Submitted by: Enrique S.

Legaspi IV

2022-0826

ISSUES ON ASSESMENT AND TAX

COLLECTION UNDER THE BIR AND
PROPOSED SOLUTIONS IN
REFERENCE TO THE TAX CODE

Submitted to: Atty. Edison James F. Pagaliluan

Submitted by: Enrique S. Legaspi IV

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TABLE OF CONTENTS

Introduction _______________________________ p. 3 – 6

Issues and Problems _______________________________ p. 7

Recommendations _______________________________ p. 8 – 28

References _______________________________ see footnote per page

The three (3) inherent powers of the State:

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1. Power of Taxation: An inherent power of the

state exercised through legislature, to
impose burdens upon subjects and objects within its
jurisdiction, for the purpose of
raising revenues to carry out the legitimate objects of the
government. (Lex Animo, 2016)
Main objective: For raising revenue to carry out the
legitimate objects of the government.
Explanation: The government imposes taxes through the
Congress and Senate to persons,
properties, privileges and transactions. (These will be
discussed more in the question
number 2.) The main purpose of paying our taxes is for
the government to have its
revenue. The government has the power to impose tax
in order for it to continually
perform it’s operation. For example, you are earning more
than 250, 000 a year. The
government will require you to pay for your tax because
your income exceeded 250,000 a
year.
The three (3) inherent powers of the State:
1. Power of Taxation: An inherent power of the
state exercised through legislature, to

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impose burdens upon subjects and objects within its

jurisdiction, for the purpose of
raising revenues to carry out the legitimate objects of the
government. (Lex Animo, 2016)
Main objective: For raising revenue to carry out the
legitimate objects of the government.
Explanation: The government imposes taxes through the
Congress and Senate to persons,
properties, privileges and transactions. (These will be
discussed more in the question
number 2.) The main purpose of paying our taxes is for
the government to have its
revenue. The government has the power to impose tax
in order for it to continually
perform it’s operation. For example, you are earning more
than 250, 000 a year. The
government will require you to pay for your tax because
your income exceeded 250,000 a
year.
The three (3) inherent powers of the
State:
1. Power of Taxation: An inherent power
of the state exercised through legislature,
to
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impose burdens upon subjects and objects

within its jurisdiction, for the purpose of
raising revenues to carry out the legitimate
objects of the government. (Lex Animo, 2016)
Main objective: For raising revenue to carry out
the legitimate objects of the government.
Explanation: The government imposes taxes
through the Congress and Senate to persons,
properties, privileges and transactions. (These
will be discussed more in the question
number 2.) The main purpose of paying our
taxes is for the government to have its
revenue. The government has the power to
impose tax in order for it to continually
perform it’s operation. For example, you are
earning more than 250, 000 a year. The
government will require you to pay for your tax
because your income exceeded 250,000 a
year.
The three (3) inherent powers of the State:

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2022-0826

1. Power of Taxation: An inherent power of the

state exercised through legislature, to
impose burdens upon subjects and objects within its
jurisdiction, for the purpose of
raising revenues to carry out the legitimate objects of the
government. (Lex Animo, 2016)
Main objective: For raising revenue to carry out the
legitimate objects of the government.
Explanation: The government imposes taxes through the
Congress and Senate to persons,
properties, privileges and transactions. (These will be
discussed more in the question
number 2.) The main purpose of paying our taxes is for
the government to have its
revenue. The government has the power to impose tax
in order for it to continually
perform it’s operation. For example, you are earning more
than 250, 000 a year. The
government will require you to pay for your tax because
your income exceeded 250,000 a
year.
INTRODUCTION
The theory of taxation or taxation proceeds from the theory that the existence of
government is a necessity. The government will not be able to discharge its functions
without the revenues or taxes.

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  Without the revenue raised from taxation, the government cannot support itself
and the public needs. And so, it is often said that taxes are the lifeblood of the
government. This is true not only for the national government but also to the smallest
unit of government. Thus, no less than the constitution grants the LGUs the power to
create their own sources of revenues. That is further amplified by the Local Government
Code of 1991 (“LGC”).1

One of the more significant sources of revenues for LGUs are the local business
tax. These business taxes are generally based on gross sales or receipts made by the
business for the preceding year. These taxes, together with other fees and charges,
accrue on the first day of January of each year, and are usually required to be paid
before the business permit is issued.

There are instances where disputes ensue between the LGU and the taxpayer.
The issues range from the legal and factual bases of the imposition of business tax to
disagreement pertaining to the correctness of the computations. But such issues could
affect the timeliness in securing the business license. Often, for fear of failing to meet
the deadline for the payment of the tax and the issuance of permit and thus avoid doing
business without a license, taxpayers are constrained to pay the tax sought to be
collected by the LGU, even for tax impositions they believe should not be due.

In situations like this, what are the remedies available to the taxpayers?
Essentially, there are two remedies that taxpayers can resort to under the LGC – one is
the “protest of assessment” under Section 195 and a “claim for refund or tax credit”
under Section 196. A taxpayer may file a protest under Section 195 or pay the tax and,
thereafter, file claim for refund under Section 196 of the LGC.

Under what circumstances are these remedies applicable? There are court
decisions holding that Section 195 applies only in cases of notice of assessment. And a
notice of assessment, as commonly understood, upon review or examination conducted
by tax authorities after a taxpayer has paid or supposed to have paid his taxes. Based
on the LGC, an LGU has a period of 5 years (or ten years in case of fraud) within which
to conduct as assessment. It could be inferred from some judicial pronouncements that
it is only in this situation where Section 195 applies.

A statement of account or payment order cannot be considered the notice of

assessment required under Section 195 as the notice of assessment contemplates a
computation based on deficiency taxes, when the local treasurer finds that the correct
taxes were not paid. Accordingly, the remedy of protest does not apply to statements of
accounts or orders of payment issued in connection with a taxpayer’s renewal of
1
https://www.bdblaw.com.ph/index.php/newsroom/articles/tax-law-for-business/517-local-business-tax-taxpayer-s-
remedies#:~:text=Without%20the%20revenue%20raised%20from,the%20lifeblood%20of%20the%20government.

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business permits and licenses at the beginning of the year. The only remedy is for the
concerned taxpayer to pay and, if it disagrees with the tax payment, file a claim for
refund of incorrectly paid or illegally collected taxes.

A closer look at many other decisions, however, would indicate that a taxpayer
faced with similar situation is free to choose which remedy to enforce. And once he
chooses the remedy, he must observe the procedures laid down by law for the
availment of the said chosen remedy. Apparently, these two remedies call for different
requirements and conditions for their application. As such, a taxpayer should be clear
on the basis of its action, and follow the prescribed procedure for that action.

A taxpayer may therefore file a protest against an assessment made upon the
renewal of business permit. But this option presupposes that taxes had not yet been
paid. Once the contested tax had been paid, a protest will not result in getting the
desired result, that is, the return of the amount allegedly incorrectly paid or illegally
collected.

In essence, while a taxpayer may legally protest taxes sought to be imposed

when renewing his business permit, this may delay the issuance of business permit.
The only remedy available to a taxpayer faced with a situation where he is forced to pay
tax to avoid the non-issuance of business permit is to pay and apply for a refund or tax
credit. This is an independent remedy and the taxpayer would only need to follow the
requirements of said remedy, which are: (1) the concerned taxpayer files a written claim
for refund or credit with the local treasurer, and (2) the case or proceeding must be filed
within two years from the date of payment of the tax, fee or charge. Judicial precedents
dictate that a prior resort to protest action is not necessary.

But what if despite all the freedoms and convenience provided for the taxpayer under
the law, there are still ways and means for other’s to circumvent the policies laid down
by the proper taxing authority and laws laid down under the tax code?

What would be the recourse of our government thru our BIR to prevent this or atleast
provide measures to control instances of others being able to skip proper tax payment?

On the otherhand, there is also a question on the part of the taxpayers. Do the taxes we
pay go to the proper allotment of the government to support its fund in order to improve
the lives of its people succumbed under the banner of the state?

The question of symbiotic relationship now enters. For we know the fact that while we
as taxpayers we are bound to pay our duties to the government through taxes, so that in
return the latter would protect its subject and help improve their lives and their
community, it in turn should see to it that the taxes people pay do not go to waste or

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much worse end up in the pockets of governments corrupt officials whether in the BIR
or politicians.

Concept of Tax Leakages: Tax Evasion, Tax Avoidance, and Tax NonCompliance
Definitional distinctions are not always clear cut.

Tax leakages have generally been associated with non-compliance of taxpayers.

Such behavior has been described as an attempt to escape the tax net through tax
evasion and avoidance. Simply defined, tax evasion is the act of reducing tax liabilities
by illegal or fraudulent means. It is a violation of the tax law, which makes the taxpayer
liable to administrative or legal actions from authorities.

Tax avoidance, on the other hand, reduce tax liabilities through legal means like
taking advantage of tax rate differentials and “loopholes” in the tax code. Note, however,
that the application of these definitional distinctions in some cases may be far from
clear-cut and perhaps may remain so. Nevertheless, improving the definitions continue,
and purposely, the analysis on tax leakages.

For instance, Slemrod and Yitzhaki (2000) argued that tax avoidance should be
differentiated from “real substitution responses” of taxpayers when the tax law changes
the relative prices of different activities of taxpayers and induces taxpayers to respond
by choosing a different consumption basket. Thus, avoidance consists in actions that do
not change the individual’s consumption basket. Sandmo (2004) goes further in saying
that this distinction focuses on the relative price changes for consumption goods, but it
neglects the income effects that arise from increases in disposable income. Perhaps,
Slemrod and Yitzhaki, and Sandmo’s borderline distinctions between tax avoidance and
“ordinary” demand and supply effects, may have some affinity with Stiglitz’s (2000)
practical reference to tax avoidance as postponing taxes, shifting due to tax rate
differentials, and tax arbitrage.

Furthermore, Manasan (1988) explained that tax evasion is done by a taxpayer

either singly or in collusion with some tax collection functionary, while tax avoidance is
done singly or with the help of some tax expert like a lawyer and an accountant.

As such, evasion and avoidance are interdependent activities. Significant and

well-known tax avoidance could induce evasion. On the part of the individual taxpayer,
evasion can substitute for avoidance when increasing the cost of tax avoidance
increases tax evasion. Evolution of the tax evasion theory. Most discussions on tax
leakages focuses on tax evasion rather than tax avoidance.
Studies particularly analyze the factors behind tax evasion activities and attempts
to provide empirical estimates of the size of tax evasion4 or the “hidden economy.”
Initial interest on tax evasion can be traced to the publication in 1972 of the article
“Income tax evasion: A theoretical analysis” by Michael Allingham and Agnar Sandmo.

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This seminal paper marked the beginning of formal economic theory of tax
evasion. Its fundamental assumptions are an application of the economics of crime
approach of Gary S. Becker’s 1968 classic paper entitled “Crime and punishment: An
economic approach.” The Allingham-Sandmo model, which essentially views the
probability of detection and the penalty rate as exogenous, was followed by a large
number of contributions to the literature which extended in a number of directions.
These extensions, described as second generation models, make the probability of
detection endogenous (Sandmo 2004 and Manasan 2000).

However, Sandmo (2004) noted some gaps in the theoretical literature, namely:
The costs of tax compliance on the part of the taxpayer, which form part of the
economy-wide costs of the tax system, are likely to have effects on the structure of
industry and occupations in a country, and in the next round on returns to investment
and gross wages.

This has so far been a rather neglected area of public economics, at least in the
theoretical literature. The theory of optimal taxation can be seen as a recipe for
minimizing the costs of taxation. This consists of the more direct costs of administration
on the part of the tax authority and compliance on the part of the taxpayer. Both play
little or no role in the analyses. Thus, the potential gains from using the insights of the
tax evasion literature in the study of optimal taxation and tax design have not been fully
exploited, although for some aspects of taxation the evasion perspective is highly
relevant. The literature on tax evasion should be seen as a way to bring issues of tax
administration into the focus of the theoretical literature on tax design.

Filipino business executives were even more critical of corruption than average
citizens who replied in an October 2000 survey. Public sector corruption is "very large"
or "somewhat large," said 88 percent of the business executives but 70 percent of the
citizens, multinational companies operating in the Philippines identified
corruption/cronyism as the most glaring weakness in the Philippines. This is a
significant indicator of the rising governance deficit, since, in the previous two surveys
(1998 and 1999), poor infrastructure was identified as the main disadvantage of
operating in the Philippines and corruption as the fourth most important factor.
Problems
Public expectations for faster and stronger actions than previous administrations are
high. Several initiatives have been announced. However, a detailed plan of action with
implementation arrangements for combating corruption has yet to emerge. Against this
background, this report reviews negative and positive developments related to the fight
against corruption in the Philippines since the last report was issued.

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The year 2000 is widely perceived to be a period of widening governance deficit in the
Philippines. Data from national and international surveys reveal a significant rise in the
perception of corruption, which contributed to undermining investor confidence and
reducing the public 's faith in government's sincerity in combating graft and corruption.
Our earlier report had revealed that "corruption in the public and private sectors in the
Philippines is pervasive and deep-rooted, touching even the judiciary and the media."
This unfortunate situation worsened in 2000.

The proportion of Filipinos who view corruption as primarily harmful to national

development instead of primarily immoral has steadily grown from 54 percent in October
1999 to 81 percent in December 2000.3 Several high-profile cases of allegedly corrupt
behavior and other governance weaknesses4 appeared to have shaped these
perceptions. For a decade and a half, corruption has been Filipinos' second most
common source of dissatisfaction with their government (after inflation). 2

SOLUTIONS
> Public procurement reforms. Under the leadership of the Department of Budget and
Management, key reforms included: passing of executive orders to facilitate increased

2
https://documents1.worldbank.org/curated/ar/568611468759275318/pdf/multi0page.pdf

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competition and reduce delays in bidding; launching of the electronic procurement

system; and establishment of a civil society-based monitor, the Procurement Watch. 3

> Financial management reforms. Spearheaded by the Commission on Audit, key

measures included: simplification and computerization of the government accounting
system; implementation of the Audit Team Approach as an alternative to residency
auditing; and adoption of a participatory audit with civil society organizations.

> Judicial sector reforms. Under the widely praised leadership of the Chief Justice, the
Supreme Court: adopted the Action Program for Judicial Reform, a comprehensive and
holistic approach to judicial reforms; agreed with a nongovernmental organization,
Bantay Katarungan, to monitor court proceedings and screening of applicants to the
positions in the Regional Trial Courts and Courts of Appeals; and stepped up
disciplinary actions against corrupt judges. Between November 30, 1998, and April 2,
2001, the Supreme Court took 9 Transparency International www.transparency.org. ' 0
PREM/DEC Indicators (Washington: World Bank, March 2001 and February 2000). - Iv -
disciplinary action against 230 judges by either dismissal or administrative sanctions on
graft and corruption charges. "I

> Corporate governance reforms. The new Securities Regulation Code was approved,
and a major program to improve corporate governance was launched by the Institute of
Corporate'Directors (ICD). ICD is involved in director training and in advocacy of
improved corporate governance. In this regard, it has conducted several conferences
and other events to publicize key issues.

> Increased engagement of civil society. Civil society, the private sector, and the media
became noticeably more active in demanding transparency and accountability in
government. Respect for investigative journalism increased, and new information
technologies (mobile phones and the internet) increased corrupt officials' risk of
detection. Several conferences and studies made recommendations on what can be
done to combat corruption. Critical alliances were formed between the private sector
and civil society (Transparent Accountable Governance Project), between government
and civil society (Government and Budget Watch Projects), and between civil society,
the private sector, and academe (Transparency and Accountability Network).

> Anticorruption strategy. In response to the World Bank report on Combating

Corruption, the Development Academy of the Philippines formulated a Comprehensive

3
Transparency International www.transparency.org. '
PREM/DEC Indicators (Washington: World Bank, March 2001 and February 2000)

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Framework and Program Strategy to fight corruption in the Philippines. The

Development Academy of the Philippines came up with an anticorruption blueprint in
consultation with civil society organizations, the private sector, anticorruption agencies,
cabinet members, the media, and academe. This National Anticorruption Plan features
a long-term sequencing of anticorruption actions and a centerpiece 10-point jumpstart
program for immediate execution.

> Increased donor support for anticorruption programs. Corruption and governance
issues gained prominence during discussions at the Consultative Group of Donors for
the Philippines meeting held in the Philippines in June 2000 and in subsequent
government-donor dialogues. Several donors used their ongoing assistance programs
to intensify support for anticorruption efforts and in some cases scaled up their
assistance for anticorruption programs in the government as well as nongovernmental
sectors. 12 In April 2001, the same group of donors submitted their joint,
recommendations to the new government proposing steps to fast track implementation
of an anticorruption action program.

Measures already made and proposed by law making bodies, policy makers and
authorities since recent years up to present

Presently, the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC)
are ramping up their respective anti-corruption campaigns by modernizing their
operations through digitalization.4

Department of Finance (DOF) secretary Benjamin Diokno identified digitalization as the

key in transforming and eradicating corruption within the government’s two main
revenue agencies.

“I think, to be fair with both agencies, they have done a lot [of digitalization] already
during the past administration. What we can promise is, we’ll do even better,” said
Diokno on Tuesday, Aug. 16, at an organizational briefing before the Senate Committee
on Ways and Means.

4
https://newsbytes.ph/2022/08/26/bir-boc-ramping-up-digitalization-to-curb-corruption/

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The Digital Transformation (DX) Program of the BIR aims to transform the agency into a
data-driven organization. In 2021, 93 percent of returns were filed electronically, and
taxpayers were offered more convenient ways to pay taxes as BIR services were made
available 24/7.

Over at the BOC, deputy commissioner Edward James Dy Buco noted that the agency
was one of the first government agencies to implement paperless transactions.

The World Bank (WB) is currently supporting the digitalization of the BOC through a
$88.28 million financing for the Philippine Customs Modernization Program. The project
focuses on transitioning from a largely manual and paper-based organization to a
modernized BOC, achieving global standards and full modernization by 2024.

Dy Buco told senators that 91.18 percent or 155 out of 170 customs processes are
already automated.

On March 1, 2022, the BOC, in coordination with the United Nations Economic and
Social Commission for Asia and the Pacific (UNESCAP), also completed a national
action plan for cross-border paperless trade.

In addition, the BOC has enrolled in various integrity enhancement and moral
transformation programs, according to Dy Buco.

BIR commissioner Lilia Guillermo urged the public to cooperate with the government by
migrating to digital channels for their transactions with the government. Meanwhile, Dy
Buco assured the senators that contactless transactions are possible.

Gatchalian urges BIR to run after corrupt gov’t officials,

employees5
Senator Win Gatchalian has urged the Bureau of Internal Revenue (BIR) to
launch a crackdown on mulcting government officials and personnel victimizing large
corporations and small businesses. The senator also called for a clampdown against
erring officials and employees of revenue collection agencies, stating his stand that
instead of introducing new taxes to fund services and address the country’s P12.763
trillion debt as of April, it is more efficient to improve tax collection and fight corruption in
the government. He cited a recent series of reports on alleged extortion cases involving
5
https://manilastandard.net/news/national/314234775/gatchalian-urges-bir-to-run-after-corrupt-govt-officials-
employees.html

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BIR personnel in Ilocos Sur, Dipolog City and Zamboanga City, as well as the purported
“pabaon” scheme of some outgoing officials of the agency.

A drastic approach is needed to carry out an internal cleansing of the

bureaucracy to rid government agencies of rotten eggs, Gatchalian stressed. A similar
campaign was launched by the BIR at the onset of the Duterte administration, resulting
in the resignation and early retirement of hundreds of BIR employees.

The deluge of resignations was in response to the call against those involved in
corruption activities.

“If there’s political will, we can improve tax collection, build taxpayers’ trust in
government and ensure increased revenue. People are willing to pay when they know
that their taxes are well spent on services due them,” Gatchalian said.

ANGARA BACKS HIGHER PAY FOR BIR EMPLOYEES

TO CURB CORRUPTION, ATTRACT MORE COMPETENT
PERSONNEL6
Meanwhile back in 2017, Senator Sonny Angara has expressed his support for
higher pay for employees and officials of the Bureau of Internal Revenue (BIR), and has
filed a bill exempting the country's largest tax-collection agency from the coverage of the
Salary Standardization Law (SSL).

"Better pay would allow the agency to hire the best and reward the honest in
order to eliminate, or at the very least, minimize corruption in the agency. If we cannot
attract competent and talented professionals, how can we expect our revenues to
grow," said Angara, chairman of the ways and means committee.

The government suffers from billion of losses due to tax leakages brought about
by aggressive tax avoidance and evasion schemes, sometimes in collusion with corrupt
revenue officials.

The BIR, which accounts for 80 percent of total government revenue, has
collected P1.57 trillion last year, performing 97 percent against its P1.62-trillion target.
This year, the agency sets its collection goal at P1.83 trillion.

6
https://legacy.senate.gov.ph/press_release/2017/0217_angara1.asp

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"This is not just an anti-corruption measure, but an administrative reform to hike

our collections. There should be performance benchmarks attached to any increase to
ensure better services and improved accountability of the officials and employees," the
lawmaker added.

At present, government agencies that are exempted from the SSL include the
Bangko Sentral ng Pilipinas, the Insurance Commission (IC), and the Securities and
Exchange Commission (SEC).

With the SSL exemption, an entry-level accountant in SEC and IC receives

P50,000 a month, whereas the same position in the BIR only gets P19,000 a month. For
lawyers, the entry-level salary in the BIR amounts to P35,700, while in the SEC and IC,
they are paid P53,750 and P66,520, respectively.

Angara's Senate Bill 1314 seeks to add BIR to the list of exempted agencies.
Senate Minority Floor Leader Ralph Recto and Senator Miguel Zubiri have also filed
similar bills. Based on latest data, of the 21,491 job posts available in the BIR, less than
half or only 9,835 are filled.

BIR Commissioner Caesar Dulay also recently revealed that some 300 of their
employees have tendered resignation as a result of the agency's campaign against
corruption.

"With competitive salaries, we aim to attract young and idealistic professionals

who can revitalize the BIR and improve tax administration and enforcement. Such
exemption is long overdue," Angara said. The senator further stressed that BIR's SSL
exemption should be paired with the creation of a National Taxpayer Advocate Office.

Angara is the author of Senate Bill 308 that seeks to put in place a charter on
taxpayer rights, and establish a National Taxpayer Advocate Office that will promote
taxpayer rights and protect them against harassment and corrupt practices of BIR and
the Bureau of Customs (BOC) employees.

The lawmaker also urged the BIR and BOC to strictly implement the Lateral
Attrition Law which provides for a system of reward and punishment for officials and
employees depending on their performance.

Under the law, officials and personnel of government collection agencies may be
rewarded with financial incentives, bonuses and promotions for surpassing collection
targets, but may be relieved or dismissed from their post if they fail to meet the goals.

Meanwhile, under the Customs Modernization and Tariff Act, which was
sponsored by Angara and signed into law last year, the BOC is mandated to conduct a

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compensation study with the end view of developing and recommending to the
President a competitive compensation and remuneration system for its employees.

Apart from raising the taxman's pay, Angara has long been advocating for higher
take-home pay of ordinary Filipino workers by lowering income tax rates.

MARCOS POLICY
'Sins of the past'7

Sought for clarification, Atty. Trixie Cruz-Angeles, picked by Marcos to be the incoming
Press Secretary, said the president-elect does not want to focus on the "sins of the
past."

She said she could not further expound Marcos' remarks on the matter.

"Pending cases will continue because they're pending cases. The approach as he had
expounded in previous interviews is simply to not to concentrate too much on fault-
finding or on the sins of the past because in his words, and I quote, 'Ako na ang
namamahala ngayon. Kung dati hindi ako, ang nanagot 'yung iba (I'm the one in charge
now.)'" Cruz-Angeles said.

Tax measures

Marcos, meanwhile, believed that there is a need to "codify our tax" to make it simpler
and more understandable. 

"Now in my discussions with our legislators yesterday, we are trying to create some
fiscal space. So that to reduce the load on ordinary citizens and maybe move the load
up, the tax load up and there’s also distribution of wealth implications to that which are
very very important. It’s one of the areas that I think we have to work on very very hard,"
Marcos said.

He is also eyeing to reduce tax collections on areas which are suffering from the
COVID-19 pandemic.

"That means MSMEs, agricultural sector, transport, 'yung mga ganoon, so babawasan
natin let’s hope we can raise funds in other areas and use it there," Marcos said.

7
https://www.gmanetwork.com/news/topstories/nation/832935/marcos-on-corruption-in-bir-customs-let-s-
forget-the-past/story/

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LAWS AND POLICIES PROVIDED TO CHECK AND BALANCE

Rules Implementing the Code of Conduct and Ethical Standards for Public
Officials and Employees8

Pursuant to the provisions of Section 12 of Republic Act No. 6713, otherwise known as
the “Code of Conduct and Ethical Standards for Public Officials and Employees”,
approved Dn February 20, 1989, and which took effect on March 25, 1989, conformably
to Section 17 thereof, the following Rules are hereby adopted in order to carry out the
provisions of the said Code:

Rule I

Coverage

Section 1. These Rules shall cover all officials and employees in the government,
elective and appointive, permanent or temporary, whether in the career or non-career
service, including military and police personnel, whether or not they receive
compensation, regardless of amount.

Rule II

Interpretation

Section 1. These Rules shall be interpreted in the light of the Declaration of Policy found
in Section 2 of the Code:
8
https://www.bir.gov.ph/index.php/anti-corruption-law.html

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“It is the policy of the State to promote a high standard of ethics in public service. Public
officials and employees shall at all times be accountable to the people and shall
discharge their duties with utmost responsibility, integrity, competence and loyalty, act
with patriotism and justice, lead modest lives, and uphold public interest over personal
interest.”

Rule III

Reforms on Public Administrative Systems

Section 1. Every department, office and agency shall, as soon as practicable and in no
case later than ninety (90) days from the effectivity of these rules, start conducting value
development programs for its officials and employees in order to strengthen their
commitment to public service and help promote the primacy of public interest over
personal interest in the performance of their duties. Such programs and other parallel
efforts on value development shall include, among other things, the following subjects:

(a) Ethical and moral values;

(b) Rights, duties and responsibilities of public servants
(c) Nationalism and patriotism;
(d) Justice and human rights;
(e) Democracy in a free and just society;
(f) Philippine history. Culture and tradition; and
(g) Socio-economic conditions prevailing in the country, especially in the depressed
areas, and the need for a code of Conduct and Ethical Standards.

Continuing refresher courses and seminars and/or workshops to promote a high

standard of ethics in public service shall be conducted.

Section 2. Professional, scientific, technical trainings and education programs shall

enhance to the highest degree, professionalism, excellence, intelligence and skills in the
performance and discharge of duties and responsibilities of officials and employees.
These programs shall be conducted in all offices of the government and may include
subjects that are enumerated in the preceding section.

Section 3. It is the responsibility of every head of department, office and agency to

ensure that officials and employees attend the value development program and
participate in parallel value development efforts.

Section 4. Every department, office and agency shall conduct continuing studies and
analyses of their work systems and procedures to improve delivery of public services.
Towards this end, such studies and analyses shall:

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2022-0826

(1) identify systems and procedures that lead or contribute to negative bureaucratic
behavior;
(2) simplify rules and procedures to avoid red tape; and
(3) devise or adopt systems and procedures that promote official and employee morale
and satisfaction.

Each department, office or agency shall develop a service guide or its functional
equivalent which shall be regularly updated and made available to the transacting
public. A workflow chart showing procedures or flow of documents shall likewise be
posted in conspicuous places in the department, office or agency for the information
and guidance of all concerned.

Upon request, the Department of Budget and Management shall assists departments,
offices and agencies in the evaluation and adoption of work systems and procedures
that will institutionalize a management climate conducive to public accountability.

Section 5. Every department, office and agency shall consult the public they serve for
the purpose of gathering feedback and suggestions on the efficiency, effectiveness and
economy of services. They shall establish mechanisms to ensure the conduct of public
consultations and hearings.

Section 6. Every department, office and agency shall continuously conduct research
and experimentation on measures and adopt innovative programs which will provide
motivation to officials and employees in raising the level of observance of public service
ethical standards.

Section 7. every department, office and agency shall, appoint or designate a resident
Ombudsman, who shall act immediately on all request for public assistance referred to
him by the Ombudsman and his Deputies. He shall be held accountable for the
disposition of all requests for assistance.

Section 8. Government officials shall make themselves available to their staff for
consultations and dialogues.

Rule IV

Transparency of Transactions and Access to Information

Section 1. Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full public disclosure of all its transactions involving public
interest.

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Section 2. it is the responsibility of heads of departments, offices and agencies to

establish measures and standards that will ensure transparency of and openness in
public transactions in their respective offices, such as biddings, purchases, other
internal transactions, including contracts, status of projects, and all other matters
involving public interest.

They shall establish information systems that will inform the public of the following:

(a) policies, rules, and procedures;

(b) work programs, projects, and performance targets;
(c) performance reports; and
(d) all other documents as may hereafter be classified as public information. Such
information shall be utilized solely for the purpose of informing the public of such
policies, programs and accomplishment, and not to build the public image of any official
or employee or to advance his own personal interest.

Section 3. Every department, office or agency shall provide official information, records
or documents to any requesting public, except if:

(a) such information, record or document must be kept secret in the interest of national
defense or security or the conduct of foreign affairs.

(b) such disclosure would put the life and safety of an individual in imminent danger;

(c) the information, record or document sought falls within the concepts of established
privilege or recognized exceptions as may be provided by law or settled policy or
jurisprudence;

(d) such information, record or document compromises drafts or decisions, orders,

rulings, policy, decisions, memoranda, etc;

(e) it would disclose information of a personal nature where disclosure would constitute
a clearly unwarranted invasion of personal privacy;

(f) it would disclose investigatory records complied for law enforcement purposes, or
information which if written would be contained in such records or information would (I)
interfere with enforcement proceedings, (ii) deprive a person of a right to a fair trial or an
impartial adjudication, (iii) disclose the identity of a confidential source and, in the case
of a record compiled by a criminal law enforcement authority in the course of a criminal
investigation, or by an agency conducting a lawful national security intelligence
investigation, confidential information furnished only by the confidential source, or (iv)
unjustifiably disclose investigative techniques and procedures; or

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(g) it would disclose information the premature disclosure of which would (I) in the case
of a department, office or agency which agency regulates currencies, securities,
commodities, of financial institutions, be likely to lead to significant financial speculation
in currencies, securities, or commodities or significantly endanger the stability of any
financial institution, or (ii) in the case of any department, office or agency be likely or
significantly to frustrate implementation of a proposed official action, except that
subparagraph (f) (ii) shall not apply in any instance where the department, office or
agency has already disclosed to the public the content or nature of its proposed action,
or where the department, office or agency is required by law to make such disclosure on
its own initiative prior to taking final official action on such proposal.

Section 4. Every head of department, office and agency shall establish information
systems and networks that will effect the widest possible dissemination of information
regarding the provisions of the Code, and the policies and programs relative thereto.

Rule V

Incentive and Rewards System

Section 1. Incentives and rewards shall be granted officials and employees who have
demonstrated exemplary service and conduct on the basis of their observance of the
norms of conduct laid down in Section 4 of the Code namely:

(a) Commitment to public interest - Officials and employees shall always uphold the
public interest over personal interest. All government resources and powers and powers
of their respective departments, offices and agencies must be employed and used
efficiently, effectively, honestly and economically, particularly to avoid wastage in public
funds and revenues.

(b) Professionalism - Officials and employees shall perform and discharge their duties
with the highest degree of excellence, professionalism, intelligence and skill. They shall
enter public service with utmost devotion and dedication to duty. They shall endeavor to
discourage wrong perceptions of their roles as dispensers or peddlers of undue
patronage.

(c) Justness and sincerity - Officials and employees shall remain true to the people at all
times. They must act with justness and sincerity and shall not discriminate against
anyone, especially the poor and the underprivileged. They shall refrain from doing acts
contrary to law, good morals, good customs, public policy, public order, public safety
and public interest. They shall not dispense or extend undue favors on account of their
office to their relatives, whether by consanguinity or affinity, except with respect to
appointments of such relatives to positions considered strictly confidential or as
members of their personal staff whose terms are coterminous with theirs.

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(d) Political neutrality - Officials and employees shall provide service to everyone
without unfair discrimination regardless of party affiliation or preference.

(e) Responsiveness to the public - Officials and employees shall extend prompt,
courteous, and adequate service to the public. Unless otherwise provided by law or
when required by the public interest, officials and employees shall provide information
on their policies and procedures in clear and understandable language, ensure
openness of information, public consultations and hearings whenever appropriate,
encourage suggestions, simplify and systematize policy, rules and procedures, avoid
red tape and develop an understanding and appreciation of the socio-economic
conditions prevailing in the country, especially in the depressed rural and urban areas.

(f) Nationalism and patriotism - Officials and employees shall at all times be loyal to the
Republic and to the Filipino people, promote the use of locally produced goods,
resources and technology and encourage appreciation and pride of country and people.
They shall endeavor to maintain and defend Philippine sovereignty against foreign
intrusion.

(g) Commitment to democracy - Officials and employees shall commit themselves to the
democratic way of life and values, maintain the principle of public accountability and
manifest by deeds the supremacy of civilian authority over the military. They shall at all
times uphold the Constitution and put loyalty to country above loyalty to persons or
party.

(h) Simple living - Officials and employees and their families shall lead modest lives
appropriate to their positions and income. They shall not indulge in extravagant or
ostentatious display of wealth in any form.

Section 2. The following criteria shall be considered in the conferment of awards:

(a) Years of service;

(b) Quality and consistency of performance;
(c) Obscurity of the position;
(d) Level of salary;
(e) Unique and exemplary quality of achievement;
(f) Risk or temptation inherent in the work; and
(g) Any similar circumstances or considerations in favor of the particular awardee.

Section 3. Incentives and rewards to government officials and employees of the year
may take the form of any of the following, as may be determined by the Committee on
Awards established under the Code:

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(a) Bonuses; or
(b) Citations; or
(c) Directorships in government-owned or controlled corporations; or
(d) Local and foreign scholarship grants; or
(e) Paid vacations; and
(f ) Automatic promotion to the next higher position suitable to his qualifications and with
commensurate salary; provided, that if there is no next higher position or it is not vacant,
said position shall be included in the next budget of the office; except when the creation
of a new position will result in distortion in the organizational structure of the
department, office or agency. Where there is no next higher position immediately
available, a salary increase equivalent to the next higher position shall be given and
incorporated in the base pay. When a new position is created, that which is vacated
shall be deemed abolished.

The grants of awards shall be governed by the merit and fitness principle.

Section 4. (a) The system shall be administered by a Committee on Awards for

Outstanding Public Officials and Employees composed of:

(1) Ombudsman Co-Chairman

(2) Chairman CSC Co-Chairman
(3) Chairman COA Member
(4) Two (2) Government Members Employees to be Appointed By the President

(b) For this purpose, the Committee shall perform the following functions and
responsibilities:

(1) Conduct a periodic, continuing review of performance of officials and employees in

all department, offices and agencies;

(2) Establish a system of annual incentives and rewards to the end that due recognition
is given to officials and employees of outstanding merit on the basis of standards set
forth in Section 2, Rule V hereof;

(3) Determine the form of rewards to be granted;

(4) Formulate and adopt its own rules to govern the conduct of its activities, which shall
include guidelines for evaluating nominees, the mechanism for recognizing the
awardees in public ceremonies and the creation of sub-committees;

In the evaluation of nominees, the Committee may be assisted by technical experts

selected from the government and the private sectors.

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Section 5.The Civil Service Commission shall provide secretariat services to the
Committee.

Section 6. Nothing herein provided shall inhibit any department, office or agency from
instituting its own rewards program in addition to those provided by, but not inconsistent
with these Rules.

Section 7. The budget to cover all expenses in the implementation of this Rule shall be
incorporated in the appropriation of the Civil Service Commission.

Rule VI

Duties of Public Officials and Employees

Section 1. As a general rule, when a request or petition, whether written or verbal, can
be disposed of promptly and expeditiously the official and employee in charge to whom
the same is presented shall do so immediately, without discrimination, and in no case
beyond fifteen (15) working days from receipt of the request or petition.

Section 2. In departments, offices or agencies that are usually swamped with persons
calling for a particular type of service, the head of the department, office or agency shall
devise a mechanism so as to avoid long queues, such as by giving each person a ticket
number duly countersigned which shall specify the time and the date when the person,
whose name and address shall be indicated, can be served without delay. Said person
shall have the right to prompt service upon presentation of said ticket number.

Section 3. In case of written requests, petitions or motions, sent by means of letters,

telegrams, or the like, the official or employee in charge shall act on the same within
fifteen (15) working days from receipt thereof, provided that:

(b) If the communication is within the jurisdiction of the office or agency, the official and
employee must:

(1) Write a note or letter of acknowledgement where the matter is merely routinary or
the action desired may be acted upon in the ordinary course of business of the
department, office or agency, specifying the date when the matter will be disposed of
and the name of the official or employee in charge thereof.

(2) Where the matter is non-routinary or the issues involved are not simple or ordinary,
write a note or letter of acknowledgement, informing the interested party, petitioner or
correspondent of the action to be taken or when such requests, petitions or motions can
be acted upon. Where there is a need to submit additional information, requirements, or
documents, the note or letter of acknowledgement shall so state, specifying a
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reasonable period of time within which they should be submitted, and the name of the
particular official or employee in charge thereof. When all the documents or
requirements have been submitted to the satisfaction of the department or office or
agency concerned, the particular official or employee in charge shall inform the
interested party, petitioner, or correspondent of the action to be taken and when such
action or disposition can be expected, barring unforeseen circumstances.

(c) If communication is outside its jurisdiction, the official or employee must:

(1) Refer the letter, petition, telegram, or verbal request to the proper department, office
or agency.

(2) Acknowledge the communication by means of a note or letter, informing the

interested party, petitioner, correspondent of the action taken and attaching a copy of
the letter of the letter of referral to the proper department, office or agency.

The department, office or agency to which the letter, petition, telegram or verbal request
was referred for appropriate action must take action in accordance with subsection (a),
pars. 1 and 2 hereof.

The period of fifteen (15) working days herein provided shall be counted from the date
of receipt of the written or verbal communication by the department, office or agency
concerned.

Section 4. All official papers and documents must be processed and completed within a
reasonable time from the preparation thereof. Reasonable time shall be determined in
accordance with the following rules:

(b) When the law or the applicable rule issued in accordance therewith prescribes a
period within which a decision is to be rendered or an action taken, the same shall be
followed;

(c) When the law or the applicable rule issued in accordance therewith does not
prescribe a period, the head of department, office or agency shall issue rules and
regulations prescribing, among other things, what is reasonable time, taking into
account the following factors:

(1) Nature, simplicity or complexity of the subject matter of the official papers of
documents processed by said department, office or agency.

(2) Completeness or inadequacy of requirements or of data and information necessary

for decision or action;

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(3) Lack of resources caused by circumstances beyond the control of the department,
office or agency or official or employee concerned;

(4) Legal constraints such as restraining orders and injunctions issued by proper
judicial, quasi-judicial or administrative authorities; and

(5) Fault, failure or negligence of the party concerned which renders decision or action
not possible or premature; and

(6) Fortuitous events or force majeure.

Section 5. Except as otherwise provided by law or regulation, and as far as practicable,

any written action or decision must contain not more than three (3) initials or signatures.
In the absence of the duly authorized signatory, the official next-in-rank or officer-in-
charge or the person duly authorized shall sign for and in his behalf. The head of
department, office or agency shall prescribe, through and appropriate office order, the
rules on the proper authority to sign in the absence of the regular signatory, as follows:

(1) If there is only one official next in rank, he shall automatically be the signatory;

(2) If there are two ore more officials next in rank, the appropriate office order shall
prescribe the order of priority among the officials next in rank within the same
organizational unit; or

(3) If there is no official next in rank present and available, the head of department,
office or agency shall designate an officer-in-charge from among those next lower in
rank in the same organizational unit.

Section 6. All public documents must be made accessible to, and readily available for
inspection by, the public during working hours, except those provided in Section 3. Rule
IV.

Section 7. All heads or other responsible officers of departments, offices or agencies of

the government and of government-owned or controlled corporations shall, within forty
five (45) working days from the end of the year, render a full and complete report of
performance and accomplishments, as prescribed by existing laws and regulations.

Another report of compliance with the provisions of the Code and these Rules shall be
prepared and submitted to the Civil Service Commission. The Commission may require
officials to provide additional information or furnish documents, if necessary.

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Section 8. Officials and employees and their families shall lead modest and simple lives
appropriate to their positions and income. They shall not indulge in extravagant or
ostentatious display of wealth in any form.

Basically, modest and simple living means maintaining a standard of living within the
public official and employee’s visible means of income as correctly disclosed in his
income tax returns, annual statement of assets, liabilities and net worth and other
documents relating to financial and business interests and connections. Public funds
and proper for official use and purpose shall be utilized with the diligence of a good
father of a family.

Rule VII

Public Disclosure

Section 1. Every official and employee, except those who serve in an official honorary
capacity, without service credit or pay, temporary laborers and casual or temporary or
contractual workers, shall file under oath their statement of assets, liabilities and net
worth and a disclosure of business interests and financial connections including those of
their spouses and unmarried children under eighteen (18) years of age living in their
households, in the prescribed form, Annex A.

(b) Contents of Statement

(1) The Statement of Assets and Liabilities and Net Worth shall contain information on
the following:

(a) real property, its improvements, acquisition costs, assessed value, and current fair
market value;

(b) personal property and acquisition costs;

(c) all other assets such as investments, cash on hand or in banks, stocks, bonds, and
the like; and

(d) all financial liabilities and long-term.

(2) The Disclosure of Business Interests and Financial Connections shall contain
information on any existing interests in, or any existing connections with, any business
enterprises or entities, whether as proprietor, investor, promoter, partner, shareholder,
officer, managing director, executive, creditor, lawyer, legal consultant, accountant,
auditor, and the like, the names and addresses of the business enterprises or entities,

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the dates when such interests or connections were established, and such other details
as will show the nature of the interests or connections.

(c) When to File

The above documents under the Code must be filed:

(1) within thirty (30) days after assumption of office, statements of which must be
reckoned as of his first day of service;

(2) on or before April 30 of every year thereafter, statements of which must be reckoned
as of the end of the preceding year; or

(3) within thirty (30) days after separation from the service, statements of which must be
reckoned as of his last day of office.

(d) Where to File

The Statement of Assets and Liabilities and Net Worth and the Disclosure of Business
Interests and Financial Connections shall be filed by the:

(1) President, Vice-President and Constitution al Officials, with the National Office of the
Ombudsman;

(2) Senators and Congressmen, with the Secretaries of the Senate and the House of
Representatives, respectively; Justices, with the Clerk of Court of the Supreme Court;
Judges, with the Court Administrator; and national executive officials such as Members
of the Cabinet, Undersecretaries and Assistant Secretaries, including the foreign service
and heads of government-owned or controlled corporations with original charters and
their subsidiaries and state colleges and universities, with the Office of the President.

(3) Regional and local officials and employees, both appointive and elective, including
other officials and employees of government-owned or controlled corporations and their
subsidiaries and state colleges and universities, with the Deputy Ombudsman in their
respective regions;

(4) Officers of the Armed Forces from the rank of Colonel or Naval Captain, with the
Office of the President, and those below said ranks, with the Deputy Ombudsman in
their respective regions; and

(5) All other officials and employees defined in Republic Act No. 3019, as amended,
with the Civil Service Commission.

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A copy of said statements shall also be filed with their respective departments, offices or
agencies.

(d) All Statement of Assets and Liabilities and Net Worth, as of December 31, 1988,
now on file with their respective agencies shall constitute sufficient compliance with the
requirements of the Code and they shall be required to accomplish and file the new
form as prescribed in these Rules on or before April 30, 1990, and every year
thereafter.

(e) Every official and employee shall also execute, within thirty (30) days from the date
of their assumption of office, the necessary authority in favor of the Ombudsman to
obtain, from all the appropriate government agencies, including the Bureau of Internal
Revenue, such documents as may show their assets, liabilities, net worth, and also their
business interests, and financial connections in previous years, including, if possible,
the year when they first assumed any office in the government.

(f)Married couples who are both public officials and employees may file the required
statements jointly or separately.

Section 2. Every official or employee shall identify and disclose under oath to the best
of his knowledge and information, his relatives in the government, up to the fourth civil
degree of relationship, either of consanguinity or affinity, including bilas, inso and balae,
in the prescribed form, Annex A, which shall be filed; (a) within thirty (30) days after
assumption of office, the information contained therein must be reckoned as of his first
day of office; (b) on or before April 30 of every year thereafter, the information contained
therein must be reckoned as of the end of the preceding year; or (c) within thirty (30)
days after separation from the service, the information contained therein must be
reckoned as of his last day of office.

Section 3. (a) Any and all statements filed in accordance with the preceding sections
shall be made available for public inspection at reasonable hours;

(b) Such statements shall be made available for public inspection at reasonable hours;

(c) Any duly authorized person requesting a copy of a statement shall be required to
pay a reasonable fee as may be determined and prescribed by the Civil Service
Commission to cover the cost of reproduction and mailing of such statement, as well as
the cost of certification.

(d) Any statement filed under the Code shall be available to the public, subject to the
foregoing limitations, for a period of ten (10) years after receipt of the statement. The
statement may be destroyed after such period unless needed in an ongoing
investigation.

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PRESENT DAY BIR MEASURES

BIR TARGET AND COLLECTION PERFORMANCE

In 2022, the revenue target for the BIR was around P2.39 trillion. In the cash operations
report released by the Bureau of the Treasury, while the BIR’s collection for the first half
grew 9.76% from a year earlier, it fell short of the current year’s targets by 2.77%.
Although the shortfall seems small, the suspension of audits will inevitably add to the
pressure on the BIR to make up in the second half of the year. Once the 3rd quarter
collection report is released, we will have a clearer view of how potentially aggressive
the BIR may become to achieve their target revenue for the year. 9

RMC 121-2022 — HOLD ON TO YOUR SEATS

After a 3-4 month hiatus, RMC No. 121-2022 provides guidelines on the lifting of the
audit suspension. In the RMC, the suspension of field audits and other field operations
on all outstanding LoAs/Audit Notices, and Letter Notices pursuant to RMC No. 77-2022
was lifted on a per Investigating Office basis, upon approval by the Commissioner of
Internal Revenue (CIR) of the Memorandum Request from the authorized requesting
official depending on the BIR office (e.g., RDO, LTAD).

Upon approval of the request, the Investigating Office may immediately resume field
audits and other field operations on all outstanding LoAs/Audit Notices, and Letter
Notices. However, no new LoAs, written orders to audit and/or investigate a taxpayer’s
internal revenue tax liabilities may be issued and/or served except: (1) in those cases
enumerated under RMC No. 77-2022; and (2) in case of reissuance(s) due to change of
revenue officer and/or group supervisor.

Since the request and approval to resume tax audits is done on a per Investigating
Office basis, as of this writing, some RDOs have already resumed their field audit
operations while some are still on hiatus. Nonetheless, given that it has already been a
month since the issuance of RMC No. 121-2022, we can reasonably expect that what
we thought has “passed” is indeed “inevitable.”

It is also noteworthy to emphasize that unless the specific conditions under RMC No.
77-2022 are present, the BIR is still not allowed to serve LoAs for other taxable years
not currently under audit/investigation. However, bear in mind that the service of new
LoAs will eventually be lifted. Nonetheless, for now taxpayers will be able to focus on
their ongoing tax audits, without the fear of additional new LoAs being potentially served
by the BIR during this period.

9
https://www.pwc.com/ph/en/tax/tax-publications/taxwise-or-otherwise/2022/bir-audits-i-am-inevitable.html

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