Philippine Standard time

Tax Performance Analysis of the BIR and BOC:1998 — 2009, May - June 2011


The paper assesses the revenue performance of the BIR and BOC taking into account the country’s actual economic performance, the changes in tax policies and the various administrative reforms implemented by the two Bureaus for the last 12 years covering the period 1998 to 2009. During the period under review, the Philippine economy, measured in terms of GDP, was characterized by a "boom and bust” cycle. A confluence of various factors contributed to such economic performance. Major political events caused political instability and weighed down the country’s overall economic performance. Moreover, extreme weather disturbances such as El Niño, La Niña and destructive typhoons hit the country causing severe damages to crops, property and infrastructure. On the other hand, the elections held in 2004 and 2007 helped propel economic growth in terms of increased election-related spending. In 2009, the BIR contributed 67% of the total PhP1.12 trillion NG revenues; the BOC, about 20%; and other collecting agencies, the remaining 13% from tax and non-tax sources. On a yearly basis, total BIR collection continuously increased from PhP337.2 billion in 1998 to PhP778.6 billion in 2008 after which it declined to PhP750.3 billion in 2009. The BOC collection likewise displayed an increasing trend in collection from PhP76.0 billion in 1998 to PhP260.3 billion in 2008 after which it also declined to PhP220.9 billion in 2009. The annual growth rates were erratic ranging from less than 1% to as high as 20% in the case of BIR and 28% in the case of the BOC. When actual collection was compared with the revenue target, the BIR was able to meet its goal only twice in 12 years, i.e., in 2001 and 2003. On the other hand, its revenue shortfall ranged from less than 1% to 12% with the highest shortfall recorded in 2002. In the case of the BOC, it exceeded its targets seven times over the same period. In particular, it surpassed its collection goal by about 6% and 8% in 2003 and 2004, respectively. On the other hand, it missed its target by as high as 19% in 2009. Tax effort which takes into account the changes in the economic conditions of the country was used as a relevant tool in assessing the two Bureau’s performance. For the period under review, the BIR’s tax effort was declining with slight improvements in 2003 and 2006. Contributory to the improved tax effort in 2006 were the positive revenue effects of the increase in the excise tax on alcohol and tobacco products in 2005 via RA 9334, and the increase in the VAT rate from 10% to 12% and the corporate income tax rate from 32% to 35% in 2006 via RA 9337. On the other hand, the declining tax effort is due to the various revenue-eroding tax laws granting exemptions to certain sectors. Similarly, the BOC’s tax effort was on a downtrend although at a lesser degree than that of the BIR but also improved in 2005, 2006 and 2008. Contributory to these improvements in collection was the increased value of dutiable imports which pushed upward the collection on import duties and the significant increase in VAT collection due to the increase in the VAT rate in 2006. The BOC’s performance was evaluated in terms of the effective tax rate (ETR) which is calculated by dividing the actual collection by the total value of taxable imports. During the period, BOC’s ETR was low and erratic ranging from 6% to 10.8%. Notably, the best years when the BOC surpassed its revenue targets (2003-2004) did not necessarily jibe with the years when it registered the highest ETRs (2006-2007). It is also noted that despite the decline in collection in 2009 due to the lower import value, the ETR during the year is one among the highest during the 12-year period under review. With regard to the changes in tax policies that affected the performance of the Bureaus, a total of 57 Republic Acts (RAs) were passed and 127 Executive Orders (EOs) were issued mostly concerning internal revenue taxes and import duties, respectively. Of the 57 RAs, 46 were revenue-eroding measures granting exemptions or incentives to specific industries, entities, activities or group of individual taxpayers; 9 were revenue-enhancing; and 2 involved VAT implementation deferment. On the other hand, of the 127 EOs issued, only 8 were revenue enhancing measures, 5 of which pertain to improving tax administration of the BIR and BOC; while the other 119 EOs implemented duty-free importation or reduced tariffs on various products, mostly pursuant to the country’s commitments to several free trade agreements. Based on available data, about PhP80 billion was lost from the BIR collection due to revenue-eroding measures passed in 2009. Had there been no changes in tax policies in 2009, the BIR would have exceeded its assigned target and registered a higher tax effort of 10.8% instead of 9.8% during the year, Similarly, had there been limited issuances on tariff exemptions/reductions granted under various EOs, the BOC would have also exceeded its revenue target for the year. Moreover, the excess in collection would have been bigger if the programmed macroeconomic targets and the assumption used as basis of its revenue program were realized. To counter the effects of the revenue-eroding tax laws and issuances, various administrative measures were implemented by the BIR and the BOC in order to improve collection. For the BIR, these include, among others, the continuous conduct of tax mapping activities and the implementation of various programs such as "Oplan Kandado”, Tax Compliance Verification Drive (TCVD), the Run After Tax Evaders” (RATE), "Papremyo sa Resibo” and the "Rest in Peace” Project. The Bureau also developed electronic systems (e-systems) for tax administration purposes to provide efficient services to the taxpayers and thus increase tax compliance. In the case of the BOC, the focus was on the advances in technology and the fight against smuggling. The BOC tapped the potential of information technology by instituting the Electronic to Mobile (e2m) Customs Project and various electronic systems for customs administration. It also intensified its drive against smuggling through its "Run After the Smugglers” (RATS) Program and the X-ray Inspection Project (XIP). Based on the foregoing analysis, it is suggested that policymakers be more prudent in considering further tax eroding measures. If certain sectors need to be helped by tax intervention, it is recommended that it be done thru the provision of tax subsidies which are deemed quantifiable, controllable and more transparent. Moreover, while the tariff cut is in compliance with the country’s existing commitments to several trade agreements, these should be thoroughly reviewed to ensure that the cuts actually help boost the competitive position of the Philippines in the new global trading environment. Lastly, while setting revenue targets in nominal amounts is an integral input into the budget process and which the two Bureaus should aim to achieve, for purposes of rewards and punishment under the Lateral Attrition Law, a thorough analysis of the actual vis-à-vis the programmed macroeconomic indicators used in arriving at the revenue target and their impact on collection is in order.

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