Bureau of Internal Revenue (BIR) Commissioner Charlie Mendoza outlined the agency's planned reforms to tighten oversight on audit issuances amid the alleged misuse and weaponization of letters of authority (LOA) by its personnel.

Mendoza made the remark during the Senate Blue Ribbon Committee hearing on Thursday, Dec. 11, in response to Senator Erwin Tulfo’s questions on complaints from small and family-owned businesses that received LOAs.

Mendoza said the agency will introduce “checks and balances” mechanisms in the issuance of both LOAs and mission orders.

A LOA is a formal legal document that authorizes specific BIR officials to examine a taxpayer’s books of accounts, records, and other relevant documents for a particular taxable period to determine their tax liabilities.

On the other hand, a mission order is an administrative directive issued by the BIR that empowers revenue officers to carry out surveillance, monitoring, inventory-taking, tax mapping, and limited verification of a taxpayer’s business activities—such as examining sales and receipts, inspecting cash-register or point-of-sale systems, or ensuring compliance with bookkeeping requirements.

“Moving forward, Mr. Chair, first is, there has to be check and balance in the issuance of letters of authority and mission orders,” Mendoza said.

He noted that under current procedures, regional directors have “absolute authority” to issue LOAs without elevating these to the BIR central office.

“Right now po, when it comes to the issuance of letters of authority by the regional directors, meron po silang absolute authority to issue letters of authority. And hindi na po ito umaakyat sa (And this isn't raised to the) commissioner for approval or prior clearance,” he explained.

Mendoza says this set-up is now under review.

As part of the planned reforms, regional directors will be required to seek clearance from higher officials before issuing LOAs.

“That is one area that we are looking at before the regional directors can issue letters of authority, they would have to clear it first with the Deputy Commissioner or with the Commissioner,” he said.

He also emphasized the need for justification from regional directors for each audit initiated.

“Kailangan po mag-submit sila ng justification kung bakit mag-i-issue sila ng (They need to submit justification on why they will submit a) letter of authority or why this particular taxpayer should be subjected to audit,” he added.

The reforms were discussed after Tulfo raised concerns that not only major corporations but also small businesses—such as family-owned eateries, grocery stores, gas stations, and even a small veterinary clinic—had been receiving LOAs.

The committee is investigating allegations that LOAs and mission orders have been improperly issued or abused by certain BIR personnel.

Meanwhile, Senate President Pro Tempore Panfilo Lacson, chairman of the Senate Blue Ribbon Committee, asked former BIR Commissioner Kim Jacinto-Henares to explain the audit process for taxpayers during the Senate inquiry.

“Give us a walk-through of the process. For instance, when a taxpayer is targeted for audit, how does it begin and how does it end? Is there a limit to the number of LOAs that may be issued to a particular individual or entity?” Lacson asked during the hearing.

In response, Henares stressed that the LOA is an essential enforcement tool. She said that while 98 percent of BIR taxes are collected voluntarily and only two percent come from assessments, the LOA encourages compliance among delinquent taxpayers.

She cited a study that showed that the BIR failed to collect more than P1 trillion due to tax evasion and related issues.

Henares added that during her tenure, she issued an audit plan containing a specific provision limiting BIR examiners to auditing a taxpayer for only two consecutive years.

She said her office also strictly monitored the issuance of LOAs.