Philippines’ Wealthy Evade PHP 160 Bil in Tax

August 2, 2011 Taxation in Philippines

Cesar Purisima Announces New Tax InvestigationsThe Philippines is set to conduct in depth investigations and put extra pressure on its highest earning professionals, who are said to be evading their tax obligations and contributing a disproportionately small amount of the country’s tax collections.

During an event held in Manila on August 1st to mark the 107th anniversary of the Bureau of Internal Revenue (BIR) of the Philippines, the Finance Secretary Cesar Purisima announced that the country’s tax authorities will be clamping down on highly paid professionals and self-employed individuals who are evading their tax obligations.

According to the Minister, there are approximately 1.7 million professionals working across the country, but only 195 000 are currently paying their taxes. Last year, the BIR reported total income tax collections of approximately PHP 170 billion, but tax payments from highly-skilled professionals accounted for only PHP 9.8 billion of that amount. The BIR suspects that even the high-earning taxpayers who did declare incomes and pay taxes are still neglecting to disclose all of their profits, as collected revenues equate to an average of PHP 5 783 in taxes each. The Minister explained that such a low tax payment would mean that the country’s doctors, lawyers and dentists are earning below the national minimum wage. In his speech the Minister added that if all of the Phillipnes’ self-employed professionals were to pay the appropriate amount of taxes, the country could see an extra PHP 170 billion in tax revenues per year.

In order to address the serious shortcomings in tax compliance, the BIR will begin targeted investigations on the country’s high earning professionals and self employed individuals. The BIR will now pay much greater scrutiny to the financial affairs of affluent workers, and is likely to conduct “lifestyle checks”, which could involve data matching programs to discover discrepancies between declared incomes, and vast personal expenses and the purchase of luxury items. Investigators could also issue requests to inspect individuals’ bank accounts. In June the BIR instated a similar program for the country’s politicians, and promised to publicly shame any individuals who were found to be brazenly neglecting their tax obligations.

Cesar Purisima revealed that any extra tax revenues raised from the new program will be diverted to national public services and infrastructures to benefit the country’s poorest individuals.

Photo by World Economic Forum