#AskTheTaxWhiz: How much 'SOP' should a taxpayer pay? (Part 1)
Dear Mr. Tax Whiz,
I’m one of your participants during the recently concluded Tax Avoidance Congress in Baguio.
Thank you for reminding us that a genuine tax reform is possible if all of us will contribute in addressing the problems of our tax system such as high tax rates, high compliance cost, low voluntary compliance, rampant under-the-table deals between Bureau of Internal Revenue (BIR) examiners and taxpayers, etc.
Immediately after your talk, I called my outsourced bookkeeper and asked him to turn over all the files, particularly my tax returns he filed for my company. To my surprise, he said that my files were missing and he cannot turn them over anytime soon. In case the BIR examiner asks for it, I just have to call him.
I got worried after hearing your story about accountants conniving with BIR examiners. I just felt you were referring to me, and so I did what I had to do. Unfortunately, my bookkeeper is giving me a headache. How do I know if he did file all my tax returns for the last 3 years? In case he cannot turn over all my files including books of accounts, schedules and tax returns, what should I do?
When you said we can send you tax questions via email, I knew I will have to email you anytime soon. I must admit I never understood what to do. I have always relied on the bookkeepers I pay to do my BIR compliance. I was made to believe that bribing BIR examiners is the only way to handle it.
There were several other tax questions raised during the congress and I feel it is worth sharing to all taxpayers like me who are either ignorant, confused or simply lost. Can you please answer them?
My friend who owns a lot of companies pays P500,000 ($11,202.49) to settle his case with the BIR and only P200,000 ($4,481.28) was with official receipt. Now, in my case I am owning a smaller business than my friend and settled the same amount P500,000 a($11,202.49) nd my official receipt is P100,000 ($2,240.64).
Why am I paying more with SOPs (so-called standard operating procedures or “kickbacks”) than my friend who has bigger business than mine?
How much SOP should a taxpayer actually pay?
I received a "letter of authority" and immediately arranged a meeting with the BIR examiner. The BIR examiner was so kind. He explained to me that I have nothing to worry about. After a while, I received another notice from BIR. So, I went and met again the BIR examiner. He said again that it is under control and there is nothing to worry about.
However, after few months, I received a final assessment with tax deficiency of P2,800,000 ($62,724.27). I went back to that BIR examiner but he said there is nothing that he can do about it. I have to settle the amount. I got so furious because he promised me that everything is okay then here is what happened.
Is there a right way or procedure to handle the letters of the BIR?
Can I complain that BIR examiner to the Revenue District Office (RDO)?
I have a friend who advised me that whenever I received letters from the BIR, I should reply within the prescribed period and drag the exchange of communication by way of request for re-investigation, request for reconsideration, or request for explanation until it reach to the end of the year and try to negotiate the amount. I would probably get a good deal because they do not have time for their collection quotas. It works with him many times already and chances is the examiner gets tired of following-through the case.
Is this true? If so, is this a good practical advice?
I heard only 10% of the total taxpayers are being audited. How come I get audited every year?
How do I stop the BIR from auditing my company?
For the last 10 years, our accountant is handling our BIR audit. He negotiates with BIR examiner directly to reduce the assessment, which is significantly increasing every year.
Admittedly, we never discussed the details of the assessment nor did we do anything to improve our tax compliance either. But last year, our accountant suddenly decided to migrate to Australia. Unfortunately, he has no understudy in the company except one bookkeeper/messenger.
Our problem started when we received our “letter of authority” sometime June last year, after our accountant left us. Since our bookkeeper did not know what to do, I personally went to the BIR office to meet the examiner. To my surprise instead of getting an assessment, the examiner immediately asked how much is my budget. I am not naïve. I knew exactly what the examiner meant but I never expected it to be that straightforward.
To aggravate the situation, when I asked how much my accountant gives them, the examiner discretely answered, “back-to-back” and “double the figure.”
How do I know if the examiner is telling the truth? What is my proof of our tax payment for the previous BIR audit?
Is this really a practice during BIR audit? What is their basis for asking “back-to-back” and “double the figure?” We did not even make as much as last year and yet they are asking double of how much we previously paid.
Most of my friends outsourced their bookkeeping and tax compliance. But I am sure their accountants are also compromising with BIR. Is there a legal way of dealing with BIR without compromises? Is there a book or reference to at least answer some of my tax questions so I do not end up paying BIR examiners more every year for all their assessments?
Where can I send my bookkeeper to learn more about taxes? I really want to learn it too so I might also attend if there is any credible group providing seminars.
IT (Ignorant Taxpayer; name withheld)
Mr. Tax Whiz will respond to these cases Thursday, June 4.
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 firstname.lastname@example.org.
$1 = P44.64
Woman working over her taxes image via Shutterstock