By Mon Abrea, Global Tax Policy Expert and Chief Tax Advisor, Asian Consulting Group
Businesses — from small entrepreneurs to major corporations — are breathing a sigh of relief after President Ferdinand Marcos, Jr. ordered the Bureau of Internal Revenue (BIR) to redirect its audit and enforcement efforts toward those implicated in the multibillion-peso flood-control corruption scandal.
The President’s instruction is more than a reaction to a scandal — it’s a signal that the government is finally listening. For years, reform advocates have urged the BIR to stop harassing compliant taxpayers and instead focus on high-risk, high-impact investigations where corruption and tax evasion converge.
This shift, if sustained, could mark the most significant turning point in the country’s tax administration since the TRAIN Law. It’s time to institutionalize this approach — to make accountability, not extortion, the core of the BIR’s audit culture.
Fixing a Broken Audit System
The BIR’s own data tells a troubling story: less than 3% of total revenues come from audits. Despite that, most audits target micro, small, and medium enterprises (MSMEs) — the easiest to intimidate but the least likely to cheat.
Random, manual audits have bred inefficiency and corruption. Some examiners allegedly use their power to solicit bribes for “settlements,” turning the audit process into a revenue leak instead of a revenue source. The result: compliant taxpayers lose confidence, while politically connected tax evaders remain untouched.
Redirecting audit efforts toward those linked to government anomalies is the right move. But to ensure this is not just a one-off campaign, the BIR must adopt risk-based, technology-driven systems that remove discretion and enforce accountability where it matters most — at the top.
Rebuilding Trust Through Technology
Modern tax systems no longer rely on random audits. They use risk-based computer-assisted audit systems powered by AI, blockchain, and data analytics to identify red flags and detect undeclared wealth.
The BIR should integrate data from the Commission on Audit (CoA), the Anti-Money Laundering Council (AMLC), the Securities and Exchange Commission (SEC), the Bureau of Customs (BoC), and the Office of the Ombudsman. Linking tax filings with Statements of Assets, Liabilities, and Net Worth (SALNs) can uncover unexplained wealth in real time — a task impossible under manual systems.
Global experience shows that risk-based auditing can double audit efficiency and raise revenues by up to 200%, with most gains coming from high-yield, high-risk taxpayers. For this to work, Congress must lift bank secrecy for public officials, allowing tax authorities to verify if their declared income aligns with actual wealth. Transparency is the cornerstone of trust.
Relief with Responsibility
Tax reform must be fair as well as firm. The Department of Finance’s (DoF) proposal to raise tax-free benefit limits and ease the burden on Filipino workers is long overdue. Updating the income tax exemption threshold from P250,000 to P400,000 or P500,000 — as proposed in Senator Win Gatchalian’s Ginhawa Bill — would finally align tax policy with economic reality.
The threshold has not changed since 2018, even as prices surged and the cost of living climbed. Adjusting it would provide real relief for middle-income earners — the backbone of the economy — while boosting consumption and voluntary compliance. Any temporary revenue loss can be offset by reducing leakages, automating processes, and targeting true evaders.
Digital Transformation and VAT Reform
Beyond audits, transparency demands automation. The Electronic Invoicing System (EIS) must be fully implemented and extended to all professionals and service providers. Real-time monitoring of sales and income will minimize underreporting and corruption at every level.
Likewise, the World Bank’s recommendation to broaden the VAT base — removing most exemptions except essentials like food, health, and education — offers a clear path to reduce the rate from 12% to 10% without losing revenue. A simpler, broader VAT will strengthen compliance, fairness, and competitiveness.
From Reaction to Reform
The President’s directive is a welcome start—but the real test is consistency. The BIR, DoF, and Congress must now institutionalize risk-based auditing, digital invoicing, inter-agency data sharing, and public accountability.
A government that enforces tax justice at the top will earn the moral authority to collect taxes from the rest. The Philippines doesn’t need higher taxes; it needs a smarter system that rewards honesty, punishes corruption, and restores public trust.
Only then can we transform our tax system from one built on fear to one built on fairness — where doing the right thing is no longer the hardest thing to do.
About the Author
Mon Abrea is a Global Tax Policy Expert and Chief Tax Advisor of the Asian Consulting Group (ACG). An alumnus of Harvard, Oxford, and Duke Universities, he works with governments and international institutions on tax reform, investment policy, and governance. Recognized among the TOFA 100 Most Influential Filipinos in the World, he leads global initiatives through his Reimagining the World book series, Thought Leaders and Game Changers podcast, and International Tax & Investment Roadshow, promoting the Philippines as an ESG-aligned investment destination.
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