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NTRC TRJ: Taxpayer Identification Number (TIN): Its Development and Importance in Tax Administration

The paper presents the historical development of the Taxpayer’s Identification Number (TIN) in the Philippines, its structure and the crucial role it plays in tax administration. It also discusses recent development in securing TIN and its importance in tax compliance and in curbing tax evasion. In 1965, the BIR came up with a system that assigned Tax Account Number (TAN) to every taxpayer to facilitate the identification of taxpayers and verification of tax records. The TAN was an eight-digit combination where the first four digits were the number proper and the last four digits were check numbers. During that time, there were around 10 million TANs distributed in the country. However, the TAN was found to be ineffective as a taxpayer locator or identifier because of various reasons: (a) an individual may be issued more than one TAN; (b) the same TAN may be used by two or more individuals, hence the possibility of duplication. Recognizing its defects, the BIR replaced it with a 12-digit code and employed the SOUNDEX system in 1976. It was a method of generating a set of numbers based on the sound of the key letters of a word, specifically, of a name. However, the SOUNDEX code was expected to come out with some duplicated codes for the reason that persons may have the same names or have different names but algorithmically contain the same type of letters. The TAN was ineffectively implemented due to lack of integrated information and relational database systems. Many TANs were not properly indicated on documents filed with the BIR. Inadequate information drive also contributed to the deficiencies of the TAN. The TIN was first introduced in 1989 when the BIR formulated a Five-Point Administration Improvement Program and was implemented in 1991 pursuant to Revenue Memorandum Order (RMO) Nos. 22-91 and 23-91 and Revenue Memorandum Circular (RMC) Nos. 58-91, 63-91, and 70-91. It effectively replaced the TAN, value-added tax (VAT) and non-VAT registration numbers, withholding tax agent (WTA) I.D. and other numbering systems used by the BIR to facilitate computerized processing of tax returns and other data/information. The TIN is a system-generated reference index number issued and assigned by the BIR to each and every person registered in its database. It contains key information necessary for computer processing and information generation. In 1998, the BIR introduced the Integrated Tax System (ITS) and issued TIN using this system. The ITS is a set of related systems, and processes, which provides maximum automation and minimum manual intervention in BIR operations. The unique TIN consists of 9-12 digit numeric code in contrast to the alphanumeric TAN, thus easier to encode. To illustrate, consider this TIN: 000 – 123 – 456 – 001 i. The first digit which is “0” signifies that the TIN belongs to a corporation; ii. The 2nd to 8th digit “00-123-45” is sequential; iii. The 9th digit which is “6” is the check digit; iv. The 10th to 12th digit which is “001” is the branch code; and v. The “000” series denotes that the TIN issued was a pre-generated one. As of July 9, 2014, according to the Data Warehousing and Systems Operation Division of the BIR, there were already 28,468,838 issued TINs (including active, inactive, and cancelled). TOTAL NUMBER OF ISSUED TINs (As of July 9, 2014) Category Number of Issued TINs Individuals (employees, single proprietors, professionals, etc.) 27,900,422 Non-individuals (corporations, partnerships, cooperatives, etc.) 568,416 Total 28,468,838 Source: Data Warehousing and Systems Operation Division, BIR Section 236(I) of the National Internal Revenue Code (NIRC) of 1997 made it mandatory to supply or assign a TIN to every taxpayer. It provides that any person, whether natural or juridical, required under the authority of the NIRC to make, render or file a return statement or other documents, shall be supplied with or assigned a TIN to be indicated in the return, statement or document to be filed with the BIR, for his/her/its proper identification for tax purposes. Furthermore, Revenue Regulation (RR) No. 7-2012, provides that the following persons are required to or may secure a TIN, viz: a. Every person subject to any internal revenue tax such as: income tax, VAT, percentage tax, withholding tax, excise tax, and documentary stamp tax, including its branches (for purposes of securing its branch code for business establishments) as well as persons subject to taxes under the One Time Transactions (ONETT), such as but not limited to capital gains tax, donors tax, and estate tax; b. Any person who, although exempt from the imposition of the taxes imposed under the NIRC of 1997, as amended, is nevertheless required to withhold taxes on account of income payments made to taxable individuals or entities. c. Persons whether natural or juridical, dealing with all government agencies and instrumentalities, including government-owned and/or controlled corporations (GOCCs), and all local government units (LGUs), are also required to incorporate their TIN in all forms, permits, licenses, clearances, official papers and documents which they secure from these government agencies, instrumentalities, including GOCCs and LGUs, pursuant to EO 98 series of 1999. In the case of diplomatic missions, and international organizations, as identified by the Department of Foreign Affairs (DFA), together with their accredited foreign personnel, they are exempted from the requirements of the TIN pursuant to EO 31 series of 2001. Pursuant to RR No. 7-2012, only one TIN shall be assigned to a taxpayer and there shall be no instances where two or several taxpayers are holders of the same TIN. The acquisition of multiple TINs by a single taxpayer is punishable by law. Likewise, once a TIN is assigned to a particular taxpayer, it shall be non-transferable. As regards branches of an identified large taxpayer, the same are required to register at the Large Taxpayers Service (LTS) where the Head Office (HO) is registered. Also, all incorporators of corporations, associations (stock and non-stock), partners of partnerships and members of cooperatives must have TINs. According to a study of the World Bank, Filipino taxpayers’ compliance significantly improved starting in 1986 during then President Corazon Aquino’s administration and continued under the Ramos administration. This improvement stemmed from the launching of the Aquino administration of a Comprehensive Tax Reform Program (CTRP) as well as related tax administrative reforms which include, among others, the implementation of the TIN (in 1991). It is noted that with the implementation of the TIN, the number of tax filers doubled between 1986 and 1992 and continued to increase between 1992 and 1997. While it is difficult to attribute to the new TIN the increase in tax filers, it can be inferred that the TIN does not only expedite the processing of information about the taxpayer but it also fosters and consequently results in increased revenues. Undoubtedly, it has facilitated and insured accurate identification and recording, audit, matching, cross-checking, and collation of accounts and transactions, extracted from returns, receipts and other documents. It is indispensable in tracking down and monitoring the transactions of taxpayers with the tax bureau. As a result, the TIN is used in the identification of delinquent accounts and the verification of declarations made by the taxpayers as to their tax liabilities. The TIN also reduces the cost of tax administration for tax authorities as it becomes easier to collate, access, analyze and retrieve data. The automation of the system and the time required for carrying out tax audits and investigations by tax authorities is likewise lessened. Generally, there was a remarkable improvement in tax administration in the form of tax assessment and collection with the adoption of the new TIN. The TIN is definitely a very helpful administrative tool on the part of the taxing authority. To enhance its utility to the taxpayers, the BIR may explore the possibility of making the TIN card an electronic card and function like the rewards card of different business establishments which will record and store the taxable transactions of the taxpayer and its corresponding tax payments and get rewards points. It should be noted that while the use of an electronic TIN card may be beneficial to the taxpayers on one hand, it may evoke criticism on the other hand especially when it comes to confidentiality issues and the possibility that the use of the electronic TIN card may run afoul the constitutionally guaranteed right against self-incrimination. To thwart this weakness, the use of the electronic TIN card may be made optional and voluntary. The electronic TIN card may also prove its utility in cross-checking the veracity of declared income of taxpayers. This is possible because the BIR will have an idea how much income is passing on the hands of the taxpayers as can be deduced from the spending pattern reflected on the information contained in the electronic TIN card. This tool may aid the tax authorities in curbing non- or under-declaration of income for income tax purposes. At present, tax authorities are exploring the possibility of adopting the concept of a global/regional TIN within the ASEAN. The Philippine Secretary of Finance Cesar Purisima endorsed during the 2013 G8 Pre-Summit Meeting in London the adoption of the Global TIN concept within ASEAN to enhance the oversight capabilities of tax authorities and to facilitate the monitoring of international transactions. The adoption of Global TIN is seen as a measure to curtail, if not, eradicate rampant cases of domestic and international tax evasion, smuggling and cross border corruption. The Global TIN concept is not a new idea within regional organizations. In fact, the European Union (EU) is also currently exploring the adoption of a so-called EUTIN to respond to the difficulties faced by the member states in properly identifying all their taxpayers (natural or juridical persons) engaged in cross border transactions or operations. The use of global/regional TIN in the ASEAN while deemed ambitious in its pursuit is seen to facilitate oversight capacity of tax authorities in cross border transactions. It will serve as a passport for cross-border trade and investment which will enhance monitoring and will eventually enable better audit of cross border transactions. Certainly, the adoption of global/regional TIN is projected to meet and facilitate the existing international standards on taxation and tax administration.

National Tax Research Center
Authors Keywords
NTRC; Taxpayer Identification Number (TIN);
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