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INTRODUCTION
According to the 2012 International Monetary Fund statistics, the economy of the
Philippines is one of the emerging markets and is now the 40 largest in the world. The
Philippine governments main source of revenue are taxes. One of the kinds of taxes is
income tax, which is a government tax imposed on individuals or taxpayers that varies
with the income or profits of the taxpayer. Income tax in the Philippines is a progressive
tax. The tax one pay is based on how much he earns. People with higher incomes pay
more than people with lower incomes. The Bureau of Internal Revenue is committed to
collect taxes for further development of our country.
The underground economy is the market that involves the exchange of goods and
services that are hidden from official view 1. Examples of such activities range from the
street vendors to online jobs. Activities of the underground economy is becoming more
rampant. Aside from the common reason of the people that belong to this market, which
is lack of education for decent employment, the activities of the underground economy
also depends on the capacity of the Philippine government to enforce laws and collect
taxes.
Filipino citizens may never fully understand their part into the path through an
abundant economy, but they will understand it once they know their part and how could
they contribute into the betterment of the country.
Many fear the play of paying taxes because they have doubts of giving what they
have worked hard for.
1
Christopher Tale, Encyclopedia of Chicago (2005) [database on-line];
available from http://www.encyclopedia.chicagohistory.org/
1
Does the underground economy have the potential to be the foundation of our
country's economy?
If they imposed a law regarding this matter, how could the government locate
each individual from the underground economy?
If the underground economy will pay taxes, what will be the benefits?
know and analyze the capacity of the people involved in the underground
economy on whether they should be taxed or not
2
collate programs/policies of the Bureau of Internal Revenue (BIR) regarding
underground economy, and if none, explain why the BIR has not yet imposed a
policy regarding the taxation of the underground economy
defend whether the underground economy is capable or not in paying taxes
explain that the tax one pay is based on how much he earns, therefore providing
an idea that underground economy cannot be considered incapable of paying
taxes
present the economic and potential benefits of the underground economy when
properly supported and enriched by the government
DEFINITION OF TERMS
3
developing nations to help them achieve
macroeconomic stability and reduce poverty2.
CHAPTER II
2
International Monetary Fund [database on-line]; available from
http://www.imf.org/
3
Merriam-Webster (2014) [database on-line]; available from
http://www.merriam-webster.com/
4
Wikipedia (2014) [database on-line]; available from http://en.wikipedia.org/
4
Revenue goals already lower due to untaxed underground economy5
MANILA, Philippines - The Philippines revised revenue targets this year may
already be lower by more than a third as a result of foregone revenues from the
underground economy, a finance official said.
The amount may even be higher if it includes foregone revenues from tax cheats,
he said, adding that this excludes losses posted by the Bureau of Customs (BOC) from
smuggling.
This may mean that the Bureau of Internal Revenues collection goal of P798.5
billion this year may already be short" by 35 percent, he said.
The government may cut its revenue goals for the third time this year after it
slashed targets by P52 billion from its previous P850.5 billion target.
From January to May this year, BIR collections reached P315.2 billion, 6.1
percent lower than P335.7 billion during the same period last year.
During the first five months this year, the government reported a deficit of P123.2
billion, more than six times the shortfall it posted from January to May last year.
The governments intends to collect P388.4 billion for the first six months this
year.
The amount of revenues lost due to tax evasion is linked to the size of the
underground economy, he added.
5
GMA News Online (2009) [database on-line]; available from
http://www.gmanetwork.com/
5
But the size of the tax evasion is largely due to how much of the economy is
underground," he said.
Singapore, which reportedly has the most efficient tax collection system, could
only manage a 97 percent tax collection efficiency.
Despite these drawbacks, the BIR has implemented a few measures to lessen the
impact of tax evasion.
Besides implementing tax audits, the agency has also begun cross matching its
data with those of local government units, Beltran said.
Various programs such as Run After Tax Evaders (RATE), Run After the
Smugglers (RATS), and Oplan Kandado are also being implemented to further enhance
revenues.
Oplan Kandado, which closes down establishments that fail to pay correct taxes,
have already reached P60 million in penalties since its launching in January, Beltran
said.
In the first five months, the agency was able to collect P20 billion more than
what was expected from it," he said.
But in June, the Customs bureau posted a P25.9 billion shortfall, a deficit that is
not alarming," Beltran said.
Given with the level of imports, their collection should have dropped but they
were able to ease the drop to a single digit level," he said.
6
Manila is looking at a wider budget deficit of P250 billion or 3.2 percent of GDP
instead of the revised P199.2 billion or 2.5 percent of GDP due to the deepening impact
of the global crisis.
Once again, the BIR (Bureau of Internal Revenue) intensifies its campaign on
their tax collection, this time targeting Marginal Income Earners (MIEs) like sari-sari
storeowners, farmers, fishermen, and others.
In their latest memorandum circular, the BIR reminded concerned individuals that
while MIEs have been enjoying certain privileges under the law, they must still comply
with several tax and tax-related requirements such as to pay the income tax. But BIR
clarifies that MIEs are exempted from the value-added tax and from the business tax.
Sixty percent of the national governments revenues come from the revenue collection of
the BIR. Last year, BIR failed to hit its target of P1.253 trillion. Furthermore, the
government loses about P450 billion a year due to tax evasion. The issuance of the
circular was part of the BIRs tax campaign, under which it aims to plug leakages from
tax evasion and to boost state coffers.
Since she assumed to power in mid of 2010, BIR Commissioner Kim S. Jacinto-
Henares has stepped-up her campaign in the Run-After-Tax Evaders (RATE) program.
BIR has already filed more than 200 cases before the Department of Justices (DOJ).
Some of the cases have already reached the Court of Tax Appeals and the Supreme Court
has decided others. Henares has been very zealous in running after tax evaders including
professionals like doctors and lawyers, celebrities, local and foreign companies, big
business owners, and last year even our Peoples Champ Manny Pacquiao. Henares
spares no one, however, many people are surprised by this new circular targeting the
MIEs.
In 2011, Senator Ralph Recto asked BIR for fair treatment and extreme caution
from their Oplan Kandado in disciplining establishments since some of them could be
micro, small, and medium enterprises (MSMEs). Recto said while the BIRs zealousness
6
Monsi A. Serrano, Kabayan Weekly (2014) [database on-line]; available from
http://www.kabayanweekly.com/
7
in running after tax delinquent is commendable, the BIR should be circumspect in
deciding which erring store should be shut down or not. He further express his
observation by saying, In the latest batch that was shut down by the BIR, most of them
could qualify under the MSMEs sector, which is the subject of protection by our existing
laws.
As of this writing, the commitment of Recto to file a bill that would strengthen
two existing laws for MSME or MIEs which are Republic Acts (RAs) 9178 and 9501,
that provide some incentives to MSMEs like minimum wage exemption, access to cheap
loans and formal trainings. That bill that hes going to file will further strengthen the two
laws by granting more incentives to MSMEs such as income tax holidays, exemption
from BIR and value-added tax (VAT) registrations and tax breaks for every two new
workers hired.
Under existing laws governing the operations of MSMEs, a micro-business
enterprise should have a total asset of up to P3 million; a small enterprise, P3.1 million to
P15 million; and, the medium enterprise should have assets worth between P15.1 million
to P100 million.
Meanwhile, Fisherfolk group Pamalakaya condemned the plan of the BIR to tax
small fishermen and other marginal income earners. Pamalakaya further said that the BIR
wants small fishermen to pay taxes more than the 12 percent Expanded Value Added Tax
which they pay for every liter of gasoline or diesel they buy for their motorized boats and
for the 12 percent EVAT they pay for every kilo of rice they buy to feed their family.
Pamalakaya vice chairperson Salvador France said, Each fisherman in this
country can no longer feed his family three times a day due to the rising cost of
production coupled with 12 percent EVAT and high prices of basic commodities due to
the same regressive tax scheme put on commodities. He further explained by saying,
Every small fisherman pays the government a total of P72 in EVAT, and now the
government wants to tax the remaining P50 for state income. This is horrible, shocking
and revolting to the highest order.
Rick Fulgencio, Chairman of Stop Corruption Philippines said, We dont have
any issue on the tax being levied by the government to every Juan and Juana. But the
problem here is that it seems that there is selective application on taxation. I still have yet
8
to see rich and famous person to be jailed for tax evasion. Come to think of it, if all the
taxes being collected are utilized properly, every working person would be gladly give his
or her share. But the problem here is we have PDAF or DAP scandal which the
government needs to resolve. If there is no scandal such as this and then there is a law
that protect our MSME or MIEs, why run after the small fries. BIR should catch the big
fishes and solve the corruption in their agency by not being selective in their target.
MANILA - The Bureau of Internal Revenue will enlist the help of telecom
companies in cracking down on untaxed home-based call centers.
Commissioner Kim Jacinto-Henares said the bureau will ask telcos for a list of
residential customers who maintain high bandwidth connections.
The list would enable the agency to determine whether there are home-based call
centers among them and whether they are BIR-registered.
"We will coordinate with telecom companies to be able to go after these home-
based call centers which may not be paying the right taxes," Jacinto-Henares said.
She said the bureau will seek the help of Internet service providers in ascertaining
the status of these businesses insofar as tax compliance is concerned.
"Of course all call centers would need high bandwidth Internet connection to be
able to operate. We will use whatever method that is legally available," she added.
Andrew Rojo, a manager at one of the country's top business process outsourcing
companies, said setting up of call centers at home is one of the industry's major
challenges.
7
Katrina Mennen A. Valdez, InterAksyon (2012) [database on-line]; available
from http://www.interaksyon.com/
9
"Illegitimate call centers are multiplying unbelievably. They are able to get clients
abroad since the services they offer are way cheaper as against those who are holding
themselves out in public as call centers," Rojo said.
"They also get to recruit employees for two reasons: the hiring process is more
relaxed and that most of the time, employees get to take home their entire pay without
any withholding from their employers," he added.
The Philippines is the world's leader in the English voice BPO business with a 39
percent market share.
Of the $11 billion generated in 2011 by the country's IT-BPO industry, P7.4
billion came from the voice segment.
MANILA, Philippines - The Bureau of Internal Revenue (BIR) said it will start
collecting taxes from individuals and businesses selling products online as part of its
aggressive efforts to meet collection goal and boost government revenues.
The BIR issued a new memorandum which reiterates online sellers obligation to
pay taxes.
Citing the National Internal Revenue Code, Internal Revenue commissioner Kim
Henares said failure of online sellers to register with the BIR would result in the
imposition of appropriate penalties.
Henares said the law requires the issuance of receipts by online sellers for every
sale of goods and properties or exchange of service. The receipt must bear the full
amount of the sale to the buyer.
Under the rules, online sellers must secure the required Authority to Print (ATP)
invoices and register books of accounts for use in business either manually or
electronically.
8
Zinnia B. Dela Pea, The Philippine Star (2003) [database on-line]; available
from http://www.philstar.com/
10
The receipt, the BIR said, must be prepared at least in duplicate, the original to be
given to the buyer and the duplicate to be retained by the seller as part of the latters
accounting records.
Online sellers are also required to file and pay applicable tax returns on or before
the due dates as well as submit a summary list of sales/purchases including the payees.
Henares said the existing tax laws and revenue issuances on the tax treatment of
purchases (local or international) of goods (tangible or not) shall apply to all transactions
wherein consumers directly buy goods or services from a seller and an intermediary or
third party over the Internet. Therefore, those using online social networks such as
Facebook must register as a taxpayer.
Among the popular online buy and sell websites include sulit.com.ph,
ayosdito.ph, alibaba.com, and tsikot.com, etc.
Also covered by the rules are those that use the Internet to deliver marketing
messages to attract potential buyers and those that conduct online auctions (such as
ebay.ph).
Aside from issuing official receipts, online merchants or retailers are mandated to
issue acknowledgement receipt to the credit card company or payment gateways for the
amount received. They must also pay the commission of credit card company net of 10
percent expanded withholding tax.
Payment gateways which refer to banks, credit card companies, financial
institutions, and bill paying services are similarly required to issue validated bank deposit
slips in the name of the merchant or intermediary and remit the amount to the merchant
less Expanded Withholding Tax (EWT) of one half of one percent.
Freight forwarders and online website administrators are likewise required to
issue the BIR registered OR for the service fees paid by the merchant or advertisers.
According to the BIR, the merchant/retailer is obliged to pay the online
advertising entity for the advertising fee, net of two percent EWT.
11
Sari-sari stores, Carinderia, and other Marginal Income Earners Must Register
with BIR9
MIEs are required to register with the Bureau using BIR Form 1901, register their
Books of Accounts (e.g. two-column journal or other simplified books for daily expenses
and revenues), and issue registered principal receipts/sales invoices as prescribed under
RMO 12-2013.
12
(Pamalakaya) said that despite the poorest sector in the country is found along the
countrys coastal areas, the tax agency still wants subsistence fishermen to pay taxes
more than the 12-percent Expanded Value Added Tax (E-VAT) they pay for every liter of
gasoline or diesel for their motorized boats.
A fisherman also shoulders the 12- percent EVAT they pay for every kilo of rice
they buy to feed their family.
Every fisherman in this country can no longer feed his family three times a day
due to rising cost of production coupled with 12 percent EVAT and high prices of basic
commodities due to the same regressive tax scheme levied on necessities. And here is the
Aquino administration courtesy of the ever cruel BIR Commissioner Kim Henares
working on to tax our poor fisherfolks P 50 daily income. If that is not Satanic, then what
is it? An act sent from heaven above? said Pamalakaya vice chairperson Salvador France
in a press statement.
The Pamalakaya official said a small fisherman used to pay daily taxes in the
form of expanded value added tax. He said for an average of 5 liters of gasoline or diesel
they used for fishing, they pay the national government some P60 pesos in taxes.
France said aside from EVAT on petroleum products, a fisherman consumes three
kilos of rice for his family and that constitutes P12 per day in total taxes paid to the
government in the form of the controversial EVAT.
Every day a small fisherman pays the government a total of P72 in EVAT, and
now the government wants to tax the remaining P50 for state income. This is horrible,
terrifying and revolting to the highest order, added France.
Pamalakaya said the government is inviting a major political upheaval from the
affected sectors if President Benigno Simeon Aquino will still insist in taxing the poor.
The proposed BIR measure to tax the starving public is an open invitation to war.
If Mr. Aquino and the tax dictator Henares want war, we will give them war, said
Pamalakaya.
The group meanwhile, urged the Senate and the House of Representatives to
legislate a law that would stop Malacaang from pursuing this Hitler like move to burden
the poor public with more regressive tax measures.
13
The lawmakers are legally and morally obliged to stop this tax madness from the
tax madmen of the Aquino syndicate in Malacaang, the group added.
The BIR said aside from small fishermen and farmers, owners of small sari-sari
(variety) stores, single-unit tricycle operators and other marginal income earners (MIEs)
will be required to pay taxes.
Under Revenue Memorandum Circular No. 7-2014, the BIR argues that MIEs are
liable to pay the income tax, but are exempted from the value-added tax and from the
business tax.
The MIEs are defined in the circular as individuals who are self-employed and
earning not more than P100, 000 in any given 12-month period. Their incomes are
considered mainly for subsistence.
The tax authority said the MIEs may also include owners of small carinderia or
turo-turo, and other micro-entrepreneurs. They exclude licensed professionals, sales
agents, brokers, artists and other professionals whose incomes are subject to withholding
tax.
The issuance of the circular was part of the BIRs tax campaign, under which it
aims to plug leakages from tax evasion and to boost state coffers. In a complementary
circular, No. 8-2014, the tax authority said individuals who have claimed to have
exemptions from certain taxes should secure certification from the BIR for such
exemptions.
The BIR, which accounts for at least 60 percent of the national governments
revenues, is tasked to collect P1.46 trillion in taxes this year. In 2013, it was expected to
have posted at least a 10-percent year-on-year growth in collection although it was seen
to have fallen short of its target of P1.253 trillion.
According to rough estimates, the government loses about P450 billion a year due
to tax evasion.
CHAPTER III
14
OBJECTIVES AND STRATEGIES
In order to accomplish this thesis within the limited time given, we used the different
strategies stated below:
1. Researching Before we conduct our thesis, we agreed to research first about the
underground economy in order to have a forehand knowledge to be able to go
through this thesis. It helped us in creating our own objectives and fully
understand the significance of our study.
2. Surveying We cannot resolve the problem if not for surveying 100 respondents
from the underground economy. We were given only three (3) days to conduct our
survey and each day, our target respondents are 33. We roamed the streets along
the Immaculate Concepcion Parish and the streets going to Loreland Farm Resort
and Bosay Resort. We chose this places because there are three (3) other groups
conducting a survey at the same time and a lot of the people in the underground
economy along certain areas of Barangay San Roque do not like to be surveyed
more than once. We tried different styles of approaching our chosen respondent.
We used the words good morning/ afternoon po and excuse me po.
3. Tallying We did the tally quickly but certainly. A group member reads the
survey while the group leader organizes the data through charts. The other group
member makes sure we do not miss an information.
4. Preparing the PowerPoint presentation for our defense After going through
the process, we prepared our PowerPoint presentation that we will be presenting
on our defense. We made sure that all of the informations we stated in our
presentation were made clear.
CHAPTER IV
15
FINDINGS
SURVEY FORM
Good day!
We are fourth year students from WILL School of Antipolo, Inc. Our group is
conducting a survey in partial fulfilment of our project in Araling Panlipunan. Your
answers will be a huge contribution for our thesis. Kindly put a check mark ( ) inside the
Civil Status:
Daily income:
Do you think you are capable of paying taxes based on your income? Oo Hindi
In your opinion, does the underground economy need to be taxed? Why?
16
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Civil Status:
17
Married with how many children ____ Age:_____
Sa tingin mo, kaya mo bang magbayad ng buwis base sa iyong kita? Oo Hindi
Sa iyong palagay, dapat bang patawan ng buwis kayong mga nasa underground
economy? Bakit?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
18
Using the table below, we calculated the equitable amount of tax of every
individual to be paid for one whole year.
Over P10, 000 but not over P30, 000 P500 + 10% of the excess over P10, 000
Over P30, 000 but not over P70, 000 P2, 500 + 15% of the excess over P30, 000
Over P70, 000 but not over P140, 000 P8, 500 + 20% of the excess over P70, 000
Over P140, 000 but not over P250, 000 P22, 500 + 25% of the excess over P140, 000
Over P250, 000 but not over P500, 000 P50, 000 + 30% of the excess over P250, 000
Over P500, 000 P125, 000 + 32% of the excess over P500, 00
19
Karampatang buwis na babayaran para sa isang buong taon kung sakali (Equitable
amount of tax to be paid annually):
20
Kita kada araw Buwis kada taon
(Daily Income) (Tax to be paid every year)
Mas mababa sa P70 Walang buwis na babayaran
P70 P100 Walang buwis na babayaran
P100 P200 Walang buwis na babayaran
P200 P300 Walang buwis na babayaran
P300 P400 Hanggang P1, 400
P400 P500 P1, 400 P6, 250
P500 pataas P2, 500 pataas
21
SURVEY FINDINGS
22
23
24
After we have tallied the surveys we have conducted from 100 respondents and
concluded the results, we found out that most people from the underground economy
think that they cannot afford to pay taxes if ever they get involve into taxation. Their
primary reason is that the products they are selling already has Value Added Tax or VAT
when they bought them. Furthermore, they earn just enough income to support their
needs. This reason is common to our respondents who have a lot of members in their
family and if theyre the sole workers of their family. However, a large number of our
respondents told that they earn an amount of 500 pesos and up.
We found out that most people from the underground economy are willing to get
taxed if ever the government will mandate them to do so. Our respondents believed that
since it is mandated, it will leave them no choice but to cooperate instead of questioning
the government.
ANALYSIS
As our studies go further, we learned that most people from the underground
economy could not even satisfy their needs. We found out that most of the underground
economy are willing to pay taxes if ever it will be imposed in order to contribute to the
25
development of our country but, the problem still lies on their capability. Based on our
findings, the underground economy could have been a huge contributor to the
Philippines revenue if paying taxes will not be a burden to their economic life. However,
if the government imposed a law regarding the taxation considering all kinds of the
underground economy, they will not do anything about it rather pay because it is
mandatory. We quote, Doble-kayod na lang.
CONCLUSION
The underground economy must be taxed, but, with consideration and exemption
to those Marginal Income Earners or MIE.
Certain sectors of the underground economy are not capable of paying tax. E.g.
peddlers and street vendors
Most of the underground economy are willing to pay taxes but they are incapable
RECOMMENDATIONS
26
BIBLIOGRAPHY
http://www.encyclopedia.chicagohistory.org/pages/1280.html
http://www.gmanetwork.com/news/story/167007/economy/revenue-goals-already-lower-
due-to-untaxed-underground-economy
http://www.interaksyon.com/business/45526/bir-taps-telcos-to-ferret-out-untaxed-home-
based-call-centers
http://www.philstar.com/business/2013/08/24/1126961/bir-wants-online-sellers-pay-taxes
http://attyatwork.com/sari-sari-stores-carinderia-and-other-marginal-income-earners-
must-register-with-bir/
http://pamalakayaweb.wordpress.com/2014/02/16/manila-plans-to-tax-starving-
fishermen/#more-782
http://www.kabayanweekly.com/2014/02/24/bir-targets-marginal-income-earners/
http://www.imf.org/external/about/overview.htm
http://www.merriam-webster.com/dictionary/income%20tax
http://en.wikipedia.org/wiki/Bureau_of_Internal_Revenue_(Philippines)
GLOSSARY
Bureau of Customs
27
Bureau of Internal Revenue (BIR) The BIR is responsible for the
assessment and collection of all internal
revenue taxes fees, and charge and
enforcement of all forfeitures penalties, and
fine connected therewith11.
DAP
dependent A dependent means a legitimate,
illegitimate, or legally adopted child that is
dependent upon or and living with the
taxpayer and must not be more than twenty-
one (21) years old.
Expanded Value-added Tax
Expanded Withholding Tax (EWT)
Income tax Income tax is a tax paid on the
money that a person or business receives as
income12.
International Monetary Fund (IMF) The IMF works to nurture global
growth and economic stability. It works with
developing nations to help them achieve
macroeconomic stability and reduce poverty13.
marcoeconomic
Marginal Income Earner (MIE) MIE refers to those individual whose
gross sales and receipts does not exceed
P100, 000.
Micro, Small, and Medium Enterprises (MSME)
Oplan Kandado
Priority Development Assistance Fund (PDAF)
revenue
Run After Tax Evaders (RATE)
Run After the Smugglers (RATS)
tax exemption
Underground Economy The underground economy is also
called the shadow economy or the black
11
Wikipedia (2014) [database on-line]; available from http://en.wikipedia.org/
12
Merriam-Webster (2014) [database on-line]; available from
http://www.merriam-webster.com/
13
International Monetary Fund [database on-line]; available from
http://www.imf.org/
28
market. It involves the exchange of goods and
services that are hidden from the official view.
There are vast sectors under the underground
economy that ranges from the street vendors
and peddlers, tricycle drivers, tutors, online
sellers, and even drug dealers.
Value-added Tax
29
APPENDICES
STUDENT PROFILE
30
Economic Dream: To have equality, no corruption and no poverty
31