A closer look at the BIR’s name-and-shame campaign
The BIR serves it’s latest volley in its name-and-shame campaign. This time, it targets lawyers—Makati lawyers, specifically—implying that their tax-avoiding ways are a burden to the country.
Before anything else, let me get this out of the way: a lot of lawyers in private practice are most probably not paying the correct taxes. But that is true for most independent service professionals in this beloved country of ours. The only sector of society that you can count upon to be paying the correct taxes is the employees, whose salary is held hostage to the prior withholding of taxes due.
Having gotten that off my chest, let’s proceed to the BIR’s latest creative masterpiece.
The ad leads with the a controversial statement: “[O]nly 53.7% of all taxpayer lawyers in Makati filed their income tax returns.”
We need to break down this statement though to understand 1) what the BIR is trying to say, and 2) what the statement really means.
First of all, the ad is disingenuous. The fact is that non-filing of an income tax return is not equivalent to non-payment of taxes. Since lawyers are covered by the expanded withholding tax system of the Tax Code, income taxes arising from their professional fees are already withheld from the payments they receive from their clients. This means that the taxes have been paid, whether or not the lawyer actually files an income tax return.
Based on the footnote, the ad defines the term “taxpayer lawyers” as “[L]awyer taxpayers who have filed BIR Form 1701 or Annual Income Tax Return for Self-Employed Individuals, Estates, and Trusts for return period 2012.” In the case of lawyers, who are those required to file BIR Form 1701? They are lawyers who are engaged in trade, business or practice of profession and those lawyers who, in addition to practicing their profession, receive a salary as well (meaning those with more than one source of income). This eliminates lawyers who work as employees and law firm associates and those who are members of a partnership of lawyers. This leaves us with lawyers who are in solo private practice.
The ad next mentions 840 as the total number of lawyer taxpayers registered in BIR Makati Revenue Region. Again, the footnote explains who they are: “Taxpayers registered with PSC 7411 (Legal Activities) in BIR Makati Revenue Region which covers RDOs 44 (Taguig Pateros), 47 (East Makati), 48 (West Makati), 49 (North Makati), 50 (South Makati), 51 (Pasay City), 52 (Paranaque), 53A (Las Pinas City), and 53B (Muntinlupa City).”
The explanation shows that the total is not limited to Makati lawyers but actually includes those from other cities that fall under the Makati revenue region. And yet, the ad goes on to mention that 451 is the number of Makati lawyers who filed their income tax returns in 2012. So which is it? Is the ad referring to registered lawyers under the Makati revenue region or just those lawyers registered in Makati? The ad does not make this clear.
For all we know, all Makati lawyer taxpayers actually number 451, which would bring the percentage of Makati lawyers who filed their income tax returns to 100%.
The BIR attempts its own version of the coup de grace with its comparison of the 2012 income tax due as declared by “a certain lawyer in Makati” versus the income taxes withheld by a public school teacher for the same year. The implication is quite sinister and you could probably not be faulted for concluding that the Makati lawyer cheats on his income tax return.
You could be wrong though.
The BIR is comparing apples to oranges. Note that with respect to the Makati lawyer, the ad uses “tax due” while it cites the “income tax withheld” on the part of the teacher. These are not the same. The “tax due” is the amount still to be paid by the taxpayer after taking into account his gross income and deducting the expenses he has incurred in practicing his profession and the taxes that have already been withheld from him during the year by his clients. Thus, it can happen that the Makati lawyer has a low “tax due” since the income taxes were already deducted from the payments he received. What the ad should have shown instead is the “income tax withheld” from Makati lawyer so that we can get a more accurate picture of whether Makati lawyer cheated on his income taxes.
Makati lawyer pays other taxes aside from income tax. Makati lawyer may be required to pay value-added taxes or percentage taxes, depending on the amount of gross professional fees he receives within a 12-month period.
The Tax Code entitles Makati lawyer to claim deductions from his income that are different from the deductions enjoyed by the public school teacher. Thus, Makati lawyer may, within limits, deduct expenses such as restaurant bills from meeting with clients, gas and transportation expenses, cellphone bills, office supplies, and other ordinary and necessary business expenses from his income. You can imagine that these things may add up and result in significantly reducing the amount of income tax that Makati lawyer has to pay. Unfortunately, this is a privilege that is not available to the public school teacher. Applying the deductions does not make Makati lawyer a cheat because the Tax Code allows him to do so.
So you see, while Makati lawyer may have a tax due of just P2,975, it does not necessarily mean that a) he is a cheat, and b) that amount is all he paid.
I agree that when you don’t pay your taxes, you are a burden to those who do. But it is a bigger burden to society when government—who should know better—deliberately obfuscates issues. This is a teachable moment that the BIR unfortunately squanders. The BIR is building up and exploiting the people’s fear of the taxman when the better approach is to make the tax system coherent and taxpayer-friendly.