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.
Back From the Brink
"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
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 7 billion pesos (more than US$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 contacting them directly."
Auditing and Enforcement
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
"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 noncomplying 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 corruption
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
"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
"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."
"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!"
The results illustrated in this article are specific to the particular situations, business models, data input, and computing environments described herein. Each SAS customer’s experience is unique based on business and technical variables and all statements must be considered non-typical. Actual savings, results, and performance characteristics will vary depending on individual customer configurations and conditions. SAS does not guarantee or represent that every customer will achieve similar results. The only warranties for SAS products and services are those that are set forth in the express warranty statements in the written agreement for such products and services. Nothing herein should be construed as constituting an additional warranty. Customers have shared their successes with SAS as part of an agreed-upon contractual exchange or project success summarization following a successful implementation of SAS software. Brand and product names are trademarks of their respective companies.
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Lilia Guillermo (left), CIO and Deputy Commissioner of the Information Systems Group and Estelita Aguirre, Deputy Commissioner of the Head of the Large Taxpayer Operations Group
Philippines Bureau of Internal Revenue
Needed to manage VAT declarations more efficiently; enhance tax assessment and collection; improve compliance and implement more transparent processes.
With the use of SAS/Warehouse Administrator and SAS Information Delivery Portal, the BIR of the Philippines centralized and consolidated crucial tax data, generated discrepancy analysis reports, bolstered enforcement and audit procedures, increased tax collections and reduced graft, corruption and the deficit.
“ In just one year we identified approximately PHP 70 billion (US1.4 billion) in under-declarations, and the PHP 6 billion (US 114 million) that we have collected so far comes to a 400 percent return on investment! Just on the initial implementation! ... Quite simply, SAS has revolutionized our tax system. ”
deputy commissioner, Head of Large Taxpayer Operations Group