Singapore and South Korea are the role models, but will the technology deter tax evasion and fraud in the Philippines and elsewhere?
E-invoicing and sales reporting systems facilitate the issuance of electronic receipts or invoices, as well as the digital sending of transaction records to the tax authority of the country. The issuer of the invoice, the recipient and the tax authorities can analyze the electronically transmitted data, in real time.
In the Philippines, e-invoicing and issuance of receipts became mandatory for large taxpayers after the passing of the Tax Reform for Acceleration and Inclusion Act (TRAIN) law.
There are multiple questions about implementing e-invoicing in the Philippines. The first one is the cost to be faced by those large companies when installing the new system in their offices. A House Bill, the Tax Reform for Attracting Better and Higher Quality Opportunities (TRABAHO), seeks to mitigate the said cost by granting a tax credit of 0.1% for every electronic receipt or invoice transmitted during the implementation period (four years).
Another question about e-invoicing is: Does it address the real problem in Philippine tax collection, which is the annual shortfall brought about by the fact that only 30-35% of taxpayers pay their taxes each year? The Philippine House of Representatives’ Committee on Ways and Means questioned the Philippines’ Bureau of Internal Revenue (BIR) about the PhP150 billion (around $3 billion) shortfall this year.
Beleaguered with annual tax collection shortfalls, the Philippines seeks to follow the example of its Asian neighbors such as Singapore and South Korea, in utilizing e-invoicing.
E-invoicing in other countries
Singapore adopted its own e-invoice system only last year, becoming the first country in Asia and outside of Europe to adopt the Pan European Public Procurement On-Line system. The system is an automated process which does away with human input such as computerized printouts and scanned invoices. Corporations and single proprietors alike can now use Singapore’s myTax Portal to manage transactions with their inland revenue service.
For South Korea, a similar type of system has been in use since 2011. Taxpayers are required to issue an Electronic Tax Invoice (ETI) and they are given incentives to use credit cards and other modes of online payments. The credit card information added to the ETI deters taxpayers from attempting any fraudulent schemes. The World Bank has even written a case study on Korea’s ETI system.
Presently, the BIR is doing a feasibility study in cooperation with the Korea International Cooperation Agency (KOICA) on the implementation of an electronic invoicing (e-invoicing) system. The study is being done with the end in view of obtaining a $7.3 million grant from KOICA.
Can e-invoicing increase tax collection in the Philippines?
According to Godofredo V. Arquiza, who is a former Congressman, an attorney and a Certified Public Accountant, e-invoicing is not going to increase the tax collection rate: “Those who pay taxes will still pay taxes, those who avoid paying the right taxes will still avoid paying, and those who do not pay taxes will still not pay taxes.”
This writer had a chat with the CPA lawyer on the topic of e-invoicing and another proposal to increase tax collection, the Unified Receipt System:
DigiconAsia: E-invoicing has been successfully implemented in South Korea and Singapore. What can you say to this for the Philippines?
Arquiza: It is not a bad idea but it is primarily for large taxpayers or companies, which number around 1,500 in the Philippines. It will facilitate or speed up the process of sending data to the BIR, but it will not increase the tax base, because you still have the small and medium enterprises (SMEs), which will find it difficult to discard the old system and install the new. Think of SME’s in the remote provinces. The tax base needs to be widened because 65% escapes the net of tax collection.
DigiconAsia: On increasing tax collection, what are the alternative solutions?
Arquiza: I am inclined towards a Unified Receipt System, in which all receipts originate from one source rather than from numerous printers? The government has processes and procedures but no control over receipts, which can be ordered in bulk from any printer. Companies have an easy time to discard unused receipts and hide earnings.
DigiconAsia: So, under the Unified Receipt System, what kind of incentives would SMEs receive?
Arquiza: Under this system, hidden earnings or underhand transactions can be more easily monitored, because all the receipts will come from one source. SMEs will be motivated by a raffle system whereby honest taxpayers are granted incentives. Nevertheless, fakery will be difficult because every receipt submitted is verified via stubs and watermarking that originates from only one source.
Another incentive would be for rebates to be given to those reporting on tax evaders.