Mission Accomplished!

The Philippines Bureau of Internal Revenue Reduces Federal Deficit, Improves Tax Collection Processes with SAS, Realizing 400 Percent ROI

The mission of the Bureau of Internal Revenue (BIR) of the Republic of the Philippines is to raise revenue for the government through the efficient collection of taxes, provide quality service to taxpayers and to ensure impartial and uniform enforcement of tax laws. In its role as the tax collection agency of the Philippines, the BIR is the pillar of the economy. As recently as 1998, however, tax collection was in a freefall, resulting in lower governmental revenues and higher budget deficits. To successfully fulfill its mission and to effectively turn around the tax revenue collection process, the BIR turned to SAS.

Customer Success Video

Check out this video to learn more about Philippines BIR and its successes with SAS.

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Back From the Brink
"Over the past few years we became less and less successful in collecting taxes, as evidenced by the continuous decline of our Tax Effort Ratio (TER), which is total revenue collections over Gross Domestic Product (GDP)," says Estelita Aguirre, Deputy Commissioner and Head of Large Taxpayer Operations Group. "This occurred for several reasons, such as the complexity of BIR requirements, the increasing volume of business transactions and the absence of an online system to handle the tracking and monitoring of the taxable transactions. And, of course, this affected the Philippine government because the shortfall had an impact on the budget deficit.

"Using SAS has been our vindication, and our deliverance from the brink," continues Aguirre. "For so long we had been accused of being ineffective in implementing the value-added tax (VAT) system. The situation got so dire that a congressman actually submitted a bill to completely abolish the VAT! And we could only nervously counter that we were trying our best to enforce collections. But after we started the 'Reconciliation of Listings for Enforcement' (RELIEF) project using SAS, the VAT audit trail became very easy to track and the trend was finally reversed. In fact, during the initial implementation of the RELIEF project we experienced an amazing turnaround."

"In just the first year, we uncovered approximately PHP 70 billion (US$1.4 billion) in under-declarations, and the PHP 6 billion (US$114 million) that we collected in that year amounted to a 400 percent return on investment! Just on the initial implementation! It was so easy to convince our commissioner of the advantage of using SAS software because the benefits can be quantified quite clearly."

Lilia Guillermo, BIR's CIO and Deputy Commissioner of the Information Systems Group, says that the return on investment from SAS continues to be huge. "We have now generated about seven billion pesos (more than $125 million) from the process: 200 million pesos uncovered from Bureau of Customs data, 3.2 billion pesos collections from under-declarations that we identified, and 3.6 billion of additional voluntary declarations after the message got out that we would identify under-declarations in the long run," says Guillermo. "Taxpayers now understand that we run an effective system, and that means we have to spend less time contracting them directly."

Supporting Auditing and Enforcement
The BIR began using SAS solutions to support their Tax Administration Program initially in the areas of Auditing and Enforcement. Implementing SAS/Warehouse Administrator and the SAS Information Delivery Portal, the BIR has successfully centralized their tax information and consolidated and analyzed crucial data, including: income tax and VAT returns data, sales and purchase declarations covered by VAT and information from third-party sources such as the Philippine Bureau of Customs (BOC).

One of the initial projects that the BIR undertook with SAS was to concentrate on the correct declaration of VAT by large corporate taxpayers. "One of our important tasks at the BIR is to collect the correct amount of VAT and income tax," says Aguirre. "VAT is an indirect business tax imposed on the seller in the course of trade or business on every sale or lease of real or personal properties, or in the course of rendering services, which can be passed on to the buyer.

"Since the inception of the VAT system in the Philippines in 1988, the BIR has time and again been charged with being ineffective in implementing the system because it simply had too many weak spots," continues Aguirre. "One of the crucial weak spots is that, while the VAT system itself has a built-in control mechanism through its audit trail and the output-input features of VAT invoices and receipts, the actual matching of sales and purchases, as well as output tax versus input tax, was being done manually on a very limited scale at the National Office and District Office levels. Taxpayers were therefore taking advantage of these limitations by hiding their purchase information and shrinking their sales declarations."

How, then, did the BIR solve these problem areas? Aguirre states that, "the computerized matching system, now known as the RELIEF system, was conceptualized under the Third Party Information (TPI) Program to provide a comprehensive, nationwide control and monitoring mechanism at the National Office whereby transactions between VAT taxpayers that are required to be submitted quarterly in the Summary Lists of Sales and Purchases are processed and matched against the declarations and payments in the VAT returns.

"The Summary Lists of Sales and Purchases are submitted by VAT taxpayers as soft copies (diskettes). Such data is then uploaded into the RELIEF server," says Aguirre, describing the mechanics of the RELIEF system. "On the other hand, our Integrated Tax System databases provide data from the taxpayers' VAT returns. Data from the two computerized sources are then matched. During the initial stage, we used a pool of people called 'matchers' to do this. In 2002, when we decided to institutionalize this project, we sought to accomplish this work in a less human resource-intensive way. Therefore, I consulted with Deputy Guillermo about using SAS to analytically match all VAT purchasers' declarations against those of the seller's to catch inconsistencies. Now we are eliminating the need for human intervention, and by 2004 we will move from diskette submissions to e-submissions."

The Power of Information
"After discussing the parameters of the project with Deputy Aguirre, I knew that a data warehouse was needed, and I wanted SAS," says Guillermo. "We also looked at offerings from other software providers, but SAS cost much less. Also, we had already been using SAS for MIS, and I felt that we should start with the license we already had. Our manager thought that SAS was only a statistical software vendor, but I insisted that the future is in SAS. Previously it had taken us six-eight years to establish a clean taxpayer database, but SAS/Warehouse Administrator quickly provided us with powerful information. I knew I was not mistaken about SAS, and it was so fast to implement.

"For many years, some taxpayers would deliberately try to confuse us and they were very determined not to provide us with required information," continues Guillermo. "But now we have links with the Bureau of Customs (BOC), and their database interfaces with ours to check whether the taxpayer information reports are consistent. In fact, SAS' Analytics allows us to match all VAT tax declarations against tax importations from the BOC database to generate discrepancy analysis reports. We exchange information with other governmental agencies as well, and all of this data is stored in our SAS data warehouse."

"That's right," confirms Aguirre. "Now we are able to catch non-complying or falsely complying taxpayers by using SAS! The 'exception reports' that we generate collect invalid taxpayer identification numbers, which is our key to identifying them, and we can also uncover fictitious sellers who are not registered in the database. The information and analysis provided by SAS are allowing us to bolster the enforcement and audit procedures that help to increase tax collections."

The "No Contact Audit" – Reducing Graft and Corruption
"A further advantage of this system is that, since we have phased out human intervention, we now employ what we call the 'no contact audit', where we assess and collect taxes without using valuable human resources," says Aguirre. "The 'no contact audit' minimizes the contact that our field tax collectors have with the taxpayers, which saves us money and time as fewer people have to go make site visits. Graft and corruption have also been reduced in this process, because SAS helps us to overcome human failings."

SAS provides the BIR with a transparent process that supports and strengthens the "no contact audit". The result is dynamic analytics on taxpayer discrepancies which can be presented to the taxpayer via a letter/report printout, an email attachment or via the Web. The automated generation and monitoring of these "letter notices" is being implemented nationwide using the SAS Information Delivery Portal. The BIR revenue district offices can log on to the Portal and extract notices intended for their respective taxpayers within their jurisdictions.

Taxpayer Compliance Report Card
"The taxpayers should be aware that we now have accurate information about them," says Guillermo. "In fact, using SAS we came up with an e-report card concept – we call it the 'taxpayer compliance report card' – where we are able to clearly demonstrate their compliance details. This e-report card system is intended to benchmark a taxpayer's performance in comparison to their peers, covering different tax types – income tax, VAT, percentage tax and others, plus historical payment information. We can tell them, 'you should be paying X amount, but you have actually only paid Y amount', and we can show that they are number 1 or number 2 or whatever as compared to others in their same industry. The e-report card is addressed and sent to the CEOs, not the accountants, because when the CEOs see this information, they will question the accountants and demand answers. If you are a CEO who wants prestige for your company, you will pay attention! And it is really working."

"I use the e-report card to show the large corporate taxpayers that we know what we are talking about," says Aguirre. "In my job, I always talk to the VP for Finance or the Comptroller, so when I show them this e-report card, it both convinces and challenges them. We can generate reports that list all the taxpayers in one industry and we are able to compare taxpayers without showing their names, keeping their privacy intact. We have statistics on ratios of income tax paid and 'effective VAT ratios' (EVRs), so it is easy to convince taxpayers of the preciseness of the data and ratio analysis. Taxpayers are definitely more respectful of us now because they know our information on them is correct. Quite simply, SAS has revolutionized our tax system."

Spreading the News
"Last year I made a presentation before congress which really got their attention," says Aguirre. "It was in front of the Ways and Means Committee, and I started by saying: 'Honorable congressmen, I am going to skip the first few slides of my presentation, because I am going to focus directly on a system that we have conceptualized and institutionalized that may yet be the salvation of the BIR and of this country.' Everybody stopped talking and stared at me. And then I gave the presentation about using SAS software.

"For the first time in my life I got applauded in congress. Then the Chairman of the Ways and Means asked: 'Why only now? Why hasn't this been undertaken before?' And I explained that it first took years to clean up and update the taxpayer database in our Integrated Tax System, which was essential for matching the data, and only then were we able to implement the powerful e-solutions available to eliminate the need for human intervention in the matching process. And I didn't stop there – I presented this information to the concerned government agencies, to many focus groups and everyone who needed to know about it. I even had the rare chance to explain the RELIEF system to the president of the Philippines!

"I feel that our success with SAS could also open the eyes of other governmental tax administrators. For instance, I made a presentation at the annual meeting of the Study Group on Asian Tax Administration and Research in Thailand about our use of SAS, and the Indonesians and Malaysians wanted to come and see it. I become so passionate when I discuss the SAS solutions, I feel so strongly about them."

Looking Forward
"The challenge now is to roll out the system to all taxpayers, as we have just focused on large corporate taxpayers up to now," says Guillermo. "The next step is to focus on small-scale companies and individual taxpayers. Sixty percent of tax collection is from large taxpayers, and we will do the next 40 percent of taxpayers in phases." The BIR is also looking at expanding their SAS data warehouse and its analytic matching capabilities to cover other third-party information, and they are considering whether to try to collect taxes retroactively from previous years as well.

"I chose the right software vendor, and I am very happy," continues Guillermo. "The technical infrastructure of SAS is scalable and flexible, and this enabled us to seamlessly grow the data warehouse and to strengthen the tax administration through more transparent processes and increased tax collection and reporting. I see more and more the power of SAS, and I now have a list of several other SAS solutions that I want to license."

"I am not a technical person, I am simply a software user who knows what she wants based on the organization's needs," concludes Aguirre. "And since we have been using SAS, the impact from the collection of revenue has been measurable and the results have been astounding. We have finally been able to reverse the collection trend and improve the TER. After so many inefficient years, we have now been able to convince congress, taxpayers, accountants and our own people that the BIR has the ability to track down taxable transactions and to successfully meet the mandates of our mission. Thanks to SAS, we are a real success story!"

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