The probable response to the Duterte administration’s tax amnesty plans of Filipinos who lived through the martial-law period (1972-1986) would be “What? Another tax amnesty?” That would not be an unfair reaction at all in view of this country’s experience with amnesties for delinquent taxpayers. That experience has, it must be said, been less than satisfactory.
The circumstances of the first of the martial-law tax amnesties could not have been more conducive to success. The 1974 amnesty was conducted in a climate of fear, intimidation and anxiety. Though martial law was in its third year the Filipino people still were unsure as to the kind of person that President Ferdinand E. Marcos was, as to who he considered enemies of his “Ang Bagong Lipunan” and as to his concept of appropriate punishment for violation of the martial law regime’s edicts. In such a political climate the 1974 tax amnesty should have been an unmitigated success and the DoF (Department of Finance), then headed by Cesar E. A. Virata, should have been able to realize its incremental-revenue target.
But fair was not to be. When all the tax amnesty returns had been tallied, Mr. Virata and his people found that their incremental-revenue target had not been reached. Although he could not have been expected to say so publicly, the Secretary of Finance almost certainly thought that the delinquent taxpayers had taken the government for a ride. They had taken the advantage of the amnesty without coming clean with their tax delinquencies. The 1974 amnesty clearly was not a successful exercise.
A tax amnesty is somewhat like a threat; they are one-time things. If they don’t work the first time, they are unlikely to work the next time.
The 1974 experience left many knowledgeable observers thinking: If they could not be intimidated by martial law to comply with their tax obligations—or their other social obligations—what political conditions would make delinquent Filipinos do so? But the martial-law regime was unfazed by the poor 1974 experience. It conducted two more tax amnesties before bowing out of existence. Expectedly, the subsequent exercises were, like the first, not able to attain their incremental-revenue targets.
To get delinquent taxpayers to go for it, a tax amnesty must embody two come-on provisions. One is a DoF commitment that the books of a taxpayer who avails himself of the tax amnesty will not be audited by the BIR (Bureau of Internal Revenue) for a specific number of years. The other come-on provision is that a tax amnesty-availing taxpayer must pay at least a specified percentage of his tax arrearages. Expectedly, the indicated must-be-paid percentage of the arrearages turns out to be percentage that is paid by the taxpayer. The minimum becomes the actual, in the process eroding the amnesty’s potential for generating incremental revenue.
The tendency of tax amnesty availers to go for the lower DoF-indicated settlement percentage is, as already stated, one of the two major downside features of tax amnesty. Arguably more deleterious is the DoF commitment to not audit the availers’ books of account for a number of years following the tax amnesty year. The risk to the tax authorities is obvious: The amnesty availers could be making more money during the no-audit years and the BIR would not be able to access that money.
Truth to tell, a tax amnesty smacks of desperation—a desperate attempt to generate a lot of money to finance a program of government spending that cannot be financed by the normal flow of government revenue. Admittedly, tax amnesties are able to raise large amounts of incremental revenue; but such revenue comes at a potentially high cost, viz., the tax authorities’ ability to access the amnesty-availing taxpayers income during the no-audit period.
There is no substitute for a first-rate system of tax administration. Indeed, a decision to conduct a tax amnesty is a tacit admission that a tax administration system is not first-rate.
I do not absolutely abhor tax amnesties. I believe the costs of a tax amnesty outweigh its advantages. Obviously, the Duterte administration is resorting to a tax amnesty—scheduled to be conducted simultaneously with the 2019 income tax filing—to generate incremental revenue for its Build, Build, Build infrastructure program. The program deserves commendation, but it must not come at too high a cost to the Philippine economy.
