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A question of honor: The BIR imbroglio - Leonor Magtolis Briones

THE BUSINESS OF GOVERNANCE | LEONOR MAGTOLIS BRIONES | 11/09/2009 12:16 AM

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A question of honor. One of my favorite recordings by soprano Sarah Brightman is “A Question of Honor” where she combines a pop song with a classic aria from an opera. The DVD shows her swinging high on a trapeze as she somersaults and vaults in the air to the delight of her audience even as she hits those incredibly high notes.

Part of the thrill in watching Sarah’s singing/trapeze act is the possibility that she just might fall off or her legendary voice might crack.

A government official occupying a sensitive position is similar to a trapeze artist. He has to be a performer, reach for new heights and execute dangerous stunts. If he succeeds, he gets thunderous applause. If he fails, he falls.

When Former BIR Commissioner Sixto Esquivias IV resigned last week, he stated that he resigned because he was ashamed that the agency he headed did not meet its revenue targets.

The biggest single collector of tax revenues for the government is the Bureau of Internal Revenue.

As of September 2009, BIR accounted for Ph 557.035 billion or 76.13% of the total tax revenue of the government which amounted to Ph731.570 billion. Nonetheless, BIR has already chalked up a Ph 32.9 billion shortfall relative to its revenue targets.

Media heaped praise on Esquivias for resigning and doing the honorable thing. Interestingly, it is not considered by many as a personal failure on his part.

Why did BIR fail? To be fair, failure to meet revenue targets did not start with Esquivias. The financial system has a history of shortfalls.

Obviously, the economic crisis and successive natural calamities have reduced productivity in the economy, and correspondingly tax revenue. Another reason is the series of revenue-eroding laws passed by Congress. One example is the reduction of corporate income tax from 35% to 30%. Others are tax incentives and exemptions. Still other causes are internal issues in tax policy and administration.

Of presidential advisers and agency heads. One persistent speculation in the media is that Esquivias resigned on the issue of who should supervise the operations of the Large Tax Payers Service: a presidential adviser or an “organic” BIR official? Esquivias reportedly disagrees with moves to place this unit under a presidential adviser.

The stakes involved in the issue are high. The Large Taxpayers Service (LTS) accounts for a large portion of total tax take by the BIR. Some calculate that this can go as high as 70%.to 75%. Whoever controls it has clout over the biggest tax payers of the country.

What is the Large Taxpayers Service? It was created during the administration of President Joseph Ejercito Estrada. LTS started as a Large Taxpayers Monitoring System during the tenure of Commissioner Beethoven Rualo and was hailed as a major innovation. It made sense to have a unit specializing in large taxpayers who pay billions in taxes relative to the teacher, clerk or policeman.

Eventually, Commissioner Dakila Fonacier expanded the monitoring system to a full blown Service office in the BIR. Its functions include taxpayer assistance, collection and assessment, including computerized processing of data on large taxpayers. It has no less than seven large divisions.

The LTS is considered so important to the collection efficiency of BIR that Executive Order 306 places it directly under the BIR Commissioner himself.

What is the role of Presidential Advisers? As of 2008, there were 110 high-ranking officials in the Office of the President consisting of heads of 16 heads of executive and private offices, 10 heads of staff support offices, 23 undersecretaries and assistant secretaries, 11 heads of assorted units, and hold your breath, 50 Presidential Advisers! One of these is the Presidential Adviser on Revenue Enforcement.

While a presidential adviser may or may not have cabinet rank, he is not considered on the same level as a cabinet member heading a government department or agency. Generally, advisers do not perform line or management functions. They do not directly supervise operating agencies. They don’t have huge offices. Advisers advise the president.

In public administration, lines of control and authority have to be clear and explicit, so as not to result in confusion. There has to be distinction between line (operations) functions and staff (assistance, advice). Thus bureau heads like BIR get their marching orders from their cabinet secretary. The latter gets his instructions from the chief executive. When advisers perform direct management functions, it can lead to contentious questions. What is his relationship with the Secretary of Finance who is the boss of the BIR commissioner? Whose orders will the LTS employees listen to: the BIR Commissioner, the DOF Secretary or the Presidential Adviser?

Thus, the BIR imbroglio is more than a question of personal honor. It is also a sticky public administration issue. In the meantime, the BIR shortfall is increasing rapidly.