Biggest P5.5B tax case filed against trader

MANILA, Philippines—A businessman who allegedly defrauded the government of P5.5 billion by underdeclaring his income is facing in court what officials described as the biggest tax evasion case in the history of the Bureau of Internal Revenue (BIR).

The Department of Justice (DoJ) announced Thursday that following a six-month preliminary investigation it had found probable cause in charging Macario Lim Gaw Jr., owner of Mega Packaging Corp., with failure to file correct taxes under the National Internal Revenue Code.

“Respondent’s previous sale transactions in 2007, coupled with his continuing transactions in 2008, makes him a person engaged in real estate business under BIR revenue regulation,” a three-member DoJ panel said in an eight-page resolution.

Documents presented by Gaw showed that “he is actually in [the] business of selling real properties for profit,” said the panel composed of Senior Assistant State Prosecutor Susan Dacanay and Assistant State Prosecutors Edna Valenzuela and Cesar Calubag.

The resolution dated March 17 and released Thursday was approved by Senior Deputy State Prosecutor Miguel Guido and Prosecutor General Claro Arellano.

When the BIR filed the complaint against Gaw in August last year, Finance Secretary Cesar Purisima described it as the “biggest tax evasion” case ever filed by the agency against any individual.

Aside from failing to pay the correct income taxes in 2007 and 2008, Gaw allegedly bought 10 lots during these years in the aggregate amount of P4.11 billion and sold them for P8.41 billion eight months later.

The BIR said Gaw “deliberately misclassified” the sale of the 10 lots as a sale of “capital assets” when these were undoubtedly sales of ordinary assets.

By doing so, Gaw supposedly paid only a 6-percent capital gains tax amounting to P9.1 million in 2007 and P418.7 million in 2008 to avoid paying the 32-percent income tax and 12-percent VAT due to sales of lands classified as ordinary assets.

Gaw denial

In his counter-affidavit, Gaw denied any wrongdoing. He claimed that he had taken out a bank loan worth P4.75 billion to acquire the 10 parcels of land, contrary to the allegation of the BIR that the money came from undeclared income. He presented bank documents to support his claim.

He also insisted that the parcels of land which he sold were capital assets for which he paid the correct capital gains tax, adding that he only used one taxpayer’s identification number in purchasing the land.

Unacceptable

Gaw also assailed the BIR for filing the complaint against him a day after he secured the letter of authority from the agency, adding that had revenue officers conducted a proper investigation, “then it would not have filed this baseless complaint.”

The DoJ, however, found Gaw’s contentions unacceptable.

It said that the 10 parcels of land that Gaw acquired totaled 19.5 hectares had already ready buyers, “thus the sale was for business intended for profit.”

“We also find merit in the contention of the BIR that indeed respondent has extensive knowledge in real estate business and its tax consequences having acted as attorney-in-fact in nine real estate transactions for various corporations, which respondent did not deny,” the panel said.

It said that there was basis for the BIR’s allegation that the properties sold by Gaw in 2008 within a brief holding period of eight months “should have been classified as sale of ordinary assets intended for profits for which he should have declared income of P4.11 billion for said transaction.”

He also should have paid the correct amount equivalent to 32 percent income tax and 12 percent value added tax, the DoJ said.

Gaw’s allegation that the complaint was filed a day after he received the letter of authority was considered “moot and academic” by the panel because he was given all the opportunities to answer the allegations during the preliminary investigation, it said.