The missionaries we used to work with were in a panic mode. They found themselves as withholding agents and did not know why and how. Since they have no income, they are neither large, medium, nor small taxpayers. The only reason that we can think of is that they have been included in the Taxpayer Account Management Program (TAMP). The sad part is that we all did not know what it meant. The least that they expected is that they should have been informed and oriented on what the program is all about. But, this is not how our tax administration operates. Very little effort is devoted to educating taxpayers on what they are required to do. If taxpayers fail in compliance, they are fined and sanctioned. There is very little sense of providing service to customers.
I have asked our accountant to help the poor “padres.” They would now have to employ an accountant so that they can carry out their duties as withholding agents. Under the expanded withholding tax system, they are required to deduct 1% on their payment to suppliers of goods and 2% on suppliers of services. I surmise that since individual missionaries have very little or nothing on their pockets to pay for hospitalization and basic necessities like groceries, their bills have all been sent to their regional office for payment. And that was how they became a withholding agent.
The Bureau of Internal Revenue (BIR) reports that its cost of collection is only P0.57 for every peso collected. This is because a substantial cost of their collection and administration has been passed on to employers, banks, firms, traders, supplier, retailers, and other forms of organizations. They collect the tax in behalf of the BIR. Ninety-one percent of the individual income tax is collected by withholding agents. On average, 97% percent of the BIR collection is collected through the “voluntary” system.
Unfortunately, the voluntary system imposes much costs on taxpayers. These are the compliance costs of taxation. To be able to meet the requirements of tax laws, firms have to hire accountants, tax advisers, and lawyers. They have to devote substantial resources in collecting and organizing data, completing tax forms, keeping the tax forms and supporting documents for 10 years, and lodging them electronically and physically. Time and resources have to be spent in appealing rulings and cases before the courts. But the costliest of these costs are the tension and aggravations in dealing with tax audits and “lobbying” whenever necessary.
I have fond memories of Prof. Cedric Sandford who was the pioneer in conducting studies to quantify compliance costs. He was a lone voice in the desert in advocating that governments should pay equal attention to the difficulties of taxpayers in complying with the requirements of tax laws. He estimated that that compliance costs represented 3.6% of the collections from the personal income tax in the United Kingdom. Other studies have more staggering figures. The study of Pope et al estimated that the compliance costs of 96% of companies in Australia were bigger than what they remit in income taxes. They also found out that compliance costs tend to be regressive; i.e. the burden is heaviest on the poor and small taxpayers.
Compliance costs are in addition to the tax burden, i.e. the reduction in our take-home pay because we have to pay an income tax, the VAT, excise taxes, and real property tax, among others. Of course, taxes hit us hard through inflation and reduction in our economic welfare. But we have largely ignored the costs that taxpayers have to bear just to be able to pay their taxes. We may be in for a surprise!