Are you bothered with REAL TAX PROBLEMS?
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EFFICIENT TAX MANAGEMENT
(A 20 minute tip)
In 20 minutes, I wish to share with you 10 tips towards an Efficient Tax Management. Why only 10? Obviously, because of time limitation; secondly, it is apparent that you already have a prosperous jewelry business for quite a long time and you have gone through with your tax concerns with no sad story to tell. What more can I add? Thirdly, I am now a BIR retiree, and humbly allow me the privilege to share some stored knowledge and experience on efficient tax management. Like you, I have to live and survive in this complex world of Philippine taxation. Though I am an advocate and a dreamer of a simplified Philippine taxation, it is its complexity that pushes me to publish more than 20 Pinoytax Handbooks, to conduct lectures, to become a tax advisor, and to be with you tonight.
With the big news last night that the bank accounts of Pambansang Kamao and Song Lover Congressman Manny Pacquiao were garnished by the BIR, then I suggest that to those who are sick with “tax-sakitpirosis”, a sickness almost synonymous with the deadly leptospirosis, to join me in singing the song “Tax is in the Air” to the tune of “Love is in the Air” (Humming). Are you familiar with that melody? The song goes this way:
Tax is in the Air
Every bank I look around.
Tax is in the Air
Every sight and every sound
I know that I’m paying right
Then why am I being fined?
There is something that I must believe in
I pay my taxes on time!
Tip No. 1:Pay your taxes on time, avoid the penalties and remember the 30% threshold to avoid the accusation of being a tax evader for filing a fraudulent return. For the details of the 30% threshold, ask your tax advisor.
To share the spirit of love this Christmas Season, tip no. 2 for an efficient tax management is -
Tip No. 2: DONATE to the victims of typhoon YOLANDA or or the rumbling earthquake of Bohol!
Surely, any donation (whether tax deductible or not) will touch their lives right NOW. To a charitable heart, taxation is the least factor to consider. The most important is the smile that comes from a person who has a charitable giving heart multiplied by the smiles from the thankful victims of calamities, natural or man- made!
Donations to government institutions and qualified organizations are tax deductibles. If you will directly help rebuild a school through the "Adopting a Public School Program" (R.A. No. 8525 of 1998), the donation is exempt from donor’s tax and furthermore, you will enjoy a 150% tax deductible. A business man donating Php 1 Million to a public school can claim a tax deductible of Php 1.5 Million (Php 500,000 more than the actual donation) and gains the benefit of a tax shield of Php 450,000 which is equivalent to the tax that you save for making such donation. In the eyes of the community you are a BIG HERO for donating Php 1 Million, but effectively, your cash outlay is not Php 1 Million but only Php 550,000.00 because of the effect of the tax shield. If at the moment, you cannot understand the tax shield that I am talking about, and if you want to know other incentives and tax shelters under special laws to reduce your tax burden, please ask your tax advisor.
On the perspective of time and geography, if instead of donating Php 1M, you decide to pay a tax of Php 1 Million, can the school be rebuilt immediately after you pay the tax of Php 1 Million? Beware of the bureaucratic maze. The letter of the late Sultan Kiram was lost due to the bureaucratic maze. Tax payments can also get lost or diminish its value in the bureaucratic maze of the government budget process.
Are you sure that the Php 1Million tax that you pay will be used to build a school in the place that you desire? You must know by now the meaning of ‘political patronage” through government spending. If you pay tax of Php 1 Million right now, will the same exact amount be used to build a new school or rebuild a damaged school building? Donate to a public school and give life to the words of our hero Jose Rizal, “Ang kabataan and pag-asa ng bayan.”
In business schools you learn how to calculate the present value of money. Present value of money simply means that your Php 1M today if properly invested must be worth more than Php 1 Million three years from now. To encourage you to pay taxes, then you are made to believe that the taxes that you pay are your investment for the future of this country. But when taxes are wasted, your lessons from business schools on present value of money will not apply. And so tip No. 3 towards efficient tax management is –
Tip No. 3: Act collectively with the public and be pro-active in helping the government fulfill its duty to make it difficult for people to do wrong and easy to do right.
These words of wisdom come from the British statesman William Gladstone - who served as Prime Minister four times (1809-1898). Join actively in public outrage or if you are a shy type like me, silently pray when it comes to your knowledge that government is wasting public money. Join the prayer of His Eminence, Cardinal Tagle that all Filipinos will remain to be ‘MARANGAL” when he shed a tear after learning that more than Php 10 Billion of the taxes that you pay were wasted in NGO scams. When the Filipino tax enforcers become “MARANGAL” and will enforce an equitable and progressive form of taxation, when the tax collectors are not arbitrary, not confiscatory in enforcing the provisions of the Tax Code, when the public sees that the taxes are not wasted, if indeed the government will serve the “public good which is in nothing more essentially interested than in protection of every individual’s private rights” as counselled by English Jurist and Politician William Blackstone, then as taxpayers you can have a predictable, easy and efficient tax management.
Recently the BIR issued Revenue Regulations No. 17-2013 that requires all taxpayers to preserve their books of accounts for 10 long years. It means that whenever you transfer your place of business due to economic reasons, then you must bring along documents that you must keep for 10 longs years. This regulation, among others, adds administrative burden or cost of doing business when ideally, your only cost for being a Filipino citizen should have been the taxes that you pay. For a predictable, easy and efficient tax management, your organization can help the public make our government leaders realize that when saddled with costly administrative burden, you as taxpayers find it difficult to do what is right. Ang sabi pa ng tandem ni Anthony Taberna and Gerry Baja, pakiusapan natin ang ating gobyerno na tulungan tayo na mga mamamayan na matulungan natin ang gobyerno na magampanan ang kanilang trabaho na mapadali ang paggawa ng tama. . In English, “Let us ask the government to help us to help them to make it easy to do what is right and difficult to do what is wrong.” Albert Einstein said, and I quote “It takes courage and a genius to simplify what is complex and a fool to complicate what is simple,” unquote. What are the other laws and government regulations that add to your cost of doing business in addition to the taxes that you pay?
Due to time constraints, let me just enumerate, without explaining in details, the seven other tips of efficient tax management.
Tip No. 4: During the voluntary and enforcement stages of taxation, know the rules and the competence, strength and character of the persons involved.
Tax compliance and enforcement is similar to the See-saw game during the voluntary stage and the chess game during audit or enforcement stage. In the See-saw game, when one end goes up, the other end goes down. When exemptions and tax deductibles goes up, tax liability goes down. Know then how to reduce your tax burden through tax exemptions, incentives and tax shelters under special laws, tax differentials, tax shields and the substantiation and invoicing requirements.
In a chess game, when one player make a move, the opposite player must make a counter move and there are time limits and rules to observe. You must know the proper timing and manner of raising your tax protest or dispute, when rules are violated and when one of the players is unfair. Nobody is perfect and imperfection also applies to taxation. Sometimes prudence may dictate that compliance in silent protest, rather than openly protesting, may be a better part of valor. Make your sound judgment or moves or counter moves based on cost and the possible gain of benefits or further losses in the absence of gainful benefits out of a protest. Pera pera lang yan. Weder weder lang yan. But in a worst situation, tax enforcements can affect not just your finances but also your privacy, dignity and liberty.
Tip No. 5. Conflicts with rules and players of the game; just like an old adage, “An ounce of prevention is worth a pound of cure.”
As your guide on how to settle conflicts, allow me to read excerpt from the Book of St. Luke, Chapter 12: Verses 57-59 –
“If someone brings a lawsuit against you and takes you to court, do your best to settle the dispute with him before you get to court. If you don’t, he will drag you before the judge, who will hand you over to the police and you will be put to jail. There you will stay, I tell you, until you pay the last penny of your fine.”
Tip No. 6: Your treasure is where your heart is. Regardless of the tax consequence, pursue your passion in pursuit of happiness. If indeed you enjoy the profit of your jewelry business, by all means continue the prosperity of your business even if the highest tax rates are imposed on you. What is highest tax rate in Philippine taxation? Indeed tax is in the air because the moment you wake up and brush your teeth or enjoy your breakfast, at once you are paying the 12% VAT rate. In your waking time as you work and earn you might be paying the highest income tax rate of 32% if you are earning a taxable income of a little more than Php 1,600 per day or more than Php 500,000 in one year. If you spend only Php1,000 per day in order that you can save Php 600 per day and you want to leave behind an inheritance to your loved ones, then your estate may be subjected to the maximum estate tax rate of 20%. In brief, the highest tax rate that you pay can come up to 12% VAT + 32% Income Tax + 20% Estate Tax out of your accumulated earnings = Total tax rates 64% excluding doc stamps, local taxes, new tax laws, etc.
Saddled with the financial burden of paying taxes plus the administrative cost of tax compliance, still life must go on. To enjoy life, the first step is to work and earn, then keep the most of your money without breaking the tax law.
Tip No. 7. “Enough is the abundance of the wise!”
Know the what of how and when to invest and divest. Learn the intricacies of wealth or estate planning through tax exemptions, tax differentials and tax shields.
Tip No. 8: Whether for business or for tax purposes, Sun Tzu, in his book the Art of WAR, said that managing a small or large concern is the same. It is a matter of organization. It is a question of relying on the right person, manager or advisor on the particular concern, at the right time and place. As you apply Sun Tzu’s Art of WAR and the PARETO principle on business matters, apply the same to your tax concerns.
Tip No. 9. Tax Knowledge = More Savings + More Earnings = More Wealth!
Buy my books available at National Book store. Books are best gifts for Christmas. Attend my tax lecture at Pan Pacific Hotel, “Tax Updates 2013 and Tax Deductibles Due to Calamities!” this coming December 12, 2013. You need to be tax-informed to face the challenges of 2014. To attend, just go online, type in and click “Attend Pinoytax Lecture”.
Tip No. 10.When you cannot sleep due to tax-sakitpirosis, visit your competent and trustworthy tax doctor – @ “Pinoytax e-Clinic” He is just a click away.
Bonus Tip: Learn to say loudly or silently the divine healing word of Christ himself when He looked up to heaven and uttered the word “Ephphatha!” Please greet the Divine Creator up there in heaven and repeat after me, “EPHPHATHA!” which means “Open Up!” If indeed by the command of God the heaven will be kind enough to open up to your prayer, then after you have kept most of your money without breaking the tax law, pay your taxes with a cheerful heart.
But if heaven takes time to open for you and you suffer misfortunes instead, or if you become seriously sick of tax-sakitpirosis, then follow the advice of Boxing Champion Cong. Manny Pacquiao.
“DON’T TELL GOD THAT YOU HAVE A BIG PROBLEM. TELL YOUR PROBLEM THAT YOU HAVE A BIG GOD! “MAKE GOD THE CENTER OF YOUR LIFE MANAGEMENT.
Anyway, God’s delays are never His denials. Happy holidays to all of you, to all of us!