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Its Evolution and Direction

By: Estelita C. Aguirre
Deputy Commissioner
The Supreme Court of the Philippines has stated that it is axiomatic in the law of taxation that
taxes are the lifeblood of the nation. Through the centuries, since the dawn of civilization and
the birth of taxation, the veracity, and significance, of this declaration remains unchallenged,
and is in truth upheld time and again through war and peace, prosperity and recession. For this
reason, the mission statements of virtually all tax authorities are crafted to highlight the
mandate of collecting taxes for and at the least cost to government.
An overview of the mission statements that guide the tax authorities of the Asia-Pacifics
developing economies, such as Singapore, Thailand, Indonesia, Japan, Malaysia, Korea, and the
Philippines, bears out this observation. Malaysias Inland Revenue Board, for instance, has
declared their mission to be: "To collect taxes for the nation at minimum cost, to improve
compliance and to institute effective enforcement through prevailing legal procedures." The
Philippines Bureau of Internal Revenue, on the other hand, aptly states: "Our mission is to
collect taxes efficiently and effectively, for and at the least cost to government, through
impartial and consistent enforcement of internal revenue laws, and convenient and honest
service to taxpayers."
Indeed, the collection of taxes remains one of the primary undertakings of any government, in
order to provide sufficient funds with which a nations economy may be sustained and
developed. In this light, it has become the enduring goal of every tax authority, be it one that
serves a developed or a developing nation, to seek and implement strategies and technologies
that shall support the continuing improvement of their collection systems.
This paper shall explore the evolution of the Philippines tax collection systems, spanning a
period of more than nine decades, from the establishment of the Bureau of Internal Revenue in
1904, to the present-day collection system being implemented by the countrys premier tax
agency. The development of the various collection systems employed through the years shall
be traced, to gain insights into the mechanics and policies behind each system, and how
significantly each, in its turn, has contributed to the achievement of the countrys everincreasing revenue goals.
Through the years, tax authorities have explored various approaches to continually enhance
the effectiveness of their collection systems. Nowhere is this more evident than in developing
countries, where the advent of information technology and electronic communication has
helped to bring tax administration out of a pen-and-paper cosmos into the world of fiber-optic
technology, Internet access, and electronic fund transfers.
It was the consensus of the delegates of the tax administrations from the Asia-Pacific Region to
the 13th Meeting of the Study Group on Asian Tax Administration and Research (SGATAR) held
way back in 1983 in Bangkok, that an efficient collection machinery is vital for successful tax
administration, inasmuch as the ultimate goal is to collect taxes due at the least cost. As
gleaned from the SGATAR reports and discussions, some of the methods of collecting taxes
which have been adopted by the member-countries are:
a. Self-Assessment System (Pay-As-You-File);
b. Withholding Tax System (Pay-As-You-Earn);

c. Direct Assessment and Payment System;

d. Annual Assessment and Installment Plan for Employers;
e. Annual Assessment for Self-Employed Persons; and
f. Provisional Assessment and Programs.
This paper shall focus on the first two (2) systems, the Self-Assessment and the Withholding
Tax Systems, considering that they have long since earned universal acceptance by tax
authorities around the world, and in so doing, have become the foundation of most of the
worlds tax systems.

1. The Self-Assessment System (PAY-AS-YOU-FILE)

A survey of the collection methods used by fifteen (15) tax authorities disclosed that with the
exception of Vietnam, which has a tax assessment system for wage earners and uses the selfassessment system for businesses, all countries have adopted the self-assessment system of
taxation. The Philippines, Japan, Malaysia, Thailand, South Korea, Indonesia, Australia, New
Zealand and Singapore are all using the self-assessment system, as does the United States,
long referred to as the worlds only remaining superpower, and the United Kingdom, arguably
Europes most influential economy. Similarly, the Self-Assessment System is also being used by
the tax administrations of Italy and the Netherlands, as well as by Argentina, one of South
Americas more prosperous economies.
It is evident, therefore, that this particular tax system has truly become the choice of a greater
proportion of the worlds developed and developing nations.

Under the self-assessment system, the taxpayer calculates the tax by himself, (or through an
accountant) fills up his tax return, files it with the proper tax office, and pays the tax due
thereon, upon filing.
The process by which the tax is computed and determined is what we call the "selfassessment" method, and the resulting tax a "self-assessed" tax. The act of tendering the
payment of this self-assessed tax, on the other hand, is referred to as "voluntary payment" or
"voluntary compliance."
The tax returns having been filed, it is processed and subjected to the necessary desk audit or
field audit, if warranted, of the taxpayers books of accounts and other records. Such audits,
sometimes result to additional taxes payable, referred to as "deficiency taxes". This process
may thus be referred to as "assessment through enforcement", in contrast to "selfassessment".
The distinction between a self-assessed tax and a tax assessed through audit or enforcement,
is that the former, which is payable on the due date, becomes a "delinquency" if not paid, and
can be collected immediately by means of administrative summary remedies.
On the other hand, a "deficiency" tax resulting from an audit is effected through the issuance
of an assessment notice payable within a certain period of time, which becomes a
"delinquency" upon the taxpayers failure to pay within the due date stated in the demand


The Withholding Tax System (PAY-AS-YOU-EARN)

Considered extensions of the principle of self-assessment are the withholding of taxes on

compensation and the so-called withholding of taxes at source. In the first case, the employer
(or the payor), by operation of law, becomes a withholding tax agent. Each time an employee
receives his wages or salaries, part of it is withheld by the employer-withholding agent as a
partial advance income tax payment of the employee. When an employee files his income tax
at the end of the year, all of the creditable taxes withheld shall be deducted from his income
tax due per return. If the tax withheld is equal to the tax due, the return is considered a "breakeven" return; if the tax withheld exceeds the tax due, the return becomes a refundable return,
with the excess returned to the employee; and if the tax withheld is less than the tax due, the
employee-taxpayer shall pay the difference upon filing of the return.
In the withholding of taxes at source, any individual engaged in business and any juridical
person, by operation of law, becomes a withholding tax agent of the government if he/she has
business dealings with any person, natural or juridical, who is subject to income tax. Income
payments made to taxable persons for certain kinds of services rendered and/or for the use of
their properties as defined by revenue regulations, are subject to withholding tax at source.
The amount withheld is referred to as "creditable withholding tax at source", and is allowed as
a tax credit against the income tax liability of the payee in the taxable year or quarter in which
the income was earned or received.
The Philippines, and other countries such as Italy, the USA, and Thailand, by provision of their
internal revenue laws, subjects certain income payments such as interests on bank deposits
and royalties to final taxes. The withholding of this tax is referred to as "withholding of final
tax at source". The taxpayer-payee is not required to declare and submit a tax return on such
income that is subjected to final withholding tax.
Withholding at source has been an important step taken by tax agencies to privatize, by
making agents in the private sector responsible for withholding taxes and turning them over to
the government. It is an effective means of capturing taxpayers receiving income payments
from legitimate taxpayer income-payors.

3. Collection By Enforcement
Collection by enforcement is actually a fight or campaign against non-compliance. This
"campaign" is generally conducted through the identification of the sectors of business or
industries, and/or segments of economic activities where the degree of compliance is low, and
the subsequent audit or investigation of enterprises and companies who are part of these
selected industries.
Countries adopting the self-assessment system have the tendency to focus on developing and
improving their audit programs. Indonesia adopted a more exhaustive auditing system through
periodic visits to taxpayers. In Korea, the field audit was extensively used to detect possible
leakages in the tax system. With increasingly complex and diversified business activities,
particularly those that have expanded internationally, sophisticated techniques in tax audit
have been put in place. Computer technology has largely helped in tax audit and investigation.
Taxpayer profits, income matching and industry standard ratios are made and applied more
easily through the use of computers. For some developing countries like the Philippines,
however, the extensive use of electronic data processing systems for detecting noncompliance is still wanting.

Audits and investigations give rise to deficiency assessments, which normally result to disputes
between taxpayers and tax officers over the assessed liabilities. The usual procedure for
disputed assessments is to settle them first at the tax office before resorting to tax courts.
Countries have adopted administrative and judicial procedures in dealing with tax deficiencies
and delinquent accounts. The means of recovery by way of civil penalties are: the issuance of
warrants of distraint and levy on a taxpayers assets, followed by their seizure and sale to
satisfy the amount of delinquent taxes; the institution of civil or criminal action in court; and
the issuance of a garnishment order to secure any monies held by a third party on behalf of
the taxpayer.
On recovery techniques for tax arrears, most countries start recovery proceedings with the
service of notices of demand. All countries have established legal provisions to counter the
failure to pay taxes, but some tax authorities elevate criminal actions to the courts.


Voluntary compliance vs. Collection Enforcement

James B. Hom, Executive Director of the Institute for Tax Administration (California, USA), in his
lecture delivered at the JICA / NTA General Taxation Seminar in Japan from September 29 to 30,
1993, holds that while the goal of modern tax administrations is to foster voluntary
compliance, taxpayers will comply more readily with tax laws if they believe that their failure
to do so will mean assuming a substantial risk of being penalized in a relatively severe fashion.
On the other hand, tax evasion models developed by economists Allingham and Sandmo in
1972, and by Srinivasan in 1973, hold that the rate at which taxpayers resort to tax evasion is
dependent not only on the penalties involved, but also on the probability of detection by the
tax authority, and on tax rates themselves.
By and large, research findings on tax non-compliance point to the conclusion that there is no
single or easy solution to the problem of non-compliance. A balance of efforts focusing both on
improved enforcement effectiveness and on increased co-operation and persuasion is needed.
To improve enforcement effectiveness, further efforts should be made: (1) to decrease
opportunities for non-compliance, (2) to improve effectiveness of examination and collection
procedures, and (3) to communicate deterrence messages to taxpayers more effectively. To
improve taxpayers cooperation with the tax administration and increase their willingness to
comply, tax administration must take a more active role in educating taxpayers and providing
assistance to those who need it. Finally, the tax administration alone cannot change the
citizens feelings about tax compliance. Non-compliance of erring taxpayers should be a
concern of all government officials and of honest and compliant taxpayers.
At present, the US tax administration is still strongly tilted toward punishment. This tilt is
reflected in the resource allocations, in public images of the tax administration, and in
willingness of taxpayers to overpay or to be reluctant to take legitimate deductions in order to
avoid audits. Audits are time-consuming and stressful affairs, and it appears that the prospect
of an audit serves to inhibit tax cheating.
The foregoing conclusion of Mr. Hom may be true in the US and other developed countries, but
not in developing nations. The impact of audit and investigation on efforts to raise levels of
voluntary compliance is still an open issue in most developing countries.


Forty years ago, with a growing taxpayer population and limited resources, the Philippines
Bureau of Internal Revenue (Bureau), adopted the self-assessment system when Republic Act

No. 2343 was enacted in 1959. The Act provides that the " tax imposed by this Title shall be
paid at the time the return is filed. Such tax shall be paid by the person subject thereto."
The substance of Section 56 (A) (1) of Republic Act 8424 (otherwise known as, the Tax Reform
Act of 1997) has retained this principle, as it states: "The total amount of tax imposed by this
Title shall be paid by the person subject thereto at the time the return is filed. x x x"
Prior to the adoption of the self-assessment system in 1959, there were relatively few income
taxpayers, hence the Bureau, despite its meager resources, could effectively service a rather
small taxpayer base. For instance, records show that in 1947, 117,883 taxpayers filed income
tax returns. By 1959, however, following several relatively prosperous years after World War II,
this number increased to 351,329, or a growth rate of 198%. While the non-self-assessment
system offers a certain convenience to the taxpayer because the burden of computation is
assumed by the Bureau, due to limited resources, it became hard-pressed to cope with the
growing number of taxpayers. Accordingly, the self-assessment approach was adopted as a
means of meeting the administrative requirements of an increasing taxpayer population, as
well as to place additional responsibility on taxpayers to comply with tax laws.
Current taxpayer statistics have disclosed that the 117,883 returns filed by taxpayers in 1947
has since risen to 7,555,966 returns of various kinds filed in 1998 by various types of
taxpayers, or an approximate growth rate of 6,309% over a span of five decades. This
monumental increase in the taxpayer population, and the dynamic growth of information
technology and electronic communication, have thus served to give even greater emphasis to
the urgent need for more efficient and effective collection systems in an increasingly
computerized environment.
Over the years, the Bureau has employed various collection methods, amending processes or
introducing innovations as the need arises. On the whole, however, the methods of collection
utilized by the Bureau may be classified into two (2) major categories: collection through
voluntary compliance, and collection by enforcement.

1. Voluntary Compliance
As a continuing effort to constantly increase the volume of revenue collections generated
under the self-assessment system, the Bureau has, over the years, effected diverse changes in
its collection system. More than nine decades of innovation and restructuring are reflected in
the history of the Philippine tax collection system.
At present, the methods of collecting taxes in Philippines, as in any country that adopts the
self-assessment system, are: (1) Tellering; and (2) Collection Enforcement. Tellering refers to
the acceptance of over-the-counter tax payments by Authorized Agent Banks (AABs) or by
Revenue Collection Agents (in areas where there are no AAB branches) from taxpayers, in
accordance with established rules and regulations. Collection Enforcement, on the other hand,
refers to the collection of delinquency and deficiency taxes assessed through audit or
A.1. The Revenue Official Receipt (ROR) System. The history of the Tellering system has its
origins in the establishment of the Bureau in 1904. Bureau personnel at that time, however,
did not have a direct involvement in the actual collection of taxes, since taxpayers were then
required to file and pay their taxes to their City or Municipal Treasurers, who issued the
corresponding Revenue Official Receipts for such payments.
The ROR System, however, precluded the direct supervision of the Bureau over the City and
Municipal Treasurers, considering that they were not under the employ of the Bureau, and were
thus beyond the Bureaus administrative control and jurisdiction. As such, the practice of
enlisting the assistance of City and Municipal Treasurers which was observed for fifty-six years,

was dispensed with when the Bureau fielded its first Revenue Collection Agents in 1960.
Posted at the various City and Municipal Halls throughout the country, the Collection Agents
took over the task of receiving tax payments and issuing Official Receipts (RORs), from the City
and Municipal Treasurers.
A.2. The Revenue Tax Receipt/Confirmation Receipt (RTR/CR) System. The dramatic increase in
the taxpaying population in the last quarter of the twentieth century, however, brought to the
fore the need of the Bureau to further enhance the collection system. To cope with the demand
for service and convenience of taxpayers, and to establish a more effective system of
collecting taxes, and on the supposition that the use of the banking system as a more reliable
"collection agent" shall minimize the incidence of defalcation of tax collections, then President
Ferdinand Marcos enacted Executive Order No. 206 on January 9, 1970, whereby the Central
Bank was directed to receive tax payments through duly accredited Agent Banks.
In 1971, the Bureau inaugurated the payment through banks option with the RTR/CR System.
Under the RTR/CR System, a taxpayer files his return with the appropriate Bureau office, where
he is issued a Revenue Tax Receipt (RTR) stating the amount of tax he must pay. The taxpayer
then presents this RTR, and pays the corresponding amount of tax, to an Authorized Agent
Bank, which in turn issues the taxpayer a Confirmation Receipt (CR), to acknowledge such
payment. The taxpayer then returns to the Revenue District Office of the Bureau, to have his
payment posted.
Through the years, various statutes have amended the procedures and guidelines governing
the receipt of tax payments by Agent Banks. These are:
1. Central Bank (CB) Circular No. 296, dated March 18, 1970, on the
implementation of EO 206;
2. CB Circular No. 314, dated January 1, 1971, also on the
implementation of EO 206;
3. EO 339, dated September 9, 1971, which amended EO 206;
4. CB Circular Nos. 335 and 336, Series of 1971, on the implementation
of EO 339;
5. EO 937, dated March 1, 1984, which established the criteria for the
accreditation of Agent Banks, and provided for the adoption of terms
and conditions under which an Agent Bank shall undertake collection of
6. Section 12 (c) of the National Internal Revenue Code, as amended,
which provides that banks duly accredited by the Commissioner with
respect to receipt of payments of internal revenue taxes authorized to
be made thru banks, are constituted agents of the Commissioner.
A.3. The Payment Order/Confirmation Receipt (PO/CR) System. In 1982, the Revenue Tax
Receipt (RTR), was replaced by the Payment Order (PO), to avoid confusion. The term "Revenue
Tax Receipt" was actually a misnomer, the RTR being a mere payment order, and not a tax
receipt. The PO/CR System is an enhanced version of the RTR/CR System, with better
monitoring and control features.
A.4. The New Payment Control System (NPCS). Less than two decades after the
implementation of the RTR/CR System, however, the need to further increase the efficiency,
and expediency, of its collection system prompted the Bureau to introduce the New Payment
Control System (NPCS). The NPCS, which was first implemented in 1991, streamlined collection
procedures and dispensed with the issuance of Payment Orders and Confirmation Receipts.
Taxpayers were thus allowed to file their tax returns, and pay the corresponding taxes, directly

to the Accredited Agent Banks. The Banks would then validate the taxpayers copy of the
return, remit their collections to the Bureau of Treasury through the Central Bank, and transmit
to the Bureau copies of all tax returns filed at their Bank branches. The validated return then
serves as the evidence of payment by the taxpayer. The NPCS also marked the first time the
Bureau made use of the bank debit system as a means by which a taxpayer could pay his
The ROR System, however, is still in operation in those areas where there are no Authorized
Agent Banks. Upon receipt of tax payments, the Revenue Collection Agents are required to
issue Revenue Official Receipts (RORs) to the paying taxpayers.
A major change to the accepted modes of tax payment was instituted in 1997, when the
Bureau discontinued the payment of taxes through checks. This move, although initially
unpopular with the taxpaying public, was done to forestall the leakage of tax payments. In
1996, the Bureau uncovered the existence of a syndicate that was siphoning tax payments
made in the form of checks. The syndicate, prior to its discovery, was able to "divert" such
check payments with the help of revenue personnel (who are actually members of the
syndicate) who, although unauthorized to receive such check payments, encouraged
unsuspecting taxpayers to entrust to them their tax payments. These payments were then
deposited in bank accounts maintained by members of the syndicate under fictitious names, in
collusion with bank employees. Fake machine validations were printed on the returns, which
were then given to the unsuspecting taxpayer. As such, tax payments did not enter the
collection system, and therefore, no payments were posted in the taxpayers ledger. This
practice was uncovered through the Stop-Filer/Non-Filer Program of the Bureau, an undertaking
that follow-up taxpayers without recorded tax payments.
As a solution to the problem, and to encourage the use of the bank debit system as a more
efficient means of paying taxes, the Bureau opted to stop the use of checks. Taxes, then, could
only be paid with cash or through debit advices directly to AABs where taxpayer maintain
savings or current accounts.
The year 1998, however, saw the repeal of the ban on checks as tax payments, when the
Bureau promulgated Revenue Regulations No. 6-98, which provided for the acceptability of
checks as tax payments (effective July 20, 1998) once again, due to the inconvenience
experienced by a taxpayer who does not maintain an account with any AAB within the
jurisdiction of the Revenue District Office where the taxpayer is registered.
A.5. The Collection and Banks Reconciliation (CBR) System. The most recent innovation of the
Bureau in the area of collection remittance and monitoring through the banking system is the
Collection and Banks Reconciliation System (CBR), which is one of the major delivery systems
of the Bureaus computerized Integrated Tax System (ITS), and is actually a computerized and
enhanced version of the NPCS.
Developed by Andersen Consulting for the Bureau, and piloted in six (6) Revenue District
Offices, the CBR has since been rolled-out in eighty-eight (88) other Revenue District Offices.
By the end of the first semester of 1999, it is expected that the computerized CBR System will
cover all Revenue District Offices nationwide.
The CBR basically provides for the capture, validation and processing of tax payment data. It
supports the Bureau in monitoring the performance of its AABs and Revenue Collection Agents,
and reconciles collections based on a taxpayers returns and reports from the various
Collection Agents. Briefly stated, its main objectives are:
1. To capture all data on tax payments made through the AABs,
Revenue Collection Officers (RCOs), and deputized Municipal

2. To ensure that all payments made at the various collection agencies

are reflected in the correct taxpayer account ledger;
3. To ascertain that all payments collected have been accurately
remitted by the collection agencies, within the deadlines provided by
4. To monitor and control the accountabilities and performance of the
AABs, RCOs and deputized Municipal Treasurers involved in the
Bureaus collection process.
Presently, some AABs are electronically linked to the Bureaus Revenue Data Centers. This has
enabled them to transmit collection data within twenty-four (24) hours through the Electronic
Data Transfer (EDT) System and the Limited Bank Data Entry (LBDE) System. In the recently
issued Revenue Memorandum Order No. 4-99 (dated October 27, 1998), AABs were directed by
the Bureau to pay all types of taxes due from banks, except for capital gains and documentary
stamps taxes, through the Electronic Data Fund Transfer Instruction System (EFTIS). Full
implementation of the EDT System nationwide is a dream of the Bureau that may be fulfilled in
the near future.
A.6 Enhanced CBR System for the Large Taxpayers Division. With the implementation of
Revenue Regulations (RR) No. 1-98 (effective September 1, 1989), filing and payment
procedures were modified for the top one thousand five hundred (1,500) taxpayers; the first
two hundred (200) taxpayers were identified and notified in accordance with said Regulations,
and the modified procedures were pilot-tested. Under these modified procedures, Large
Taxpayers first submit their returns/payment forms to assigned personnel of the Large
Taxpayers Division, for verification of the completeness of the returns/payment forms, prior to
presenting them to the Bureaus authorized Agent Banks for Large Taxpayers. Upon receipt by
the Bank of a tax payment, the taxpayers return/payment form is validated and the
corresponding amount is automatically credited to the savings account of the Bureau of
Treasury (BTR), which the BTR maintains in the branches of all AABs authorized to receive tax
payments from Large Taxpayers. All such payment data are then transmitted electronically to
the BTR. To ensure that the Banks accurately report their collections, the BTR in turn furnishes
the BIRs Revenue Accounting Division and the Large Taxpayers Division with daily reports on
the remittances of the Large Taxpayers AABs.
The present system at the Large Taxpayers Division offers advantages to the taxpayers, and to
the Government. On the part of the taxpayers, the prompt remittance of tax payments to the
Government coffers is assured. Diversion of tax payments is effectively eliminated, since
payments are credited directly to the BTR at the time of payment. On the part of Government,
daily collections are easily monitored, since the collection data comes from only three (3) Bank
branches, all of which are located within the premises of the Large Taxpayers Division.
On the whole, the advantages observed from the CBR implementation at the Large Taxpayers
Division are:
a. Timely identification and recovery of tax liabilities;
b. Increased efficiency in the monitoring of collections, remittances,
under-remittances, and accountabilities; and
c. Timely identification of stop-filers and non-filers.
To date, the Bureau continues to explore innovations in collection methods, particularly in light
of the increasing popularity of electronic fund transfer methods and computer-based financial
transactions, as it moves toward the expansion of the Large Taxpayers CBR to include the next
three hundred Large Taxpayers by the end of the year, and ultimately, all of the Top 1,000
Taxpayers who account for eighty percent (80%) of the Bureaus total revenue collections.

It is hoped that the advent of the twenty-first century will witness more significant
achievements by the Bureau in its quest for greater efficiency and effectiveness in its efforts to
encourage voluntary compliance with the tax laws.
2. Collection By Enforcement
One approach toward the incessant battle against non-compliance is the identification of the
sectors of business or industries and/or segments of economic activities where the degree of
compliance is unacceptably low. This requires a system of measuring the taxpayers
compliance collectively, through the setting of standards or benchmarking, and focusing audit
efforts in selected areas. In this aspect of tax administration, we are still behind the tax
administrations of highly developed countries, which have established effective methodologies
for measuring non-compliance, such as the United States Taxpayers Compliance
Measurement Program (TCMP).
Relying on the general experience, intuition and gut feel of the Regional Directors and Revenue
District Officers, who are more familiar with their respective jurisdictions, and the little
empirical data that exists, the Assessment Service, headed by the Assistant Commissioner for
Assessment, under the supervision of the Deputy Commissioner for Operations, develops
(subject to the approval of the Commissioner) the Selective Audit Program every year, to set
the parameters for the audit of taxpayers that appear to have great tax potentials, yet
manifest low tax compliance. However, the Audit System under the computerized Integrated
Tax System shall, once in place, provide much-needed empirical data for a rational, objective
and impartial method of selecting cases for audit.
Presently, the Bureau has three groups of examiners and investigators: (1) the Revenue
Officers for Assessment who are assigned in the Revenue District Offices; (2) the Revenue
Officers specially assigned to policy cases of selected industries, who are assigned at the
National Office (NO); and (3) the revenue investigators assigned at the Tax Fraud Division in
the NO and at the Special Investigation Divisions of the Regional Offices. They number a little
less than three thousand (3,000), and are the collection enforcers bringing in additional taxes
on top of the amounts voluntarily paid by taxpayers.
3. Collection of Delinquent Accounts
Deficiency taxes which are unpaid on their due dates give rise to delinquent accounts. Tax
authorities have two distinct remedies available to collect them, administrative and judicial.
Section 205 of the National Internal Revenue Code specifies the civil remedies available to the
tax officers as follows:
"SEC. 205. Remedies for the Collection of Delinquent Taxes. --- The civil
remedies for the collection of internal revenue taxes, fees, or charges, and any
increment thereto resulting from delinquency shall be:


By distraint of goods, chattel, or effects, and other personal property of

whatever character, including stocks and other securities, debts, credits, bank
accounts, and interest in and rights to personal property, and by levy upon real
property and interest in or rights to real property; and


By civil or criminal action.

Either of these remedies or both simultaneously may be
pursued in the discretion of the authorities charged with the
collection of such taxes: Provided, however, That the remedies
of distraint and levy shall not be availed of where the amount
of tax involved is not more than One hundred pesos (P100).

The judgement in the criminal case shall not only impose the
penalty but shall also order payment of the taxes subject of the
criminal case as finally decided by the Commissioner.
The Bureau of Internal Revenue shall advance the amounts
needed to defray costs of collection by means of civil or
criminal action, including the preservation or transportation of
personal property distrained and the advertisement and sale
thereof, as well as of real property and improvements thereon."
The term "distraint" refers to the seizure by government of the personal property (tangible or
intangible) of a taxpayer, to enforce the payment of his tax liabilities. On the other hand, "levy"
is the seizure by government of a taxpayers real properties and interest in, or rights to, such
real properties, in order to enforce the payment of taxes.
In certain instances, however, the Commissioner of Internal Revenue may grant a compromise
of deficiency taxes, pursuant to Section 204 (A) of the National Internal Revenue Code (as
amended), which is stated hereunder:
"SEC. 204. Authority of the Commissioner to Compromise, Abate and
Refund or Credit Taxes. The Commissioner may
(a) Compromise the payment of any internal revenue tax, when:
(1) A reasonable doubt as to the validity of the
claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates
a clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be subject
to the following minimum amounts:
For cases of financial incapacity, a minimum compromise rate
equivalent to ten percent (10%) of the basic assessed tax; and
For other cases, a minimum compromise rate equivalent to
forty percent (40%) of the basic assessed tax.
Where the basic tax involved exceeds One million pesos
(P1,000,000) or where the settlement offered is less than the
prescribed minimum rates, the compromise shall be subject to
the approval of the Evaluation Board, which shall be composed
of the Commissioner and the four (4) Deputy Commissioners."
The Commissioner is likewise vested with the authority to abate or cancel a tax liability,
subject to the following conditions set forth in Section 204(B) of the National Internal Revenue


When the tax or any portion thereof appears to be unjustly or excessively

assessed; or


When the administration and collection costs involved do not justify the
collection of the amount due.

The Tax Code allows for the compromise of all criminal violations, except for those already filed
in court, or involving fraud.


The Bureaus Annual Reports for the past five (5) years, reflect the following collection data:
(In Billion Pesos)











Collection from






Collection from Del.












% of Enforcement






% of Delinquent Accounts











Voluntary Compliance

% of Vol. Compliance


It is evident, therefore, that voluntary compliance contributes the lions share in tax collection
efforts, while enforcement efforts appear to produce minimal results. However, the
enforcement examiners claim that their efforts are measured not by the amount they collect,
but by the impact of their enforcement activities on voluntary compliance by taxpayers.
Indeed, the validity of this claim is most difficult to do, and the measurement of the degree or
level of compliance of taxpayers, as well as the impact of enforcement on voluntary
compliance, is not attempted in this Report.



Since the dawn of civilization, man has tirelessly sought perfection in just about every aspect
of life.
Nothing, however, can ever be truly perfect, and in truth, no system can ever be completely
error-free, as we have seen time and again in everything from politics and economics, to
medicine and literature. Certainly, any tax collection system, which must deal with, at the very
least, hundreds upon thousands of human beings -the taxpayers --- is bound to experience
difficulties in its implementation, and in its continuing evolution.
The Philippine tax collection system, as it stands, is likewise far from perfect. Revenue officials
and personnel acknowledge that many loopholes in the system still exist, and leakages have
still not been totally plugged.
Nevertheless, the willingness to acknowledge ones shortcomings is perhaps the first and most
important step in making improvements. In this light, this Report aims to serve as an "eyeopener" to all those who are concerned with the impartial and effective implementation of our
tax laws. Though others may believe otherwise, it is often true that the best and sometimes
the most objective criticism can be given by those who are actually a part of the collection
system itself, and who take an active part in its day-to-day operations and activities.
In the final analysis, the amount of taxes paid to, and collected by, any Government shall spell
the difference between a nations success or failure in its quest for a humane quality of life.
The late King Hussein ibn Talal of Jordan, in his parting words to his son and heir, Abdulah ibn
Hussein, entrusted his dream for the Jordanian people in six simple words that, in many ways,
express the dream of all those who are faithful to the ideals of public service: "Obtain for them
a dignified life."
It is in this spirit that the tax collection system should continually evolve in a rapidly changing
world, that it may serve as the means through which prosperity and enlightenment may be
enjoyed by every citizen of a sovereign nation.