advisory services to businesses and professionals. Mon's tax handbook, Got a Question About Taxes? Ask the Tax Whiz! is now available in bookstores nationwide. Follow Mon on Twitter:@askthetaxwhiz or visit his group's Facebook page. You may also email him at consult@acg.ph.