Revenue Administration Reform Project (RARP)
The project addresses one of the most significant growth constraints of the Philippines, its tight fiscal situation with declining rate of tax effectiveness, poor business climate and corruption as its major determinants. The country’s tight fiscal situation limits its ability to fund its growing needs for basic infrastructure and social programs and, therefore, efforts to reduce poverty. Revenue eroding measures have contributed to declining rate of tax effectiveness. Tax related patterns of non-compliance and tax administration inefficiencies contribute to a poor business climate and, ultimately, to a reduced rate of domestic investment. The country has also ranked lowest in foreign direct investment and has struggled to improve its international rankings on corruption.
RARP directly responds to this constraint to growth and its determinants through two major activities, the Revenue Administration Reform Activity (RARA), the Bureau of Internal Revenue (BIR) efforts to reengineer its policies and practices and the Revenue Protection Service (RIPS) Activity, the anti-graft investigation unit of the Department of Finance (DOF).
Increase tax revenues over time and support DOF initiatives to detect and deter corruption within its revenue agencies
1 Revenue Administration Reform Activity (RARA)
The BIR efforts to reengineer its policies and practices will be supported through the following major initiatives:
1.2 Electronic Tax Information System (ETIS)
ETIS will reengineer and computerize the business processes of BIR to enhance tax administration through full operational efficiency. Its goal is to modernize BIR and provide an enhanced tax administration system that can be fully utilized by the agency nationwide. This will increase operational efficiency in registering taxpayers, processing tax returns and accounting payments. Compact assistance includes the provision of International Monetary Fund (IMF) tax administration advisor, specialists and other systems and technology consultants, training of BIR staff and procurement of computer software and equipment to implement ETIS.
The computerization of BIR business processes will improve the trustworthiness of, access to and actions and decisions based on tax data. These, in turn, will improve tax compliance monitoring, reduce client contact and opportunities for negotiated assessments, increase the detection of misreporting and enhance the value of reports. Improved compliance, audit and enforcement tools will contribute to a sustainable program of tax administration leading to increased tax revenue collection.
1.3 Automated Auditing Tools (AATs)
AATs are computer software and hardware for the conduct of computer-assisted audits which promote proper taxpayer compliance in filing and paying taxes. Compact assistance will fund the purchase of these software licenses and computers, subscription to a data base service to provide transfer pricing information and training on the use of these tools. It will make possible the maintenance and submission by large taxpayers of tax records in digital form. Tax auditing tools have demonstrated their revenue-raising potential, reduced by half the number of days it takes to complete a tax audit and removed taxpayer concern about fairness of tax audits that are based on sampling rather than a review of all transactions. The reduction in man days per tax audit will help BIR reduce its backlog of unfinished audits, promote taxpayer satisfaction and ultimately leads to increased revenue collection.
1.4 Public Awareness Campaign (PAC)
This component will educate the public on BIR services and programs. It will disseminate information on the reforms, modernization and enforcement initiatives of BIR to support the objective of increasing tax revenues over time. This responds to findings that individuals and businesses in the Philippines have a limited understanding of their tax obligations and BIR programs and that many BIR services, particularly on-line services, are underutilized. The PAC intends to promote greater understanding of tax obligations and increase the ability of taxpayers to access tax information which will ultimately lead to better tax compliance. Greater utilization of on-line services is seen to reduce opportunities for corruption that in-person tax transactions provide.
2 Revenue Integrity Protection Service (RIPS)
This component will support RIPS as the anti-graft investigation unit of DOF through the acquisition and customization of case management software, data repository system, training, strengthening of its surveillance capacity and instilling discipline in DOF attached agencies through administrative actions such as temporary suspensions and dismissals. It will focus on the detection and punishment of forms of malfeasance that permit revenue agents to reap financial rewards from taxpayers. By increasing the likelihood of detection and punishment, the frequency of such incidents will decline, improve the image of revenue generating agencies, increase tax collection and improve the business climate in the country.