“There is no such thing as a good tax.”
– Sir Winston Churchill, Prime Minister of the United Kingdom (1940-45; 1951-55)
It is not a secret that the main job of the Bureau of Internal Revenue (BIR), under the leadership of Commissioner Kim Henares, is to plug holes in the country’s revenue base and improve the collection of taxes without introducing new tax legislation or raising tax rates.
For 2013, the BIR has a collection target of P1.25 trillion. To reach this goal this year, the BIR is focused on widening the tax base of estate tax and those of self-employed and professionals.
To ensure maximum collection of taxes, the BIR will carry out cross-verification of data on value-added tax, withholding tax and state suppliers according to Commissioner Henares. The overall goal, she said, is for government to increase the tax effort from the current 13 percent to 16 percent by the end of President Aquino’s term in 2016.
Commissioner Henares declared that the stricter enforcement of the estate tax is a key action plan that will enable the BIR to reach this medium-term revenue goal. Henares said that the goal of the BIR is to boost estate tax collections to around P50 billion by 2016.
The average annual collection of the BIR for estate tax in the last decade is only P1 billion, which is extremely low given the increase in property values in the last decade as well. Given this background, here are 3 reasons why you should pay the correct amount of estate taxes.
First, to increase compliance, the BIR has recently required banks to submit statements of accounts of deceased individuals in the last five years. This regulation is made to determine whether banks have been conniving with the heirs of the deceased to evade payment of correct taxes.
Tax evasion is made by withdrawing the deposits in the bank accounts of the deceased without first declaring to the bank the fact of death. Hence, by requiring the submission of bank statements of the deceased, the BIR will assess the same to determine where the money went. If it was withdrawn after the death of the deceased then the bank has criminal liability.
Second, the BIR is also closely coordinating with the National Statistics Office to check the number of registered death. Records show that on the average, the number of estate tax returns filed corresponds only to less than 10 percent of the total number of deaths registered with the NSO.
This coordination makes it easy for the BIR to discover if the sale of real property has been made after the death of the decedent. Sale of properties where the seller is purportedly alive or made to appear that he/she executed the deed of sale after the fact of death is a criminal offense punishable under the tax code, and not to mention the Revised Penal Code among others.
Third, the BIR scrutinizes all the transactions that pertain to the sale or transfer of real properties and will not hesitate to assess additional taxes or file criminal charges against erring taxpayers. The computerization of the BIR and its close coordination and cooperation with various government agencies make it highly capable to sniff out dubious transactions.
Just recently the BIR reminded those who have been planning out their wealth for future distribution to their spouse or children to make sure that their heirs pay the estate tax or face tax evasion charges.
The BIR has noted that some individuals try to evade estate taxes by selling their properties to their immediate relatives. By doing this, the surviving heirs would only pay for capital gains tax of 6 percent and documentary stamp tax of 1.5%.
However, the BIR now checks whether the heirs have the financial capacity to purchase the property or asset from the decedent. Commissioner Henares said that the recipient must have the means to shell out money for the settlement of the appropriate taxes.
The pressure on the BIR to collect more and more taxes is made evident with the recent regulations being issued by the agency. They have been fine-tuning regulations and plugging all loop holes being discovered.
Therefore, the only option left for taxpayers is to pay the proper amount of taxes. As licensed RESPs we should not encourage our clients who may suggest that they prefer to pay a lesser amount of tax than what is legally due.