Luxury car distributor not paying correct taxes?

The Bureau of Internal Revenue is now locked in a dispute with the Philippine Medical Association (PMA) for its advertisement branding doctors as tax evaders. It is an insult to lump all doctors as tax cheats, said the PMA.

Commissioner Kim Henares answered that the ad was a plain “statement of facts” and was not meant to insult anybody, much less the entire medical profession. She added that there will be other ads targeting other professions, so doctors should not feel they are being singled out.

The BIR conclusion was based on official records: Of the 1.7 million professionals registered with the Professional Regulation Commission, only about 400,000—less than 25 percent—are registered taxpayers. Using simple arithmetic, the BIR concluded that 1.3 million professionals (that includes lawyers, engineers, etc.) are not paying taxes.

But it is not as simple as that. Remember that there are very many doctors, lawyers, engineers, etc. who are that in name only. They are not practicing doctors, lawyers and engineers. They like to be called “attorney,” “doctor,” “engineer,” etc., but they are not really earning a living as such professionals.

Furthermore, while some doctors and lawyers do earn astounding fees, many more don’t, especially those working in the provinces. So while they pay little or no taxes as professionals, it does not mean they are cheating on their taxes.

But we must admit that there are those who really don’t pay the correct taxes. And it is so easy to do that just by not issuing receipts. While those who charge P25,000 or more per patient through the hospital cannot escape the hospital records, the secretaries of those who charge hordes of patients consultation fees sometimes forget to issue receipts, which the patients don’t mind because the amount paid was not much, anyway. It is even easier for lawyers to do that.

Having said that, I can understand why doctors who pay the correct taxes should feel hurt. On the other hand, if you are paying the correct taxes, why should you feel alluded to?

After all, compared to the salaried individual whose income tax is withheld at source even before he is paid his salary, the professional is much better off. And since the government runs on taxes collected, you can really say that the salaried employees bear more of the burden of running the government than the professionals do.

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We cannot blame Commissioner Henares for trying hard to collect taxes. The national government is demanding so much from the BIR to satiate its hunger for more and more money. Every year, the collection target of the BIR is increased, sometimes to unreasonable levels. The agency is given a collection target, but it is not given the chance to protest and say what it can really collect. It has to collect the target, or else.

The unkindest cut is that much of the taxes collected are stolen by corrupt officials. The pork barrel scam is only the most prominent example. And another irony is that the government takes a very long time in sending the culprits to jail. The Sandiganbayan and the Office of the Ombudsman were created precisely to hasten the prosecution of graft cases but they are not accomplishing that.

The pork barrel scam has been in the headlines for many months now and there are “truckloads of evidence” against the accused, but until now the Ombudsman has not filed a single case with the Sandiganbayan.

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Going back to taxes, here is a tip to Commissioner Henares on how to collect more taxes: Look at the records of car distributors selling luxury vehicles. Her own National Investigation Division has asked her for a letter of authority to investigate the accounting records of CATS Motors Inc., local distributor of Mercedes-Benz, Chrysler, and Dodge. A preliminary investigation has revealed that CATS has not been paying the correct taxes of the vehicles that it has sold.

By comparing the official price list of CATS with the Actual Suggested Retail Price in its sworn statement/manufacturer’s declaration for tax purposes, there is a discrepancy ranging from a low of 43 percent to a high of 75 percent. In layman’s terms, CATS paid from 43 to 75 percent less taxes for the cars that it sold.

For example: a Mercedes-Benz CLS 63, which has a market price (according to CATS’ own price list) of P19,800,000, was declared sold, for tax purposes, for only P4,900,000, or a difference of P14,900,000. According to these figures, the government lost 75 percent of the tax due on that Benz CLS 63.

There are 17 Benz cars with similar discrepancies in the list submitted by the investigation division to Commissioner Henares.

The smallest discrepancy, 43 percent, was for a Benz SLK 200, which has a market price of P4,120,000 but was (in CATS own declaration to the BIR for tax purposes) allegedly sold for only P2,365,000, or a difference of P1,755,000. If this is correct, the government lost 43 percent of the tax due on that Benz

SLK 200.

The vehicles in the list were sold in the years 2009 to 2012.

“Owing to the magnitude of the discrepancy between the market prices and the actual dealer’s suggested retail prices of the vehicles sold by the above taxpayer (CATS) and in accordance with… the National Internal Revenue Code of 1997, as amended, a prima facie evidence of tax fraud exists in the instant case,” said the memorandum from seven revenue

officers. The request was recommended for

approval by Deputy Commissioner Estela V. Sales, chief of the Legal and Inspection Group.

The memo was sent on Jan. 30, 2013. It is now March 10, 2014. Maybe it was buried under piles of documents. Look for it.