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 Tax mess: The local government in Calbayog City owes the national government PhP 56 million because of the failure of its previous leaders to remit collections from employees to BIR for three years. Courtesy of www.lawphil.net CALBAYOG CITY -- Just as people here continue to ask who was behind the killing of Mayor Reynaldo Uy two months ago, so they are still wondering how it is that the city treasury effectively owes PhP 56 million (USD 1.3 million) to the national government after failing to remit tax revenues from 2007 to 2010.
But it seems discrepancies in remitting claimed taxes appear to date back even further.
The collection scandal has reportedly been an open secret among many of the 1,000 plus employees of the local government unit here who maintain deductions payable and due to the Bureau of Internal Revenue (BIR), the Government Service Insurance System (GSIS) and the likes of the Pag-Ibig Fund were neither properly collected nor passed on.
A letter sent by BIR District Officer Rolando B. Espina dated July 19 last year and addressed to then Mayor Uy maintained the city government of Calbayog had failed to remit its withholding taxes equivalent to PhP 56.411 million dating back to 2007, under the term of then mayor and now Samar’s first district Rep. Mel Senen Sarmiento.
The formal complaints made in the letter included withholding tax returns, reports not being submitted on time and the information indicated in the returns and necessary attachments being incomplete.
The revenue officer duly concluded that the city government as the holding agent clearly and willfully committed a gross violation of the Tax Code.
Details of discrepancies
According to the final assessment of Revenue Examiner Ryan T. Elvina, for the year 2007, only PhP 10.005 million (USD 283,214) was remitted out of PhP 12.248 million (USD 291,619) calculated and no funds were submitted for the months of September and October 2007 despite amounts of PhP 883,000 (USD 21,024) and PhP 979,000 (USD 23,309) being listed in the Annual Information Return of Income Taxes Withheld on Compensation.
The deductions made from the salaries of public employees in Calbayog were allegedly either not properly collected – else they were not properly and fully filed and sent back to the BIR.
Failure of the city government as the withholding agent to remit withholding taxes of the compensation income is tantamount to non-payment of payee (as cited in Benguet Corp. vs. CIR G.R. No. 141212, June 22, 2006).
Revenue Memorandum Order 8-2003 identified government officials designated as withholding agents as being personally responsible for the correct withholding and timely remittance of tax.
In the case of Calbayog, the local chief executive, city treasurer and accountant are the key officials accountable for such discrepancy, said an insider who declined to go on record while speaking to the Philippine Public Transparency Reporting Project (PPTRP).
In addition to arrears claimed, a 20 percent surcharge was imposed pursuant to the provisions of Section 249 (b)which states that any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in sub section (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof.
Elvina concluded that based on their findings, the total amount of PhP 56.411 million representing deficiency withholding tax on compensation, final tax, expanded withholding tax and due to BIR account is still due and demandable.
The city version
City Treasurer Federico Resente admits the amounts payables incurred by the city but maintains the problem with remittances dates back to before the time he assumed office in 2007.
When the land area of Calbayog (90,300 hectares) was reduced, the Internal Revenue Allotment (IRA) was also affected, says Resente. To cope with the potential decrease in IRA, they established a buffer fund or reserve fund to provide its fiscal stability in times of economic upheaval.
With respect to BIR assessment amounting to PhP 56.411 million, the city has created a task force to validate the figures given which appear based on the New Government Accounting System (NGAS) yet are not supportive of documents, he contends.
City Accountant Rodel Lim on the other hand said that the PhP 56.411 million tax deficiency is still subject for discussion. The change of leadership in the local level has affected the priorities of the government, he told PPTRP. But he added that employees’ withholding taxes are now remitted on time including the GSIS and Pag-Ibig Fund.
Remedies
Mayor Ronaldo Aquino, who just assumed the post on May 4 this year after the killing of then incumbent Reynaldo Uy, immediately created the Task Force to validate the tax assessment made by the BIR District 87.
In his letter sent to BIR Regional Director Albert B. Alocilja, Aquino appealed for more time to review and study the content of the letter sent by Revenue District 87 Officer Rolando Espina. While waiting for the report of the task force, the city offered to pay the monthly arrears in the amount of PhP 2 million (USD 47,619). This began the same month.
The new mayor asked that the surcharges, interests and other charges be suspended for fear of seriously depleting the funds and resources of the city and thereby affecting the delivery of basic social services to the people.
In his reasoning, he also cited the possibility of significant reduction in the IRA share of Calbayog due to the recent Supreme Court ruling converting a number of municipalities into cities.
The city’s IRA was PhP 827.7 million (USD 19.7 million) for 2010.
Effect
While the city government is on the process of validating the assessment made by the BIR, and waiting for the answer to its request of condonation of charges and interests, many are wondering where this money went.
In contrast to the treasurer and accountant’s defense that the amount was incurred because some contractors failed to settle their tax obligations, the BIR report clearly suggests that the LGU under the leadership of Uy’s predecessor failed to remit employees’ withholding taxes despite the reasonable time given for the city to settle.
Section 4 (b) of Republic Act 6713 states that, “public 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.”
That the issue of such a large tax hole in Calbayog City that dates back years , itself took such a long time to come out only underlines the problem ordinary citizens here have long faced in gaining their rightful access to information about the operation and control of public spending.
As with the killing of Mayor Uy, people are increasingly looking to organize and to insist ‘never again’. Philippine Public Transparency Reporting Project
(The author is a reporter of Samarnews.com and member of the Multisectoral Alliance for Transparency and Accountability in Samar or MATA-Samar.)
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