MS 30th Anniversary XXX

Henares at the helm: A taxing responsibility

by Karl Allan Barlaan and Christian Cardiente Newly-appointed Bureau of Internal Revenue Commissioner Kim Henares obtained her accounting degree from De La Salle University and became a Certified Public Accountant in 1981. She later earned her law degree from the Ateneo de Manila University, where she graduated with honors. After passing the Philippine Bar, she pursued a Master of Laws from the prestigious Georgetown University in Washington DC. Before becoming BIR Commissioner, Henares was a tax lawyer for SGV & Co., senior partner at the Jacinto Jacob Law Office, vice-president for ING Bank, governor for the Board of Investments and Senior Private Sector Development Specialist for the World Bank Group. She was also BIR Deputy Commissioner of the Special Concerns Group and officer-in-charge of the Large Taxpayers Service from 2003 to 2005. Henares herself agrees that aside perhaps from former BIR Commissioner Guillermo Parayno Jr., nobody else possesses the same academic background, professional experience and expertise from among those who have coveted and continue to covet the post of BIR Commissioner. Her qualifications notwithstanding, Henares admits that being in charge of the BIR is a challenge that exceeds—in both magnitude and scope—her previous assignments. After all, the bureau is widely perceived as one of the country’s most corrupt government offices. “You have to undo 106 years of old habits and acquire new ways of doing things—a new mindset. It’s really about making sure people really believe that we’re serious,” ” she says. While there are admittedly better prospects with greater financial rewards in the private sector, she claims there is only reason for her stay in the bureau: “in my mind this is our last chance, our country’s last chance, and I have to contribute to it and give it my best shot,” says Henares. The tax dilemma The sense of urgency in Henares’ statement is not without bases. A number of reports have cited a WB estimate, which says that half of every peso collected by the BIR is lost to corruption. Another estimate by the Department of Finance puts the total annual tax leakage at about P240 billion. A technical report, “Philippine Tax Leakages: An Assessment,” released in January 2006 said that in 1998, tax leaks accounted to almost 100 percent of the decline in government’s tax effort. According to the same report, tax leakages in excise tax for sin products was estimated at P2.3 billion in 1995, which declined to about P1.5 billion in 2000 mainly due to reforms under the 1997 Comprehensive Tax Reform Program. In 2003, the National Tax Research Center reported that at least P127 billion had been lost through evasion from individual, corporate and value-added taxes for the years 1998 to 2002. During the same five-year period, NTRC estimated an additional P270 billion was lost to tax evasion by corporate taxpayers; plus P208 billion tax leakage from VAT. The NTRC estimated in 2006 that the individual income tax gap had averaged about P36 billion per year in 2001 to 2005. Around two-thirds of the estimated amount is lost to evasion by professionals and self-employed individuals. BIR’s tax effort exhibited a declining trend from a peak of 13 percent in 1997 to just about 10 percent in 2004 partly due to forgone collections. Reforms, initiatives, results Three months ago, at the beginning of her term, Henares said that raising figures on tax effort from 12.3 percent of gross domestic product to 15 percent was “doable.” According to her, even without new tax measures, as President Benigno Aquino III had promised during the campaign, the government still stood to collect about P150 billion as soon as it started running after tax cheats, corrupt agents, and smugglers. The tax agency has since, filed 11 cases of tax evasion and fraud, creating a “chilling effect” among tax evaders. In September, the bureau surpassed its collection target by P1.06 billion—the first time since the start of the year. The agency collected P60.96 billion for the month, posting an 8.4 percent increase from last year’s P56.24 billion same-period collections. BIR’s January to September collection now stands at P607.33 billion, short by almost P31 billion from the set goal for the period, but an improvement of nine percent compared to last year’s collections. According to Henares, the BIR’s collections grew by 17 percent in August, the highest in 28 months. Last month, the government issued regulations effectively relaxing access restrictions to financial information involving suspected tax cheats. Tax authorities now find it easier to obtain and exchange information for purposes of monitoring tax payments. According to the Organization for Economic Co-operation and Development, the country has a network of more than 30 treaties that provide for exchange of information on tax matters. The move enables many of the said treaties to meet the international standard, “reflecting the worldwide movement towards greater transparency and exchange of information.” Demoralization and political pressure?  Henares expresses optimism over this policy shift towards greater transparency in governance, as she does over marked improvements in the bureau’s revenue collection effort. But an insider from the bureau claims that the crusading tax chief will have to contend with much more than just raising collection and meeting targets. She will also have to deal with supposed demoralization from within the bureau, as well as withstand political pressures—ranging from her choice of deputies to appeals for leniency on behalf of well-connected tax evaders—from a larger bureaucracy. The source claims that morale is low in the bureau. “There is unrest,” he says. According to him, last month, contracts of 40 temporary employees were not renewed without the benefit of a performance assessment, while appointments of other top officials have been nullified because of the President’s Executive Order (EO) Nos. 1 and 2. Most of these officials are career civil servants who have worked in the BIR for more than a decade. (EO No. 2 orders the immediate removal of alleged “midnight appointees” by former President Gloria Macapagal-Arroyo; EO No. 3 revokes career executive service officer [CESO] rank to lawyers in government. Both EOs are questioned before the Supreme Court for supposed legal infirmities.) Still, issues internal to the agency are negligible in comparison to the task of having to resist pressures from government’s powers-that-be. One of them, according to the source, is Executive Secretary Paquito “Jojo” Ochoa Jr.—Henares’ classmate from the Ateneo School of Law—who allegedly bears a grudge against Henares because the latter has refused his endorsement of lawyer Othelo Carag for the position of BIR Deputy Commissioner. The source says that Henares, like most other officials in the economic and finance cluster, is identified with the “Balay” group of Mar Roxas, Aquino’s vice presidential running mate—“which is why ‘Samar’ (with which Ochoa is identified) has been salivating to have their own people appointed here (BIR),” he says. Carag, former Assistant Secretary for the Department of National Defense (DND) from 2005 to 2006, is a senior partner of Carag de Mesa and Caballero Law Offices —a distinction he shares with current Chief Presidential Legal Counsel Eduardo de Mesa, who in turn was Ochoa’s partner in De Mesa and Ochoa Law Offices.” An unexpected call But it was another Ochoa partner, this time from the Marcos Ochoa Serapio Tan Law Firm (MOST Law), who had in one instance earned the ire of Henares, says the source. This was when lawyer Edward Serapio had allegedly called up Henares to request that the P5.5 billion tax evasion case filed against Macario Gaw be remanded from the Department of Justice (DOJ) where it has already been filed, back to the BIR, where it will be easier and cheaper to “negotiate” for a settlement of the case, rather than risk a conviction by the courts. In an interview with the Manila Standard Today, Henares, though refusing to identify the caller, admitted having in fact received such a call from a “private individual.” “There was a call that said can they file a motion to remand the case back to me, to BIR. I said no, you’re just wasting your time. Why don’t you defend yourself at the DOJ?” she narrated. Henares however clarified that she did not interpret the call as a signal to “back down” from pursuing the case or to “back off” from prosecuting Gaw. For her, it was just another request she could not accommodate. “It’s normal for people to approach some people who they think can talk to me. For me it’s simple, if you have a strong case, then you don’t have to look for anyone. You can come and talk to me and I will look at your case, and I will make a decision based on the law,” said Henares. But another official, speaking on condition of anonymity, had claimed that the request had in fact irked Henares. Asked whether Serapio had name dropped Ochoa, the official replied: “No. But we can put two and two together.” The BoC, too? Meanwhile, sources from another agency, the Bureau of Customs (BOC), revealed that Serapio had also interceded on behalf of Cross Country Oil and Petroleum Corp, for a case already filed with the DOJ. The case filed by the BOC against the company said: “(Cross Country Oil and Petroleum Corp. was a) small, undercapitalized company that was able to import nearly P8.5 billion worth of petroleum products between March 2009 and September this year.” The BOC has demanded payment of the said P8.5 billion, as the firm had allegedly served as front for a big-time petroleum smuggling syndicate. Like the P5.5 billion peso BIR case of Macario Gaw, Serapio has also allegedly lobbied for a remand of the P8.5 billion case against Cross Country. Unlike Henares who refused the request outrightly, a customs insider alleges that BOC officials have been more accommodating in considering the request, mainly because of two reasons: first, Customs Deputy Commissioner Peter Manzano was Serapio’s junior partner in MOST Law; and second, intermediaries who had claimed they were sent by Senator Bong Revilla have supported the request. “Bantayan n’yo yung kaso. Kapag bumalik sa ahensiya (BoC) tapos maareglo doon, alam niyo na ang nangyari (Monitor the case. If it is remanded to the BoC and settled there, you will have known what happened),” the source said. OES vs BIR? Executive Secretary Jojo Ochoa refused to comment on the alleged “activities” of his law partner. Another Palace aide, however, admitted that Serapio was an informal member of Aquino’s transition team at the beginning of the President’s term though was later “eased out” because of past involvement in former President Joseph Estrada’s controversial Muslim Youth Foundation Inc., among others. The same Palace insider also divulged that they (from the Office of the Executive Secretary) were not satisfied with Henares’ performance particularly with regard to the BIR’s proposed toll tax for the South Luzon Expressway, for which the Supreme Court had issued a temporary restraining order. “Tira nang tira, kulang naman sa aral (she proposes without due diligence),” he claimed. Henares’ response to the criticism was concise: “tell them to wait for the results of what we’ve been doing here... I don’t really have to do this job; I can do a lot of other things and earn substantial amount of money without all theses headaches.” As for what would most likely make her leave government service, Kim Henares cites three probable causes: “(1) When I’m no longer effective; (2) when my objectives and my bosses’ objectives are no longer the same; (3) or when my principles would be compromised.” The multibillion-peso question The BIR and the BoC are the Philippines’  top two revenue earners. They are also perceived to be two of its most corrupt government offices. This provides both an opportunity and a challenge for a President who ran and won under the platform of good governance. Reform these two agencies and the promise of reforming the entire bureaucracy, if not the whole nation, becomes more believable, more achievable. The conclusion to this report is short and direct. It comes in the form of a question borrowed from a BIR official: “How does he (Aquino) intend to increase collections when his friends have been asking for cases (filed) against tax evaders to be dropped ?” How indeed?
COMMENT DISCLAIMER: Reader comments posted on this Web site are not in any way endorsed by The Standard. Comments are views by readers who exercise their right to free expression and they do not necessarily represent or reflect the position or viewpoint of While reserving this publication’s right to delete comments that are deemed offensive, indecent or inconsistent with The Standard editorial standards, The Standard may not be held liable for any false information posted by readers in this comments section.