Mo Twister as Silka Papaya's Brand Champion

Being a tax evader is just like stealing and as far as getting away

with stuff that isn't yours, we guess Cosmetique Asia Silka Papaya

will be in perfect company with DJ Mo Twister.

Find out about the Silka Papapaya Scandal Here

The Silka Papaya Tax Evasion Scandal

In our first four articles in this series, we demonstrated glaring indications that Cosmetique Asia Silka Papaya was manipulating the figures in its Financial Statements from 2008 to 2011.

We demonstrated that its consistent 90% annual growth in Net Sales was implausible and irregular given that the average Net Sales growth of larger firms in the same business  was only between 5% to 15%.

We also demonstrated that its 75% to 80% Cost of Sales was unbelievable, after comparing it to the cost of sales of larger firms in the same business which only amounted to about 45% to 50%.

Digging deeper, our investigation into Cosmetique Asia Silka Papaya’s  tax evasion scandal we uncovered data from a reputable market research firm showing that the company’s sales were actually 35% to nearly 50% higher.

Cosmetique Asia Silka Papaya was caught lying about the Net Sales declared in its Financial Statements.

Adding it all up, according to its Financial Statements from 2007 to 2011, Cosmetique Asia Silka Papaya’s Net Sales amounted to P2,661,288,237.  But according to market research data, its actual net sales amounted to P 4,490,682,515.

Cosmetique Asia Silka Papaya under reported its real Net Sales by P1,829,394,278! Or nearly P2 Billion!

The thing is, the market research data we got from a reputable market research firm comes only from the Point-Of-Sales systems (cash register systems) of large supermarkets like Savemore, Puregold, and others.

Cosmetique Asia Silka Papaya’s actual net sales could actually be 50% higher, possibly reaching as high as P2.5 Billion to P3 billion if sales from small groceries as well as sari-sari stores were included.

In any case, based on these figures, the total estimated under payment of basic tax is around P350 Million and the total estimated potential deficiency in taxes including penalties may range from P600 Million to P700 Million.

Cosmetique Asia Silka Papaya’s total tax liabilities could reach as high as P1.5 Billion if its sales from mini-groceries and sari-sari stores were included.

One question on our minds is how could the BIR have overlooked Silka Papaya?  We thought about it and what we figured was somewhat close to something like this:

A few of them seem to hold the belief that taxpayers should just pay the right taxes and everything will just be peachy. I agree it could be argued that taxpayers are also to blame for all the graft and corruption going on in the BIR. It could be said that graft and corruption would not exist in the BIR if taxpayers just paid what is due to the government and refrained from offering bribes.

+Kim Henares +Noynoy Aquino 

A Typical Salaried Filipino Employee's Lament Over Taxes

We've often heard of the lament that in the Philippines, the rich get richer and the poor get poorer.

You'd think that the number of poor people increase because they have more children, who in turn, also become poor.

Although true in a number of cases, another fact that isn't getting as much attention is that the rich actually pay less taxes than most salaried employees. 

As a salaried employee, I earn about P50,000 a month but after income tax deduction and other mandatory deductions amounting to around P12,000, my take home pay is only P38,000 a month.  About 24 percent of my income goes to paying taxes!

Twelve thousand pesos is a lot of money to "lose" every month to taxes and every time I look at my pay slip, I can't help but get a little angry with thoughts of other ways I could have spent that money.

With that money, perhaps my husband and I could have some savings, and perhaps we could invest those savings in a small business -- earning us more money as well as create employment for our less "prosperous relatives".

But it's a useless thought, or so my husband says.  He points out, "After all, that money gets deducted from your salary even before it gets to your hands."

Even though, my husband and I are both working, we actually just barely make both ends meet and we hardly have any savings.

Most of our money goes to paying for a housing loan, our kid's education, and a car loan.  Some might think this is maluho or frivolous spending on our part -- considering the many ways that we can settle for less.  Like, for instance, what if instead of paying for a housing loan in a subdivision, we just rented an apartment somewhere in Manila?  What if instead of sending out children to what we think is the best school for them, we settled for a less costly school?  What if we commuted to work using public transportation instead of driving ourselves in a car?

Sure, we could do that, but with the way things are in Metro Manila, it seems to us we'd be trading money for safety and peace of mind just so that we could have some savings.

Having graduated college and earned masters degrees as well as climbed up the corporate ladder, my husband and I expect to afford some degree of security as well as convenience in our lives.

If only we could really count on the government to really spend our taxes the right way and deliver services at the right quality, I don't think we'd need to live in a gated subdivision (if only we could count on our police to prevent crime instead of causing it) or perhaps we could just send our kids to public school (if only it were up to world standards) or perhaps ride the bus/train to work (if only we didn't have poorly managed as well as poorly maintained roads).

On the other hand, companies like Cosmetique Asia Silka Papaya aren't taxed in the same way that salaried workers are taxed.  Companies are taxed based on their net income (which is Gross income minus expenses/losses) and Cosmetique Asia Silka Papaya, based on public records that we found, has manipulated both it's real income as well as expenses.

What Cosmetique Asia basically did was to declare a lower income instead of its real income.  It's public records state that it earned close to Php 1 Billion pesos, but according to data in a Nielsen study as well as estimations of sales from small stores it's real income could be as high as Php 2 Billion pesos.

Moreover, our investigation into Cosmetique Asia Silka Papaya indicates that it has been over reporting its Cost of Sales or expenses.  Far from the norm set by the Cost of Sales of companies with products similar to Silka Papaya, the company declared in its financial statement that its cost of sales is 75% of its Net Sales -- they want the entire country to believe that they are spending 750 million pesos a year to earn 250 million pesos!

Most other companies cost of sales is only at 50% of their Net sales!

What is even worse is that Silka Papaya further reduces their Net Income by subtracting costs for advertising and other marketing costs.

This is how, Cosmetique Asia managed to justifying payment of just P15 Million Pesos after earning about Php 2 Billion!  P15 Million pesos isn't even 10 percent!!

Gerard Depardieu, France's biggest tax evader

We personally cannot identify with the feelings of Gérard Depardieu who announced he had quit Paris for a small town 800 meters (yards) from the French border over what he suggested in so many words was excessive taxation.

In an open letter, Depardieu wrote:

I leave after paying, in 2012, 85% tax on my income. But I keep in mind that France was beautiful and I hope will remain. 

I give you my passport and Social Security, which I've never used. We no longer the same country, I'm a true European, a citizen of the world, as my father has always taught.

Depardieu bares his view on taxation:

(Original French)

Je n'ai malheureusement plus rien à faire ici, mais je continuerai à aimer les Français et ce public avec lequel j'ai partagé tant d'émotions!Je pars parce que vous considérez que le succès, la création, le talent, en fait, la différence, doivent être sanctionnés. 

(Google Translation)

I unfortunately have nothing more to do here, but I continue to love the French public and with whom I shared so many emotions! I'm leaving because you consider that success, creativity, talent...   must be punished.

French Prime Minister Jean-Marc Ayrault said Depardieu's act of leaving the country was "shabby", and suggested he was "shirking his patriotic responsibilities".

In an article on The Telegraph, Ayrault was quoted saying that those who left France were greedy.

"Those who are seeking exile abroad are not those who are scared of becoming poor," the prime minister declared after unveiling sweeping anti-poverty measures to help those hit by the economic crisis. 

These individuals are leaving "because they want to get even richer," he said. "We cannot fight poverty if those with the most, and sometimes with a lot, do not show solidarity and a bit of generosity," he added 

... ... 

Announcing plans to spend up to 2.5 billion euros by 2017 to help the poor, Mr Ayrault said that poverty affected 12.9 percent of the population in 2002 and rose to 14.1 percent in 2010.

As such, we assume that Depardieu's line of reasoning on taxation would cleave to certain well trodden lines usually quoted against taxing the rich -- a line of reasoning seemingly not borne out by empirical data.

It's axiomatic among Republicans that taxes on the rich are the single most important factor determining economic growth. If that were true, then the period from 1988 to 1990, when the top rate was just 28 percent, should have been the most prosperous in recent American history. During that time we had the lowest top rate since 1931. But although 1988 started out okay with a real GDP growth rate of 4.1 percent, it fell to 3.6 percent in 1989 and just 1.9 percent in 1990. 

Conversely, the period from 1993 to 2000, when the top rate rose from 31 percent to 39.6 percent, should have been a period of dismal growth. But in fact, that period was the most prosperous in recent American history. Real GDP growth averaged 3.9 percent per year – more than 50 percent above the average postwar growth rate. 

Then there should have been a burst of even faster growth when the top rate was reduced in the 2000s to 35 percent – a rate that is still in effect. But during that period, real GDP growth has averaged just 1.8 percent – 30 percent below the average postwar rate. 

So where is the data supporting the argument that taxes on the rich are the sine qua non of growth? I don’t see it. On the contrary, the data from the last several decades would in fact support the opposite conclusion – that higher tax rates on the wealthy stimulate growth.

Comparing Cosmetique Asia Silka Papaya's Gross Profits with Johnson and Johnson, Unilever, and Colgate Palmolive

(In the third part of this series on Cosmetique Asia Silka Papaya's Tax Evasion, we revealed how the company padded its Cost of Sales in order to shrink its Net Income and thereby evade paying the right taxes. Today, we will be showing how peculiarly tiny Cosmetique Asia Silka Papaya's Gross Profits are.  We will be comparing Cosmetique Asia Silka Papaya's Gross Profits with those of Johnson and Johnson, Unilever, and Colgate Palmolive.)

In 2011, Cosmetique Asia Silka Papaya's Cost of Sales nearly doubled from P469,298,415 in 2010 to P833,597,551! It's Net Sales was at P994,928,845 and its Gross Profit was at P161,331,294, making its Gross Profit Rate OF JUST 16%!

In year 2008, 2009, and 2010, Cosmetic Asia Silka Papaya declared gross profit rates of around 25%.

Looking at the company's figures alone, one might be fooled into thinking that nothing screwy is happening with its financial statement.

But comparing it with the Gross Profits of other companies, one will see the glaring disparity that marks Cosmetique Asia Silka Papaya's financial statement as the odd man out. -- a sure tip off that the figures are being manipulated and set arbitrarily with the objective of shrinking its taxable income.

One example is Johnson and Johnson whose Gross Income Rate was at 44% in 2009 and 50% in 2009.

Unilever's Gross Income Rate was at 55% in 2010 and 47% in 2011.

Colgate Palmolive's Gross Income Rate was at 55% in 2008, 56% in 2009, 59% in 2010, and 56% in 2011.

These companies establish somewhat of a norm which is at 40% or 50% Gross Profit, compared to Cosmetic Asia Silka Papaya which has a Gross Profit rate of 25% to 16% at its lowest.

Looking at its unusually rapid and consistent Net Sales Growth at 90 percent per year, its unusually high Cost of Sales, and its peculiarly low Gross Profits, Cosmetique Asia Silka Papaya has all the signs of doctoring its financial figures to evade taxes by fooling the BIR into thinking its income is really small.

In the next post, we will show just how Cosmetic Asia Silka Papaya ends of OWING the Bureau of Internal Revenue as much as P1.5 Billion in unpaid taxes.)

Cosmetique Asia's Silka Papaya Pads its Cost of Sales

In the first two parts of our expose on Cosmetic Asia and Silka Papaya which you'll find here and here, we revealed the company's astounding Net Sales growth.  In three years from 2009 to 2011, Cosmetic Asia and Silka Papaya Net Sales expanded by 272%, from P365,034,832 in 2008 to to P994,928,845 in 2011.

Averaging out its Net Sales over 3 years, Cosmetic Asia unbelievably posted an average of 90 percent annual increase in Net Sales.  For Tax Examiners, this alone could be a tip off that a company may have been under reporting its Net Sales to hide its real income and in the process, dodge paying the right taxes.

Of course, it could really happen that a company can experience enormous Net Sales. 

What would tend to confirm if the Net Sales growth is real and not simulated is if the source of this sales growth can be traced to the contraction of the Net Sales of similar and alternative products.  Alternatively, one could look for signs that the market has grown, such as if more people are buying whitening soaps or if the market has expanded geographically in areas where skin whitening products were not previously being sold.

However, if market data doesn't show that Cosmetique Asia Silka Papaya's Net Sales Growth isn't coming from the contraction of a competitor's market share or from market expansion, it could be a strong indication that it isn't correctly reporting its Net Sales.  To put it bluntly, it is an indication that Cosmetique Asia Silka Papaya is making up its Net Sales figures!

This is just one of several methods for evading taxes!

Another indication is its extraordinarily high Cost of Sales which is at 75% to 86% of its Net Sales!

When you talk about taxes, in essence, what is really being taxed is an individual's Net Income or the individual's income after expenses have been deducted.

In Cosmetic Asia Silka Papaya's case, apart from under stating its real net sales, it seems it is also overstating its expenses or Cost of Sales to make it appear that its Net Income is smaller than what it really is.  By padding its Cost of Sales, Cosmetique Asia decreases its Net Income making the taxable amount smaller and the resulting tax computation even smaller.

In 2008, Cosmetique Asia Silka Papaya declared its Cost of Sales at P273,335,746.  With its Net Sales at P365,034,832, its Gross Profit amounted to P91,899,086 -- a gross profit rate of 25%.

In 2009, it declared its Cost of Sales at P324,508,893 and Net Sales at P426,881,955, coming out with a Gross Profit of P102,373,062 -- a Gross Profit of just 24%.

In 2010, Cost of Sales was at 469,298,415 and Net Sales was at P628,327,383, its Gross Profit was at P159,028,768 or again, just 25%.

In 2011, Cosmetique Asia Silka Papaya's Cost of Sales nearly doubled to P833,597,551! It's Net Sales was at P994,928,845 and its Gross Profit was at P161,331,294, making its Gross Profit Rate EVEN SMALLER at 16%!

To clarify things further, Cosmetic Asia Silka Papaya is claiming to have spent over P800 Million to make a gross profit of P160 Million.  That's like spending 80 pesos just to make 15 pesos at the end of the day -- which, if you asked any businessman, is hardly worth the effort and expense.

Further illustrating how incredulous Cosmetic Asia Silka Papaya's Gross Profit is, the gross profit rates of other larger companies are at 50% -- which is most likely the norm.

(In the next post, we will compare Cosmetique Asia Silak Papaya's Gross Profits with companies like Johnson and Johnson, Unilever, and Colgate Palmolive.)

Comparing Cosmetique Asia's Silka Papaya Soap 90% Average Annual Net Sales Growth With Other Companies

In our previous post, we showed how the Net Sales of Cosmetique Asia's Silka Papaya Soap grew from P365,034,832 in 2008 to P994,928,845 in 2011 -- achieving a Net Sales Growth of 272% in a span of just 3 years!

It's incredible that Silka Papaya Soap's Net Sales grew by an average of 90 percent per year!  And as they say, if it's too good to be true, it usually is.

Of course, the owners of Cosmetique Asia can say that their Net Sales Growth was because of the superiority of their product's quality as well as their intense and immensely successful marketing campaign.

Yeah, right!

Just to give you an idea of what real Net Sales performance are like for most companies, lets compare Cosmetique Asia Silka Papaya's Net Sales Growth performance with companies like Johnson and Johnson, Unilever, and Colgate Palmolive -- all of which have products similar to Cosmetique Asia.

In 2008, Johnson and Johnson reached Net Sales of  P 2,374,479,381 and in the following year, 2009, its Net Sales contracted to P 2,032,118,636 -- a decrease of 14.4%.

In 2010, Unilever achieved net sales of  P35,735,971,982 and in 2011, its Net Sales went up to  P38,859,784,456, representing an increase of 8.74%.

Furthermore, if we want to see how Cosmetique Asia's Silka Papaya's Net Sales Performance compares with Colgate Palmolive year to year.

In the matrix above, you will note that Cosmetique Asia's Net Sales growth increased 14.4% from 2008 to 2009, 32% from 2009 to 2010, and 36% from 2010 to 2011.  Silka Papaya's Net Sales Growth which had three consecutive years of growing by leaps and bounds -- an incredible feat, indeed.

On the other hand, Colgate Palmolive's Net Sales went down 28 percent in 2009, increased by 20 percent in 2010, and decreased again by 5.2 percent in 2011.

One thing you'll notice with real net sales growth is that fluctuates, increasing one year and decreasing one year.

Cosmetic Asia's Silka Papaya Net Sales growth is improbable and a sure tip-off that something screwy is happening with its books.

Either it really is experiencing a consistent Net Sales surge because of successful marketing and advertising (something that can be correlated to marketing and advertising spending), or it has been under reporting its real sales figures for years but is now just gradually adjusting it to reflect more accurate figures.

A research paper by Rosario Maranasan on Tax Evasion in the Philippines, a fellow at the Philippine Institute of Development Studies, describes the various ways companies and individuals cheat on their taxes:

Common practices of tax evasion include: under reporting of income, overstatement of expenses, use of fictitious receipts, the keeping of double sets of books, false or fictitious entries in books, fictitious transactions in the name of dummies, non-recording of sales, and others.

What Cosmetique Asia Silka Papaya is probably doing is under reporting its real Net Sales and by doing so, is reducing its gross income -- which is part of the basis for determining what it really owes in taxes.

Up Next: Cosmetique Asia Silka Papaya's Extraordinarily High Expenses Covers Up Its Real Income

Silka Papaya's Net Sales Reach Nearly One Billion Pesos

Go to any grocery and sari-sari store anywhere in the country, chances are that you will find Silka Papaya - a brand of skin whitening soap manufactured by Cosmetique Asia Corporation.

It is one of the most popular skin whitening soaps in the market today.

And its Net Sales Growth is nothing short of astounding!

According to its own Financial Statement, Cosmetique Asia Silka Papaya achieved Net Sales of P994,928,845.17 in 2011! Close to a BILLION PESOS in sales!!

If that weren't amazing enough, looking at the annual growth of its Net Sales from 2008 to 2011, Cosmetic Asia's seems to be expanding at a blistering rate.

In 2008, Silka Papaya achieved Net Sales of P365,034,832.  

In 2009, its Net Sales jumped by 14.4% to P426,881,955.  

In 2010, Silka's Net Sales increased to P628,327,183, jumping by 32%.  

In 2011, Silka managed to surpass its Net Sales again, reaching a 36.8% increase with its Net Sales at P994,928,845.

To most people, this huge growth in Net Sales would only appear that the company is experiencing great success.

But to tax examiners, it could be a tip off that something funny is happening and IT IS.

(Our Next Post: Comparing Cosmetique Asia's Silka Papaya Soap's Net Sales Growth With Other Companies)

Effectivity of BIR issuances

Effectivity of BIR issuances
by: Rachelle Ann C. Baod

TAXPAYERS and practitioners alike were recently bombarded by numerous and controversial rules and regulations from the Bureau of Internal Revenue (BIR). These issuances cover a wide variety of subjects and affect various types of taxpayers.

Most of these issuances did not even go through public hearing. It is more often the rule, not the exception, that taxpayers are caught unaware of the new requirements imposed upon them.

Not surprisingly, most taxpayers are now confused or ambivalent about how to implement the changes brought about by the new issuances.

On top of implementation and operational issues, taxpayers are also not clear as to when the issuances take effect and the periods covered by the issuances.

For instance, Revenue Regulations No. (RR) 14-2012 provided that the regulations shall take effect 15 days following complete publication in a newspaper of general circulation in the Philippines.

The effectivity clause, however, of RR No. 12-2012, Revenue Memorandum Circular (RMC) Nos. 77-2012, 75-2012, 73-2012 and 65-2012 provided that the same shall take effect immediately.

(Read Full Story Here)

Kim Henares, Tax Sheriff

Written By: Karen Lema, Reuters
Originally Posted in Interaksyon

The Philippines' chief tax collector is constantly thinking about targets. Sometimes she picks up an assault rifle and hits them.

In July 2010, newly-elected President Benigno Aquino III made Kim Henares commissioner of the Bureau of Internal Revenue (BIR) because he wanted a tough tax sheriff - and he got one who's taking aim at the country's legion of tax cheats.

Aquino gave Henares presidential guards, but the tax lawyer and accountant said "I should know how to shoot their guns, just in case".

The president, a gun enthusiast, gave her lessons at shooting ranges. The 52-year-old Henares, who packs a pistol, now can wield an M-16 and SG552 Commando.

Her no-nonsense approach appears to be helping pull in more tax, which is pivotal to meeting a government goal - getting rating agencies to award the Philippines investment-grade status.

Historically, tax collection has sometimes been a "let's make a deal" game between taxpayers and bribable officials.

Henares, BIR's deputy commissioner from 2003 to 2005, has been chasing evaders and crooked bureaucrats to clean up collection and the image of the bureau, perceived to be one of the country's most corrupt institutions.

BIR files tax evasion raps vs gold trader

by Ina Reformina, ABS-CBN News

Posted at 11/29/2012 2:06 PM | Updated as of 11/29/2012 2:06 PM

Originally Posted Here

MANILA, Philippines -  A gold trader was charged with tax evasion before the Department of Justice (DOJ) for underdeclaring his income from 2006 to 2009 and failure to pay the appropriate income taxes.

Charged by the Bureau of Internal Revenue (BIR) was Francois Joseph Xavier Rast, proprietor of Rast Metalor Phils., with business address at VFP Bldg. II, Veterans Center, Taguig, for a total tax deficiency of P558.03 million.

BIR Commissioner Kim Henares said Rast sold to the Bangko Sentral refined gold and silver amounting to P118.15 million in 2006, P209.54 million in 2007, P306.93 million in 2008, and P238.06 million in 2009, or a total amount of P872.68 million, but failed to declare his income. 

"A comparison of the gross income he declared in his tax returns with the net payment he received from BSP in the years in question revealed that he grossly underdeclared his income by more than 30%," the BIR said, in a statement. 

The case against Rast is the 137th filed by the BIR under the Run After Tax Evaders (RATE) program under the Aquino administration.

BIR still going after Pacquiao

Philippine Daily Inquirer

1:38 am | Monday, November 26th, 2012

Originally Posted Here

GENERAL SANTOS CITY—The Bureau of Internal Revenue (BIR) in Central Mindanao says it is not giving up on its case against world boxing champion and Sarangani Rep. Manny Pacquiao for his failure to answer the agency’s summonses and submit his 2010 tax documents.

Although the city prosecutor dismissed the case against Pacquiao on Oct. 12 citing the BIR’s failure to personally serve its summonses, the tax agency has filed an appeal.

Regional Director Rozil Lozares said the agency would “exhaust all legal remedies available just to overturn the decision of the City Prosecutor’s Office in Koronadal City.”

In his motion for reconsideration, Eric Diesto, chief of the legal division of BIR Region XII, assailed the prosecutor’s resolution, saying BIR representatives failed to personally serve the subpoena on Pacquiao because access to him was very limited. All matters regarding BIR transactions were being handled by the boxer’s accountants.

The subpoena was served twice but Pacquiao was not around, Diesto said.

Diesto admitted that in February, Pacquiao sent two lawyers and two accountants to clear up his problem with the BIR.

The BIR said the case it filed in March was not a tax evasion case but simply one of a “failure to obey summonses.”

But Arnold D. Cruz, officer in charge of the Prosecutor’s Office in Koronadal City, threw out the BIR’s case, saying it was “absurd to hold the respondent liable for neglecting to obey a subpoena which he did not receive at all in the first place.” Aquiles Z. Zonio, Inquirer Mindanao

Originally posted: 8:42 pm | Sunday, November 25th, 2012

Corona files counter-affidavit in response to tax evasion case

By Tetch Torres

INQUIRER.net

2:03 pm | Thursday, October 25th, 2012

Originally Posted Here.

MANILA, Philippines – Chief Justice Renato Corona filed his counter-affidavit before the Department of Justice Thursday in response to the tax evasion case filed against him by the Bureau of Internal Revenue.

Corona, accompanied by his wife Cristina, said the cases levelled against him were sending a message to the judiciary that if they would go against Malacanang, they would suffer the same fate.

“This is just a continuation of the impeachment trial months ago in which you already know what the decision was over a very political process,” Corona told reporters in Filipino.

“This case that they are filing against me has only one message – a message to members of the judiciary that they should follow Malacañang if they do not want what happened to the Chief Justice happen to them,” he said.

The Senate impeachment court found Corona guilty of betrayal of public trust after he admitted not indicating in his Statement of Assets, Liabilities and Networth (SALN) his dollar deposits, citing the confidentiality clause under the Foreign Currency Deposit Act.

On August 30, the BIR filed a tax evasion case at the DOJ against Corona after he failed to declare P150.68 million in his Statement of Assets and Liabilities and Networth (SALN).

Aside from the bank deposits, he also did not declare two real properties he acquired during his stint in government: a condominium unit at the Columns, along Ayala Avenue that he bought for P3.6 million in 2004 and a property in Fort Bonifacio that he bought for P9.16 million in 2005.

After examining Corona’s bank records and comparing it with his networth, Henares said they discovered a substantial disparity between the acquisition cost of the properties declared in his SALNs and the cost declared in the certificates authorizing registrations.

Using the “expenditure method,” the BIR found that Corona’s deficiency income tax liability amounted to P120.5 million for the nine-year period.

Philippines Needs to Boost Sin Tax to Win Ratings Upgrade

By Cecilia Yap & Clarissa Batino - Oct 25, 2012 7:40 PM GMT+0800

Originally Posted Here

The Philippines must pass a law increasing the excise levy on liquor and tobacco, or sin tax, to meet its goal of winning an investment-grade rating in four years, Tax Commissioner Kim Henares said.

“This is one of two measures that the three major rating agencies have identified as important,” Henares said in an interview in Bloomberg’s Manila office yesterday. “We want to correct a defective system that will increase our revenue and use the funds for health care. Once passed, we think the measure will trigger rating upgrades and positive outlook.”

Kim Henares, Philippines tax comissioner. Photographer: Dennis M. Sabangan/AFP/Getty Images Standard & Poor’s raised the nation’s credit rating twice in the past two years, bringing it to one level below investment grade in July, citing a reduced debt burden and improved public finances. The bill that seeks to boost annual collections by at least 60.6 billion pesos ($1.46 billion) and introduce an inflation-adjustment mechanism will test the resolve of President Benigno Aquino, a smoker himself, to battle some of the country’s biggest companies.

“One of the key ratings constraints of the Philippines is the low revenue mobilization relative to peers,” Christian de Guzman, a Singapore-based assistant vice president at Moody’s Investors Service, said by e-mail. “It would be an indication that the Aquino administration can leverage its high approval ratings and political capital into meaningful progress on legislative reforms.”

100 tax evasion cases

by: Olivier D. Aznar

Originally Posted Here

You may have read in news reports that as of June 2012, since the start of the Aquino administration, the Bureau of Internal Revenue (BIR) has filed with the Department of Justice (DoJ) a total of more than 100 tax evasion cases worth almost P40 billion. A number of these cases have already been prosecuted by the DoJ at the Court of Tax Appeals (CTA) and some have already been decided.

It appears that the BIR is trying to send a strong message to the public: that the government will consider all available courses of action to take what it believes has been unlawfully withheld from it by taxpayers. Indeed, the filing of more than 100 tax evasion cases with the Justice Department is not trivial.

A tax evasion case is not a plain tax collection suit against the taxpayers. It is a case, criminal in nature, against a taxpayer who pays a reduced amount of tax or no tax at all through fraudulent means. In a tax evasion case, the state of mind of the taxpayer is being tagged by the BIR as "evil", or in "bad faith", or "willful".

Thus, once the case is prosecuted at the CTA, it requires proof beyond reasonable doubt before the CTA convicts the taxpayer to pay a fine and to serve jail time.

So, who goes to jail?

In the case of issues on individual tax returns, the individual himself will be locked up once found guilty.

In one CTA case in 2011, a doctor was found to be at fault beyond reasonable doubt for substantially under-declaring his income, and was sentenced to one year to two years of imprisonment plus fine.

In another CTA case, a business agent was sentenced to jail due to what the CTA termed as "willful blindness" on obligation to file income tax returns.

On the other hand, for corporate tax returns, the BIR targets the authorized officers of the corporation for incarceration.

Just recently, the BIR filed a criminal complaint with the Justice Department against the president and treasurer of a corporation-supermarket for willful attempt to evade or defeat tax, willful failure to file income tax return and to pay tax thereon, and deliberate failure to supply correct and accurate information in its value-added tax return, in violation of Sections 254 and 255 of the 1997 Tax Code, as amended.

In another case, the BIR is pursuing criminal charges against the president and treasurer of a corporation engaged in the business of emission testing for the alleged substantial under declaration of sales of their corporation. Thus, in these examples, the president and treasurer of the corporation, once convicted, would be confined in jail.

Hence, in a tax evasion case, the probability of jail time cannot be disregarded.

The predicament on the part of the taxpayers, however, is on how the BIR determines whether there is indeed a case for tax evasion. Remember that in a tax evasion case, the mind of the taxpayer must be evil or fraudulent.

If there is an error but there is no intention to defraud the government, then there should be no tax evasion case.

The problem is that the BIR obviously cannot read the minds of the taxpayers, and thus, the tax case just depends on the circumstances that are visible to the eyes of the BIR examiners, which could be affected by the magnitude of the alleged tax deficiency or inputs from third party information.

Then, what should a taxpayer do?

First, acquire sufficient tax knowledge. Remember that in the Philippines, we have the general rule that "ignorance of the law excuses no one". So, try to read the relevant provisions of the Tax Code, be aware of the specific tax rules and regulations, attend tax seminars, and regularly coordinate with tax consultants.

Then, apply the tax knowledge to actual practice. For individuals, be sure to thoroughly review the tax returns before filing. For corporations, hire competent tax personnel, have a regular tax compliance review on corporate tax practices -- on its own or through a tax adviser, and have an effective review process before tax returns are filed with the BIR. The above actions are just the basic ones that taxpayers may consider. These are preventive measures to avoid possible disputes with the BIR. Note that the BIR’s sources of information are too wide to prosecute and to convict a taxpayer; but there is nothing to be anxious about if the taxpayer knows that he/it is in fact compliant with the tax rules. The number of tax evasion cases is rapidly increasing. Definitely, taxpayers are hoping that these are not being pursued by the BIR as a means to harass them, and that these are the result of an intelligent, thorough, and valid tax assessment.

More than 100 tax evasion cases have been filed with the DoJ since the start of the Aquino administration; and certainly, no taxpayer would want to add to that count.

(For more information on Philippine Taxes and Tax Evasion, click here.)