The inexplicable math of the Bureau of Internal Revenue may be the reason why the agency keeps missing its revenue targets. Its assessments on the tax liabilities of Del Monte Philippines Inc., for one, is baffling. The BIR could have easily avoided the simple error in tax assessment of Del Monte if some of its personnel had training in basic accountancy.
Del Monte, in its defense before the Ways and Means Committee of Congress, said it had dutifully paid the correct taxes over its 91 years of corporate existence, adding it was the first time in its history that it was embroiled in a tax controversy.
Del Monte recounted that the average annual deficiency taxes it paid from 2006 to 2010 amounted to P15.4 million. The assessed average annual deficiency taxes from 2011 to 2013, however, reached a staggering P2.9 billion, representing a huge increase over the previous five-year average.
Del Monte naturally protested the unreasonable assessments, prompting the BIR later to impose an assessment of P65 million for three years, or an average annual tax of P21.7 million and slightly above what the company had been paying the previous years.
The company has described BIR assessments without any basis when ranged against its actual audited earnings.
“For example, it is reported in the press that the preliminary assessment for deficiency taxes for 2011 was P21 billion which was proven non-existent. Neither the BIR issued, nor DMPI received the purported assessment,” the company said in a statement.
Del Monte’s annual sales revenues in 2011 totaled just P16.8 billion, indicating an absurd situation where a company’s owed income taxes exceeded total revenues. An international auditing firm, according to Del Monte, has verified its annual tax liabilities and payments.
Inflated assessments
Del Monte cited three major reasons for the inflated preliminary assessments. The charges of interest and penalties amounting to P3.3 billion for 2012 and 2013 naturally are huge because they were based on inflated tax liabilities. Consequently, the same charges are automatically lessened upon reduction of the alleged tax liabilities.
The company also cited the disallowance of various expense items by the BIR which were corrected after presentation of the proper documents.
“Discrepancies in the amounts of these expenses during BIR’s initial review led the BIR to disregard these expenses until proven satisfactorily by DMPI. An example of this was the use of gross sales in computing income taxes instead of net sales which in one year alone (2012) resulted in a reduction of P300 million in taxes.,” Del Monte said.
Another example was BIR’s disallowance of Del Monte’s cost of sales because the the tax collecting agency claimed it did not have sufficient details in the income tax return.
“When DMPI provided a more detailed breakdown of the cost of sales, the BIR recognized such costs and reversed the tax deficiency by about P400 million for 2012,” the pineapple exporter said.
The BIR, meanwhile, did not fully take into account the fiscal incentives given to Del Monte as a company operating within the enclave of the Philippine Economic Zone Authority. The omission contributed to the wrong preliminary assessment of the BIR.
Being a Peza registered entity, Del Monte is entitled to a different and lower tax regime for its export sales and some local sales. The company is one of the major exporters of pineapples in the world.
Confusion
Claims that Del Monte received a preliminary assessment notice of P21 billion from the BIR for 2011 have beclouded the issue. The assessment, as stated earlier in this column, is grotesquely strange since Del Monte only had net revenues of P16.8 billion in the same year and the tax deficiency cannot be higher than the revenue of the company.
The BIR later said it never issued a notice of P21 billion, while Del Monte declared it never received the same information.
“The truth is the BIR issued DMPI a PAN for P14.9 million after extensive audit, which DMPI paid. For 2012 and 2013, a substantial portion the BIR’s PAN consisted of interest and penalties. For 2012, of the P3.4 billion PAN, only P1.8 billion was the assessed basic tax deficiency, while for 2013, of the P5.2 billion PAN, only P3.5 billion was the assessed basic tax deficiency,” the company said.
Del Monte also protested BIR’s preliminary assessments for 2012 and 2013, providing supporting documents over a period of several years that led to the BIR to reconsider its preliminary assessments, resulting in lower taxes due for the two years in question.
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