Philippine Tax Chief Shrugs Off Criticism as Tax Receipts Rise

Commissioner of Internal Revenue Kim Henares Does ‘Not Mind Being Unloved’

Nov. 5, 2014 6:16 a.m. ET

MANILA—As the Philippines’ chief tax collector, Kim Henares knew she would be unpopular.

The head of the once graft-ridden Bureau of Internal Revenue has been drawing heavy flak of late, both in congress, where she has been fighting efforts to lower the Philippines’ income-tax rate, and from the private sector, which has accused the bureau of being “antibusiness” and scaring off potential investors.

“You have to do what is right, collect the right taxes—and not mind being unloved,” Mrs. Henares, the Philippines’ commissioner of Internal Revenue, told The Wall Street Journal in a recent interview.

Since taking over the bureau in 2010, Mrs. Henares has focused on ramping up tax revenue by imposing a new sense discipline at an agency once noted for its highly selective application of the tax code, and by declaring war on tax dodgers. These efforts have helped bankroll the government’s drive to develop the Philippines—a country that has traditionally done a poor job of collecting taxes—by funding education programs and ambitious infrastructure projects.

But on Wednesday, a group of 20 Philippine and foreign business organizations joined forces to condemn the bureau for allegedly withholding around $330 million in value-added tax refunds, which companies buying or selling various goods and services are entitled to claim.

The commissioner was “using every trick in the book” to avoid returning the money, said Henry Schumacher, vice president for external affairs at the European Chamber of Commerce, one of the 20 groups. “We feel business is being shortchanged.”

While accepting that fair tax regimes matter to potential investors, Mrs. Henares denied in an interview Tuesday that she was deliberately withholding the refunds or harming the Philippines’ image.

The business groups had greatly overestimated the amount of reclaimable VAT, she said, adding that the bureau was committed to resolving new claims within 120 days and that there was a clear legal avenue for addressing older cases.

“If they feel their rights have been trampled upon, the code says they should go to the Court of Tax Appeals,” she said.

But Mr. Schumacher said it was unfair to force companies to spend years in court fighting for refunds that the bureau could easily process within months.

Terence Conrad Bello, internal vice president at the Tax Management Association of the Philippines—another of the 20 organizations that criticized the tax bureau Wednesday—praised Mrs. Henares’s record at the bureau.

“If you take a broad view, she is doing a good job in pursuing her objective” of increasing revenue, he said. “But we care about taxpayers’ rights, and the BIR is taking its own sweet time processing the VAT claims.” Some refunds have been due for a decade or more, he said.

Separately, Mrs. Henares said she was firmly opposed to moves to lower the country’s top income-tax rate.

The Philippines has a relatively high top income-tax rate of 32%, but collects less tax—just $27.1 billion last year—than Southeast Asia’s other major economies.

Mrs. Henares dismissed arguments that lowering the rate to 25%, as several congressmen are currently proposing, would be fairer and boost the total tax revenue by encouraging more people to pay up.

“When the estate tax rate was lowered to 30% from 70%, everyone said the collection would go up—but it never did,” she said.

Retaining the top 32% tax bracket was necessary, she added, even if some neighboring countries had lower personal-income tax rates. “We are still developing—don’t compare us with Singapore, or Hong Kong or Malaysia,” Mrs. Henares said.

The 54-year-old Georgetown University law graduate, former World Bank official and well-known gun enthusiast also defended the bureau’s record during her 4½-year tenure, despite a string of missed revenue targets. These were only “aspirational,” she said, and weren’t seriously expected to be met.

The bureau missed its 2013 target by 3%, but collected 15% more taxes than the year before.

“If you look at revenue performance, the bureau has performed over and above what you would expect from an economy like the Philippines,” said Christian de Guzman, vice president at Moody’s Investors Service, noting that revenue increases had been comfortably outstripping annual gross domestic product growth of around 6%-7%. “She’s whipped the organization into shape.”

Mrs. Henares said she has helped clean up the bureau’s corrupt image by removing discretion from the assessment process and insisting on strict adherence to the tax code.

While conceding that such unethical practices hadn’t been entirely eliminated, Mrs. Henares insisted the bureau was now “by and large a good organization.”

She also said the bureau under her leadership had filed far more tax-evasion cases than previous administrations, and that this had sent an important message to would-be tax dodgers—even if shortcomings in the Philippine legal system made it hard to secure prosecutions.

Despite the government’s broad anticorruption stance, she also cautioned against proposals to vet 2016 election candidates by studying their tax affairs. “It might disqualify everyone,” she said.

Source: http://online.wsj.com/articles/philippine-tax-chief-shrugs-off-criticism-as-tax-receipts-rise-1415186212