BIR blinks on tax rule

MANILA, Philippines—Facing headwinds, the Bureau of Internal Revenue (BIR) is giving private individuals earning more than P500,000 a year a reprieve after the agency made the filing of an annual information return (AIR) optional this tax year.

The AIR, similar to the statement of assets, liabilities and net worth (SALN) required of government employees, is aimed at helping improve tax collections by clamping down on tax evasion.

Revenue Commissioner Kim Jacinto-Henares said the full force of the regulation would take effect next year—for the 2011 tax period—when compliance would become mandatory.

The BIR back-pedaled amid objections that compelling a private individual to file the AIR was unconstitutional and unlawful.

“It’s an illegal and unnecessary state intrusion into lives of private individuals,” said Cagayan de Oro Rep. Rufus Rodriguez.

Revenue Regulation No. 2-2011, issued on March 1, requires individuals, estates and trusts to file the AIR along with the ITR starting with tax year 2010 or this year’s filing.

Right to privacy

Rodriguez filed a resolution in the House of Representatives questioning the new BIR regulation.

He said the regulation would violate the constitutional right of individuals to privacy, noting that only government officials were required to file a SALN.

Rodriguez also pointed out that the BIR was not authorized to require the filing of the AIR because it was not stated in the National Internal Revenue Code.

“If it wants to increase revenues through the AIR, the BIR should first wait for Congress to legislate a law allowing this additional filing during the annual tax deadline,” he said.

Rodriguez said the BIR should establish the AIR’s legality before implementing the regulation or else it would be swamped with long and costly lawsuits from taxpayers.

Pilot basis

Henares said a new revenue regulation would be issued to make the filing of the AIR optional for 2010.

The BIR chief said delaying the full implementation of the new regulation was meant to “give affected taxpayers time to acquaint themselves” with the AIR or BIR Form No. 1705.

This will allow taxpayers to “see how they can best effectively comply,” she said. “This will also allow the BIR to monitor its implementation on a pilot basis and make the necessary adjustments where needed.”

Detail all income sources

Henares tried to assuage fears that the information that taxpayers would give regulators would be subject to abuse.

“This is not a SALN,” she said in an interview with the Inquirer. “This measure is meant only for private citizens to detail all their sources of income.”

Henares explained that the requirement for the submission of SALN-style balance sheets and income statements would be required only of self-employed individuals, professionals and single proprietorships.

Company employees earning more than P500,000 a year need only to submit a detailed report on their income sources.

Foreigners, too

Filing of the AIR is being required of private individuals, including foreigners residing in the Philippines as well as non-resident foreigners who are engaged in business here.

Even then, the BIR chief said that the AIR filing would be mandatory starting tax year 2011, the deadline of which is on April 15 next year if the taxpayer is also filing the ITR (income tax return), or May 15 if the taxpayer is filing the AIR alone.

The AIR is intended to detail incomes that are subject to final withholding taxes or “final tax” and exclusions from gross income.

Prizes, stocks, property

Based on the National Internal Revenue Code, a final tax is levied on passive income such as interests, royalties, prizes and other winnings; cash and property dividends; capital gains from the sale of stocks not traded in the stock exchange; and capital gains from the sale of real property.

“RR 2-2011 was issued precisely to address two issues, one being the absence on the list of top individual taxpayers of many famous and wealthy personalities—many of whom earn income which are either subject to final withholding tax or exempt from tax,” Henares said.

She reiterated the example of individuals on Forbes magazine’s list of richest Filipinos who are curiously not on the BIR’s list of top individual taxpayers.

The second issue that RR 2-2011 seeks to address, Henares said, was the impending government requirement to make tax returns a basis for the granting of loans, licenses, franchises, etc.

For taxpayers not required to file an ITR, they are now required to file the AIR if they earn more than P500,000 a year. However, a taxpayer who earns more than P500,000 purely from compensation but from two or more employers must also file an ITR.

Also required to file the AIR only are individuals, estates and trusts whose sole income has been subjected to final withholding tax of more than P125,000, whether remitted or not to the BIR.

Confidential

Presidential spokesperson Edwin Lacierda said private individuals, who would declare their sources of income in accordance with the new BIR regulation, had no reason to fear public scrutiny of their wealth.

Lacierda said that unlike the SALN of government officials, income declarations under the new regulation would be treated with the same confidentiality as income tax returns.

“No, it won’t be a public document like the SALN,” he said in a telephone interview.

“It has the same restrictions as the release of ITRs. Only the President or the secretary of finance can direct the BIR to release those forms,” Lacierda said. With a report from Norman Bordadora