Requiring The Bureau of Internal Revenue to Establish a Program to Promote Optimum Tax Compliance

MALACAÑANG
Manila

BY THE PRESIDENT OF THE PHILIPPINES

EXECUTIVE ORDER No. 399 January 17, 2005

REQUIRING THE BUREAU OF INTERNAL REVENUE TO ESTABLISH A PROGRAM TO PROMOTE OPTIMUM TAX COMPLIANCE

WHEREAS, it is important for the efficiency of tax administration to significantly increase and for revenues to grow in step with the medium term development program of government;

WHEREAS, tax collection performance is to a large extent a function of the level of voluntary compliance of taxpayers;

WHEREAS, voluntary tax compliance is enhanced when compliant taxpayers are protected against undue audits and investigations even as tax evaders are punished;

WHEREAS, there is a need to establish a program to increase tax collections by providing taxpayers with incentives to voluntarily declare and pay higher taxes and by reducing administrative costs that are entailed from audits and investigations conducted by the Bureau of Internal Revenue;

NOW, THEREFORE, I GLORIA MACAPAGAL ARROYO, President of the Philippines, by virtue of the powers vested in me law, do hereby order.

Section 1. The Commissioner of Internal Revenue is...

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Summary of Executive Order No. 399

Establishment of the "No Audit Program" (NAP)
- Section 1: The Bureau of Internal Revenue (BIR) is instructed to establish the "No Audit Program" (NAP), wherein qualifying taxpayers shall be exempted from audit and/or investigation for the period they qualify.

Qualifications for NAP
- Section 2: To qualify for exemption from audit/investigation under NAP, taxpayers liable for business income must meet the following thresholds:
- Growth rate of income tax payment for the current tax year compared to the previous tax year must be at least 20%. (Section 2a)
- Growth rate of income tax payment for the last quarter of the current tax year compared to the last quarter of the previous tax year must be at least 25%. (Section 2b)
- Growth rate of income tax payment for the first quarter of the succeeding tax year compared to the first quarter of the current tax year must be at least 25%. (Section 2c)
- Ratio of income tax payment to gross sales/receipts for the current taxable year must be at least equal to that of the previous taxable year. (Section 2d)
- Ratio of income tax payment to gross sales/receipts for the first quarter of the succeeding taxable year must be at least equal to that of the first quarter of the current taxable year. (Section 2e)
- Ratio of net value added tax or business tax actually paid to gross sales/receipts for the current taxable year must be at least equal to that of the previous taxable year, or the benchmark of the industry set by the BIR Commissioner, whichever is higher. (Section 2f)

Participation Limitations
- Section 3: No taxpayer shall be allowed to participate in the program after taxable year 2004, unless the taxpayer is registered and commences operations after 2004.
- Section 4: Any participant who discontinues or does not qualify under the program in any given taxable year shall be disqualified from further participation.

Program Duration
- Section 5: The program shall be effective for a period of 5 years commencing on taxable year 2004.

Implementation
- Section 6: The Secretary of Finance shall issue implementing regulations to achieve the objectives of this Order, upon recommendation of the BIR Commissioner.
- Section 7: This Executive Order shall take effect immediately.