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TAKING
THE PITH OUT OF NaRA
A Position Paper on the Proposed Amendments to House Bills 5054 and 5465
Creating the National Revenue Authority
by the
Transparency and Accountability Network
The Transparency and Accountability Network envisions a Philippines
characterized by transparent, accountable, efficient, and effective
public institutions and an informed, empowered, involved citizenry
intolerant of corruption.
As such, we strongly support the passage of legislation creating the
National Revenue Authority (NRA), which proposes an internal revenue
agency that possesses corporate powers, exercises independent authority,
and effectively delivers revenues for the government and the people.
On July 28, 2003, President Gloria Macapagal-Arroyo identified reforms
in tax administration as major priority during the year’s State of the
Nation Address. Senate President Franklin Drilon and House Speaker Jose
de Venecia reiterated the significance of tax administration reform
during their opening speeches for the resumption of Congress.
We congratulate the President and both Houses of Congress for making a
move toward this goal.
However, a vital provision on preferential absorption has been removed
from the bill endorsed by the Committee on Ways and Means. The
Transparency and Accountability Network now asks Congress: why?
The comments to the substitute bill submitted to the Committee on
Appropriations reads as follows: “We propose that a new Sec. 16 be added
to state: Subject to Sec. 10 (D) to (G), all employees of the BIR
are deemed transferred to the Authority upon effectivity of this Act.”
We believe that the element of preferential absorption is the key
to cleaning up the internal revenue bureaucracy – the very essence for
which this bill has been created. Preferential absorption gives a BIR
employee willing to reapply with the NRA preference over a similarly
qualified applicant, all other things – competency and ethical standards
included – being equal.
THE NEED FOR TAX ADMINISTRATION REFORM
The Bureau of Internal Revenue is consistently perceived to be
among the most, if not the most, corrupt agency in the government. This
may not be all perception. The Office of the Ombudsman has estimated
that as much as P240 billion a year is lost in leakages in the BIR,
while the World Bank estimates that this number could be as high as P400
billion a year. In addition, the tax effort (the ratio of the
collections of the BIR to the gross domestic product) has been steadily
declining since 1998, from a peak of 13.0% in 1997 to its most recent
level of 9.9% in 2002.
Clearly, there is a need to reform the tax administration agency.
The need to reform tax administration is part of a larger package of
reforms aimed at tax administration and tax policy. Tax administration
reforms are targeted at addressing the perennial deficit position of the
national government and the continuing decline in the tax effort in
recent years, as well as to address problems in the area of transparency
and accountability. Key to the reform in tax administration are:
- The creation of an independent revenue authority;
- A strong system of accountability for agency personnel, which will be
a basis for rewards and effective sanctions for corruption;
performance-linked compensation; transparent and non-arbitrary reward
procedures;
- A staff of highly qualified, highly motivated people of integrity paid
competitive salaries and enjoys exemption from the Salary
Standardization Law;
- An institutionalized tax system that is transparent to the public;
- Transparent budget procedures and performance-linked budgets;
- Independent internal and external audits; citizen review and
oversight.
PREFERENTIAL ABSORPTION: THE PREFERRED OPTION
In the current version of the draft of HB 5465, the authors of
the bill recognized and acknowledged the fact that the BIR has many
honest, hard-working and productive employees that would continue to be
an asset to the NRA. This fact is recognized through the inclusion of a
section (Section 20(b) of HB 5465), which referred to the preferential
absorption of BIR employees into the NRA. Preferential absorption simply
states that personnel of the BIR who opt to reapply with the NRA will be
given preference over a similarly qualified applicant, all other things
being equal.
Preferential absorption will require the applicant to be subjected to a
process to determine his or her fitness to join the new organization.
Fitness refers not only to the possession of the correct skill set, but
also the correct ethical standards. It would be the primary screening
process in the effort to create a new organization composed of highly
qualified personnel of integrity.
Many misconstrue preferential absorption as being anti-BIR employee.
Some go so far as to say it is anti-labor. To the contrary, preferential
absorption, in fact, very much favors the hard-working, honest and
productive BIR employee, giving him or her preference over equally
qualified applicants. Not only will BIR employees enjoy preferential
absorption, under the draft bill, they will also be entitled to salary
scales competitive with that of the private sector.
Preferential absorption ensures that only the most qualified applicants
will be accepted in the new agency. Only those BIR employees, who are
not qualified because of lack of merit or ethical fitness to hold a
position in the NRA, should fear not being absorbed. It is good news for
those that deserve to be retained and bad news for those that do not.
FULL ABSORPTION: SAME DOG, NEW COLLAR
At the hearing of the Congressional Committee on Appropriations
on August 5, 2003, several amendments were recommended and adopted to
the substituted draft for House Bills 5465 and 5054, AN ACT CREATING THE
NATIONAL REVENUE AUTHORITY, PROVIDING FUNDS THEREFOR, AND FOR OTHER
PURPOSES.
The most striking and objectionable amendment was the move to go from
the preferential absorption to the full absorption of BIR employees into
the NRA. The removal of the section on preferential absorption in favor
of a new section on full absorption is a serious cause for concern for
those who are fighting for genuine reform in the tax administration
agency.
Under a full absorption scenario, the highly qualified as well as the
unfit will be transferred automatically to the NRA. In other words, the
good eggs will be accepted along with the bad eggs on a wholesale basis.
With full absorption, nothing will change in terms of the overall level
of quality of the personnel. It will be, as the saying goes, the same
old dog with a new collar. Full absorption begs the question: why, then,
are we going through this whole reform exercise if everyone will be
fully absorbed?
GIVE AND TAKE: FULL ABSORPTION FOR EXPANDED BOARD POWERS
We are told that in exchange for accepting the full absorption
section, the Internal Revenue Board will be given expanded powers,
namely to:
1. Implement a performance management system;
The implementation of a performance based management system, this is
not an expanded power of the Internal Revenue Board as Section 15(g) of
HB 5465 already contains this power.
2. Re-organize the NRA; and
The BIR has long had the ability to reorganize. In fact it has done
so on many occasions, ostensibly to increase efficiency and boost
revenue collections. And yet, no matter how many times the BIR has
re-organized it seems not to have any lasting effects either on the
efficiency of the organization nor on the tax effort. This is further
evidenced by the fact that in the last 30 years there have been at least
8 attempts at reorganizations in the BIR.
3. Hire, promote, transfer, assign, reassign or remove personnel.
The new Internal Revenue Board shall be given the power to hire,
promote, transfer, assign, reassign or remove personnel. This would seem
to be the Revenue Board’s last line of defense in dealing with not only
inefficient and/or unproductive personnel, but also corrupt ones.
This power to remove personnel by the Revenue Board is illusory at best.
An erring or corrupt employee always has recourse to either or both the
Civil Service Commission and/or the courts. Ultimately, therefore, the
power to fire an employee rests not with the Revenue Board, but with the
Civil Service Commission and/or the courts.
Therefore, the Internal Revenue Board has not been given any real
expansion of powers to counter-act the detrimental effects of full
absorption. At best, the expanded powers will assist the Revenue Board
in retaining or acquiring personnel with the correct skill sets, but it
will do nothing in increasing the Board’s ability to deal decisively and
irrevocably with corruption in the NRA or its ability to fire corrupt
officials.
Given this, how then is the NRA Internal Revenue Board to deal with the
bad eggs that come with full absorption? Firing a BIR employee on the
basis of corruption is practically unheard of. In the last 28 years, no
BIR employee has been terminated because of corruption. It certainly is
not because there are no corrupt officials in the BIR, but because to
prove corruption is so difficult in the first place. In fact, if we are
to believe recent media reports about the alleged ostentatious
lifestyles of some high ranking BIR officials, then one realizes that it
took a private investigative organization for the government to finally
make the move to file charges against these officials.
We do not want to depend on luck, or once-in-a-lifetime opportunities
like this. If we are to create a truly reformed agency then we must
create an environment where opportunities for corruption are minimized
and where instances of corruption can be dealt with in a swift,
efficient and definitive manner. For as long as inept, inefficient, and
corrupt officials and employees are allowed to stay on in the revenue
agency, they will continue to demoralize and weaken the resolve of the
many hard-working, honest and productive personnel to stay that way.
Lastly on the subject of purging the NRA of corrupt officials and
employees, it is really left to the political will of the NRA leadership
to weed out the undesirable elements. The BIR has seen many a
commissioner come and go, commissioners of undoubted integrity and
political will, and yet not one of them has been able to fire any BIR
personnel for corruption in the last 28 years.
In light of the recent media reports on the lifestyles of several high
ranking BIR employees, the Department of Finance has vigorously pursued
lifestyle checks to weed out corrupt officials in the BIR. As a result
of those efforts, the BIR leadership has received a not so veiled threat
from the employees association that if the lifestyle checks continue
“the improving collection performance which we all endeavored to work on
for the past six months may not be sustained due to massive
demoralization within the ranks”. Further, the employees warn that some
“unwarranted actions that the employees may orchestrate” may not be
avoided.
With full absorption, the same group of emboldened employees can
continue to hold the NRA leadership at bay - and revenue collection
hostage - with such types of blackmail and threats.
SACRIFICING LONG-TERM REFORM FOR SHORT-TERM CONSIDERATIONS
An argument that has been put forth as to why BIR employees
must be fully absorbed into the NRA is that not to do so would imperil
revenue collections in the near term.
Any kind of reform will always introduce disruption or disturbance to
the existing situation. This should never be used as an excuse not to
institute far reaching and genuine reform. However, anticipating the
potential disturbance the transition to a new revenue agency might
cause, the authors of HB 5465 included a provision (Section 20) that
would allow the BIR to continue functioning until such time that the NRA
is up and running. The section even allows the BIR to take some extra
measures to raise revenue collection during the transition, precisely to
mitigate any effect of the transition. While the transition may cause a
disturbance in the collection of revenues, HB 5465 adequately addresses
that concern. There are no guarantees that collections will not suffer,
but nobody said reforms were going to be easy. We should not sacrifice
long-term, genuine reform, for near-term concerns and fears.
FULL ABSORPTION WILL NOT WORK
Full absorption simply will not work in creating a revenue
agency composed of highly qualified people of integrity. The proposed
legislation does little to improve the Authority’s ability to weed out
the undesirable elements that come with full absorption. The so-called
expanded powers of the Board are not an expansion of powers at all. The
ability to implement a performance based management system for NRA
employees is already contained in the original draft of HB 5465 (Section
20). The ability to re-organize the NRA is also present within existing
laws (the BIR has had numerous reorganizations in the past 3 decades).
And the ability to hire and fire people is an existing right of all
government agencies.
Under full absorption, the NRA will be handicapped in that it will be
forced to accept the bad with the good. Nothing in the proposed
legislation, nor in the “expanded” powers of the Internal Revenue Board
will help the leadership of the NRA deal decisively with corruption. Our
only hope, therefore, is from the very beginning to create an agency
staffed with highly qualified, highly motivated people of integrity. The
corporate powers bestowed upon the agency will help in keeping it that
way.
The establishment of an autonomous, transparent, ethical, responsive,
merit-based agency to collect our taxes is long overdue. Employees of
the BIR should have nothing to fear if they are honest performers.
Preferential absorption will negatively affect only the unqualified
non-performers and corrupt personnel.
We believe, that preferential absorption is our first line of defense in
creating a responsive and clean revenue agency. It is the only clear and
clean way that the revenue authority can break away from the entrenched
interests and practices of the old agency. It is a non-negotiable item
that must be contained in any legislation that hopes to truly create a
reformed revenue authority. We will continue to support legislation that
contains preferential absorption as the first line of defense against
corrupt elements. Full absorption not only waters-down the original
intent of the reform, it guts the legislation to the point of inutility.
We will vigorously oppose any legislation that contains a full
absorption clause.
Lastly, in order to strengthen the NRA’s ability to identify rogue
elements within the agency, we strongly recommend that integrity tests
be made mandatory for all applicants to the National Revenue Authority.
TAKING
THE PITH OUT OF NaRA
A Statement on the National Revenue Authority
by the
Transparency and Accountability Network
The Transparency and Accountability Network envisions a Philippines
characterized by transparent, accountable, efficient, and effective
public institutions and an informed, empowered, involved citizenry
intolerant of corruption.
As such, we strongly support the passage of legislation creating the
National Revenue Authority (NRA), which proposes an internal revenue
agency that possesses corporate powers, exercises independent authority,
and effectively delivers revenues for the government and the people.
On July 28, 2003, President Gloria Macapagal-Arroyo identified reforms
in tax administration as major priority during the year’s State of the
Nation Address. Senate President Franklin Drilon and House Speaker Jose
de Venecia reiterated the significance of tax administration reform
during their opening speeches for the resumption of Congress.
We congratulate the President and both Houses of Congress for making a
move toward this goal.
However, at the Hearing of the Congressional Committee on Appropriations
held on August 5, 2003, several amendments were recommended and adopted,
to include the removal of a vital provision on preferential absorption.
The Transparency and Accountability Network now asks Congress: why?
We believe that the element of preferential absorption is the key to
cleaning up the internal revenue bureaucracy – the very essence for
which this bill has been created. Preferential absorption gives a BIR
employee willing to reapply with the NRA preference over a similarly
qualified applicant, all other things – competency and ethical standards
included – being equal.
Taking away the provision on preferential absorption is taking away the
essence of the National Revenue Authority.
The Bureau of Internal Revenue (BIR) is consistently perceived to be
among the most, if not the most, corrupt agency in the government. This
may not be all perception. The Office of the Ombudsman has estimated
that as much as P240 billion a year is lost in leakages in the BIR,
while the World Bank estimates that this number could be as high as P400
billion a year. In addition, the tax effort has been steadily declining
since 1998, from a peak of 13.0% in 1997 to its most recent level of
9.9% in 2002.
The majority of honest, hard-working, and productive BIR employees is
recognized and protected through the inclusion of Section 20(b) of HB
5465, which referred to the preferential absorption of BIR employees
into the NRA.
Preferential absorption requires an applicant to be subjected to a
process, which determines merit and ethical fitness to join the
organization. It would be the primary screening process in the effort to
create a new organization composed of highly qualified personnel of
integrity.
Anticipating the potential disturbance the transition to a new revenue
agency might cause, the authors of HB 5465 included a provision (Section
20) that would allow the BIR to continue functioning until such time
that the NRA is up and running. The section even allows the BIR to take
some extra measures to raise revenue collection during the transition,
precisely to mitigate any effect of the transition.
If we are to create a truly reformed agency then we must create an
environment where opportunities for corruption are minimized and where
instances of corruption can be dealt with in a swift, efficient and
definitive manner.
With full absorption, inept, inefficient, and corrupt employees – who
now boldly threaten to hold the operations and revenue collections of
the BIR hostage – can and will continue to hold the NRA leadership at
bay with such types of blackmail and threats.
Any kind of reform will always introduce disruption or disturbance to
the existing situation. This should never be used as an excuse not to
institute far-reaching and genuine reform. We should not sacrifice
long-term, genuine reform, for near-term concerns and fears.
The establishment of an autonomous, transparent, ethical, responsive,
merit-based agency to collect our taxes is long overdue. Employees of
the BIR should have nothing to fear if they are honest performers.
Preferential absorption will negatively affect only the unqualified
non-performers and corrupt personnel.
We believe that preferential absorption is our first line of defense in
creating a responsive and clean revenue agency. It is the only clear and
clean way that the revenue authority can break away from the entrenched
interests and practices of the old agency. It is a non-negotiable item
that must be contained in any legislation that hopes to truly create a
reformed revenue authority. We will continue to support legislation that
contains preferential absorption as the first line of defense against
corrupt elements.
Full absorption begs the question: why, then, are we going through this
whole reform exercise if everyone will be fully absorbed?
We will vigorously oppose any legislation that contains a full
absorption clause.
Lastly, in order to strengthen the NRA’s ability to identify rogue
elements within the agency, we strongly recommend that integrity tests
be made mandatory for all applicants to the National Revenue Authority.
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