Fishing on lease

It was once told that there are two types of fisherman – those who fish for the breeze and those who fish for fish. Sailing on the platform of good and honest governance, the Bureau of Internal Revenue (BIR) recently extended its trawl lines by capitalizing on lease as baits. In issuing Revenue Regulation (RR) No. 12-2011, as amended by RR No. 15-2011, the BIR furthered a clear message that when it started its campaign for an improved and efficient revenue collection, it means serious business. Now, the BIR is determined to catch fish – big fry or not.

Given the present administration’s effort not to effect any increase in the current tax rates and its promise not to introduce new taxes for the next two years at the minimum, the BIR is now focusing on running after potential tax cheats and plugging the loopholes in our tax laws. In addition, the BIR is looking at other revenue channels to increase its tax collection. Identified as a potential revenue stream, the informal business sector such as privilege stores and ambulant business tenants comprise a significant percentage of the total population subject to internal revenue taxes. However, due to the inability of the BIR to haul its net on this shoal, billions of revenue collections are dodged away from the government’s revenue pond.

Putting the bait on the tackle, the BIR issued RR No. 12-2011 on 25 July 2011 which provides for a mechanism to ensure that all owners or sub-lessors deal only with BIR-registered taxpayers by establishing a reportorial procedure of all essential information to be submitted by the lessors/sub-lessors relative to its leasing activities and providing for appropriate sanctions to ensure compliance. Under the said issuance, the owners or sub-lessors should validate that the person intending to lease their commercial space is a BIR-registered taxpayer. A BIR-registered taxpayer, as described under this issuance, should have a Tax Identification Number (TIN), a BIR Certificate of Registration, and duly registered receipts, sales or commercial invoices.

This issuance requires the owners and sub-lessors of commercial establishments, buildings or spaces to submit (a) the building or space layout of the entire area being leased with proper unit/space address or reference; (b) Certified True Copy of Contract of Lease per tenant; and (c) the Lessee Information Statement (LIS) in the prescribed format to the BIR Revenue District Office (RDO) where the commercial establishment, buildings or spaces are located. The regulation requires that the LIS should include, among others, the tenant’s profile, location of the establishment (floor/unit number), name of the tenant, total leased area, monthly rental, start of lease, duration of lease, the lessee’s TIN, Authority to Print Number for Official Receipts (OR) and Point of Sale (POS)/ Cash Register Machine (CRM) Permit Number. For subsequent filings, the LIS should include the aforementioned details for new and terminated tenants. The LIS should be submitted in printed copy and soft copy stored in a recordable compact disc (CD-R). To ensure the veracity of the TIN submitted by the lessees, the lessor may seek the assistance of the RDO where the commercial establishment/space is located.

Pursuant to this issuance, the first filing of tenants profile shall be on or before November 2, 2011 covering tenants as of July 31, 2011. Thereafter, the said information should be submitted every 31st of January covering tenants as of 31st of December of the immediately preceding year and every 31st of July for tenants as of 30th of June of the same year. Failure to comply with the requirements set forth in this regulation shall, in addition to other penalties provided by law, upon conviction, shall be punished by a fine of not less than P10,000 and imprisonment of not less than one year but not more than 10 years. The issuance also penalizes the willful submission of false or falsified information or knowingly transacting with taxpayers who are not duly registered with the BIR and subject such lessor or sub-lessor to the penalties provided under Section 255 and 267 of the 1997 Tax Code, as amended. Given these sanctions, the BIR effectively warns lessors to transact only with a BIR-registered lessee and ensure the accuracy of the information provided by the lessee.

In a press statement, the BIR is looking at a yearly revenue loss of roughly P40 billion from various tax evasion schemes in the so called “underground economy”. While it is true that no government, including the West, can expect a100 percent revenue collection, monitoring these informal businesses by requiring them to be registered with the BIR and other pertinent government agencies before they can take out a lease is one giant trawl in increasing tax collection.

With this, the BIR formally launched its fishing expedition to check every income earner’s compliance with Philippine tax laws and regulations, be it a blue chip company or your neighborhood eatery. By giving every building or space owners or sub-lessors the primary responsibility of ensuring that all lessees are BIR-registered, the BIR is looking at improving its collection by reinforcing its current tax mapping measure and cross-referencing of data with the Local Government Units. After all, the very backbone of an efficient revenue system is the availability of all valuable information for the government’s disposal.

Atty. John Joenelle V. Nudo is a Supervisor of Manabat Sanagustin & Co., CPAS, a Philippine Partnership and member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email [email protected].