Why Lopezes not on BIR list of top taxpayers explained

The Lopez brothers are reportedly wondering why they’re not on the list of the country’s top taxpayers.

Others are wondering why the few tycoons on the list pay less than the amounts that the Bureau of Internal Revenue (BIR) collects from celebrities.

Still others are asking why several tycoons are not on the list.

Sources within the Lopez group of companies on Tuesday pointed out that family patriarch Oscar Lopez and his brother Manuel had paid P37 million and P11 million in taxes, respectively, for 2011.

“This is a Catch-22 situation,” Revenue Commissioner Kim Henares said. “Some are complaining why we published the list [of top 500 individual income tax return filers] and some are complaining why they’re not there.”

BIR, Forbes lists

The public almost instinctively juxtaposes the annual list of the country’s top 500 individual tax return filers against the list of the country’s tycoons. (Forbes magazine’s annual billionaires’ list is usually released a month earlier).

“How come Kris Aquino paid more taxes than Henry Sy Sr.?” was the complaint over social media like Twitter and Facebook the past few days.

The show-biz personality was the country’s top individual taxpayer with P49.8 million in payments versus the country’s richest man who only ranked 15th on the same list with P16.5 million.

Income, assets

Indeed, the agitation felt by the public is all too common. And according to experts from both the BIR and the private sector, this is also often misguided and misinformed.

“You have to make a distinction between income and assets,” Henares said. “The tycoons on the Forbes list, for example, may hold the most assets but they don’t necessarily earn the most income. There’s a big difference.”

The annual list published by tax authorities as mandated by law, she said, is based on the taxes that individuals have to pay based on transactions—not the static level of assets a person owns.

Stock dividends

As such, President Aquino’s youngest sister who earns millions of pesos from her commercial product endorsements and TV shows may be earning more than a mall tycoon whose assets are in the form of shares of stock, Henares said. (Dividends from stocks are subject to a 20-percent final withholding tax and not subject to further levies.)

In the same vein, most of the country’s richest like those on the Forbes list are business owners whose stock holdings are subject to taxes on dividends instead of income taxes.

Employed by own firms

Those who are employed by their own firms as top officials, meanwhile, have their income taxes withheld on their behalf by the very firms they own.

“Only those who filed income tax returns (ITRs) will find themselves on the top 500 list,” the BIR chief pointed out. “If you did not file an ITR—if you had a ‘substituted filing’ where your company withheld income taxes for you and remitted it straight to the BIR, just like regular employees—it doesn’t matter how big your salary and tax payments are. You will not appear on the list.”

Henares’ explanation coincided with a flurry of complaints received by the tax bureau from people who found their names on the list (fearing that the disclosure would pose a security risk) and people who were upset at not being included (for fear of being perceived as tax dodgers).

Henares said  some top officials of large corporations who found their names on the list submitted “mixed filings” which incorporated taxes due from their regular employment with income from other nonemployment-related activities.

Conversely, the president of a large conglomerate who received purely what BIR calls “compensation income” for the year—taxes for which were withheld by the employing conglomerate—would not appear on the top 500 list either.

Army of tax lawyers

Speaking on condition of anonymity, the head of one large accounting firm told the Inquirer that the country’s ranks of billionaires also employ an army of tax lawyers and auditors to minimize their tax liabilities.

“There is a difference between tax avoidance and tax evasion,” he said. “The former is legal while the latter is not.”

Henares acknowledged this, but pointed out that the wealthy should not go overboard by “incorporating” even their personal expenses under separate companies just to minimize their tax liabilities.

“There are things you cannot do,” she said.

“You cannot book groceries for your household under a separate corporation, or the salaries of your helpers, or your mobile phone bills,” Henares said.

“And remember, being on our list of top taxpayers doesn’t exempt you from further investigation,” she said.