New ITR forms pernicious

Revenue Regulation 2-2014 of Jan. 24 prescribes new Income Tax Return Forms 1700, 1701 and 1702 that cost P30 million to print.

While the old ITR Forms 1700 and 1701 have four pages and six pages, respectively, the new ITR Forms 1700 and 1701 have eight pages and 12 pages, respectively.

Confidential

Instead of simplifying the procedure, the burden of taxpayers are aggravated because they are being forced to disclose, without any legal basis, confidential information and transactions that have already been taxed.

The new ITR forms now require taxpayers, under pain of perjury, to disclose gross income/receipts subjected to final withholding tax such as interests, royalties, dividends, prizes and winnings, fringe benefits and compensation subject to the 15-percent preferential rate.

They are also mandated to submit supporting documents, such as withholding tax certificates from withholding tax agents like banks, life insurance companies and stockbrokers.

These supplemental pieces of information are indistinguishable from what the BIR wanted to extract from all taxpayers who were being required to submit an Annual Information Return in Revenue Regulation No. 2-2011 issued in 2011.

The House committee on ways and means of the 15th Congress strongly objected to that regulation and Finance Secretary Cesar Purisima suspended its implementation.

BSP, business groups

The Bangko Sentral ng Pilipinas, Tax Management Association of the Philippines (TMAP), Philippine Chamber of Commerce, Management Association of the Philippines, Employers Confederation of the Philippines, Philippine Exporters Confederation, Finance Executive Institute of the Philippines, Philippine Life Insurance Association, Bankers Association of the Philippines, and Philippine Institute of CPAs (Picpa) are unanimous in contending that these new ITR forms violate the bank secrecy law, the Tax Code and the 1987 Constitution.

The BIR commissioner is prohibited from looking into bank deposits of taxpayers except in two instances provided in Section 6 (F) of the Tax Code—estate tax computation of a decedent and in compromises on tax liability due to financial incapacity of a taxpayer.

Against bank secrecy law

The Tax Code is mindful of the bank secrecy law (Republic Act No. 1405), which preserves the absolute confidentiality of bank deposits in order to prevent the private hoarding of money. Congressional debates on this law reveal that the country’s economy carries more weight than the suspicion of tax evasion.

The Bangko Sentral said, in its position paper of Feb. 21, that requiring a person to disclose, not the deposit itself, but information from which the deposit can be extrapolated and deduced by another, would contravene the above-mentioned principles and expose the person to the same risks.

“In the absence of any act by Congress authorizing the same, an administrative issuance prescribing or requiring such report could therefore be deemed in contravention of RA 1405,” the Bangko Sentral said.

Kidnapping, robbery

It also exposes taxpayers to kidnapping and robbery.

In a position paper of March 5, Picpa said: “To further require taxpayers to supply the supplemental information under the new ITR forms will be an additional burden and will run counter to one of the main purposes for which the withholding tax system was envisioned, i.e. to provide the taxpayer with a convenient way of paying his tax liability.

“It is clear that the information disclosed by the withholding agents and/or the taxpayers themselves are precisely the same information being required by the BIR to be disclosed in the new ITR forms.

Tedious process

“Requiring taxpayers to resubmit said information spells superfluity and will necessarily contribute to the already tedious process of reporting income. Having to disclose the same information twice will be very counterproductive.

“In requiring the disclosure of a public official’s assets and liabilities, a greater public need is served. However, requiring the same level of transparency and disclosure from private citizens and imposing additional burden on them does not, in any manner of imagination, justify the ends and does not, in any way, guarantee increased tax collections.

“With the upsurge of investments and similar transactions in the Philippines, it seems unreasonable to require taxpayers to be unduly burdened to provide information that is readily available to the BIR,” Picpa said.

Perjury

Picpa noted that the disclosure of supplemental information must be made by taxpayers under oath and under pain of perjury.  “There is no way to ensure that the supplemental information to be provided by taxpayers is free of errors or mistakes, as most taxpayers rely on the information provided by withholding agents.”

This creates an unnecessary burden not only on taxpayers but also on BIR personnel. The burden does not justify the end sought to be obtained.

Without legal basis

While the submission of the supplemental information is optional for individual taxpayer this year under Revenue Memorandum Circular 9-2014, corporate taxpayers are deprived of equal protection of the law because they are deprived of this privilege.

TMAP maintained, in its Feb. 21 position paper, that there was no legal basis for mandating the use of itemized deductions for the taxpayers enumerated under Sec. 5, RR 2-2014. “Section 34(L) of the Tax Code explicitly allows Optional Standard Deduction (OSD) for taxpayers subject to regular income tax. Thus, even those subject to mixed income tax regimes (i.e., subject to regular income tax and exempt or subject to special/preferential tax rates) should be allowed to avail of the OSD option,” TMAP said.

In conclusion, BIR’s resolve to hit revenue collection targets must be pursued within the framework of the law and never at the expense of the rights of taxpayers who are already burdened with taxes.

The unrestrained power of taxation is pernicious and can ruin the Philippine economy. Recall of these new forms is necessary. With proper consultation with stakeholders, the forms can be made simple and compliance convenient.

(Magtanggol T. Gunigundo I is the representative of the 2nd District of Valenzuela City.)