Project Update: RARP

If a nation is to combat the scourge of poverty, it is important to have an ethical, rational, and efficient tax administration system that inspires trust and cooperation from taxpayers such that it is enabled to sustainably grow tax revenues through the years. This will allow the government to invest more into its poverty reduction programs such as in healthcare, education, and social services.

But public perception of the country’s Bureau of Internal Revenue (BIR) has long rated it as among the most corrupt of the nation’s agencies. The Philippines’s tax effectiveness was among the lowest in the region, mainly because the bureaucracy was plagued with inefficiencies, outdated systems, and corruption. Non-compliance was rampant, tax evasion and avoidance the norm. Tax audits took too long and the system invited abuse and allowed for excessive tax agent discretion.

The country was leaking much needed funds it could not afford to lose. Plugging these leaks and introducing reforms in the bureau would herald a significant impact on the future of Filipino citizens, especially the poorest of the poor who needed it most.

In 2006, MCC awarded a $20.685 million Threshold Program grant to the Philippines that focused on addressing improved revenue administration and anti-corruption efforts.

 

Encouraged by the successful results of the Threshold Program, the eventual Philippine Compact earmarked $54.3 million for a broadened Revenue Administration Reform Project (RARP). The funds were allocated for two major components: further strengthening the Department of Finance’s Revenue Integrity Protection Service (RIPS) and supporting the BIR’s Revenue Administration Reform Activities (RARA).

The first focused on detecting and deterring corruption in the whole finance bureaucracy. The RIPS project covered the acquisition and customization of case management software, capacity building, as well as the digitization of approximately 3.5 million documents handled by the Department of Finance.

Meanwhile, the RARA covered a host of projects that dealt with different aspects of reform: the Electronic Tax Information System (eTIS), the Automated Auditing Tools (AATs) and the Public Awareness Campaign (PAC). It also included the provision of an International Monetary Fund (IMF) resident advisor and relevant specialists to introduce global best practices in specialized areas. Technical assistance was also acquired from the United States Department of Treasury Office of Technical Assistance (USDT-OTA) for specific needs.

Together with the international tax consultants and the BIR, MCA-P crafted the Terms of Reference (TORs) for the various technical requirements of these projects and used its procurement procedures and agency to choose and find the best vendors. MCA-P’s model for project planning, implementation, monitoring and evaluation was appreciated by the BIR and RIPS teams who were inspired to adopt the best practices in their future projects.

Today, the gratifying success of the RARP can be credited in no small part to the people and the institution themselves, who took their mission and vision of reform to heart.

 

“I’ve always believed that reform should be driven by the institution itself. I think that is the best practice for any reform process,” Commissioner of Internal Revenue Kim S. Jacinto-Henares pointed out.

People from the field were brought in to form the Project Management Implementation Service (PMIS) with oversight on the RARP project. “Because I believed that they’re the ones who know what’s going on, what needs to be improved. And their peers will listen to them.”

Clearly, the RARP has helped to energize the spirit of reform. Finance Secretary Cesar V. Purisima commended MCC’s contribution beyond providing funds. “I see this relationship as a way not only to transfer best practices and technologies but also as a way to benchmark ourselves against the very best in various fields.”

“It is about giving opportunities to our institutions to learn how to solve constraints, and opportunities to develop our own people so that they can see their true potential while working in the right environment,” he said.

Reform is, of course, always an enormous challenge for any organization—and not least because there is little instant gratification and the big results may not be immediately apparent. Still, it is encouraging that surveys on public perception show the BIR’s image improving considerably the past years. Since receiving ratings of “very bad” from 2006 to 2009, ratings jumped 39 points in 2012 and continued to steadily advance. It has managed to reach a rating of “neutral” by 2014/2015. This improved perception of the public was directly proportional to the increase in their voluntary compliance.

Reforms done today are an investment for the future. We may not yet fully realize its impact right now, but as the seeds of change take root, we can expect that a strengthened bureaucracy together with an informed public can work together towards bigger and better tax revenues for the coming years.