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The richest, the biggest tax evaders?

Many of the very wealthy Filipinos—those with at least a net worth of P5 billion—have managed to pay ridiculously low taxes of less than P4 million.
This is the most logical conclusion if one looks for the names of the Philippines’ 40 wealthiest people listed by Forbes magazine last year in the roster of the country’s 500 biggest taxpayers for 2011 as posted in the Bureau of Internal Revenue’s website. 

In that BIR list, the smallest taxes paid were by Jose Sio, the chief financial officer of the SM conglomerate—P4 million. That’s peanuts for what Mr. Sio is most probably making as CFO of the country’s biggest conglomerate. But at least he paid that much.

Thirty or 75 percent of Forbes’ Philippine billionaires are not even in the BIR list.

There are several explanations why these billionaires did not make it to the BIR top-taxpayers list. The simplest one is that the BIR is grossly incompetent in collating data on the country’s top taxpayers. It is so irresponsible to make such a defective list public.

A second explanation is that some of the elite are smarter than others, with better tax accountants and lawyers. While tycoons like Manuel Pangilinan, Henry Sy (as well as his two sons and daughter), and the Aboitizes are in the BIR list—even if their taxes are ridiculously low, even smaller than celebrities—their peers such as the Ayalas (Jaime and his sons Jaime Augusto and Fernando), the Yuchengcos, Gokongweis, and Metrobank’s Ty are not. Property developer the Consunjis are top taxpayers, while Megaworld’s Andrew Tan and Century Properties Jose Antonio are not in the BIR list.

Retail-chain magnates Puregold’s Lucio Co and Rustans’ Tantocos are also not in the BIR list. While GMA 7’s Felipe Gozon and TV 5’s Ray Espinosa are top taxpayers, the Lopez brothers—Oscar, Gabriel, and Manuel—owners of ABS-CBN aren’t. That indeed is ironical as ABS-CBN’s top artist is Kris Aquino, the biggest taxpayer, while its president, Charo Santos Concio, is the country’s 33rd biggest taxpayer.

Forbes listed luxury-car dealer Robert Coyuito, from whom President Aquino was rumored to have bought his Porsche, is not among the BIR’s top taxpayers.

There are even tycoons who seem to be so smart that they are neither in the BIR list of top taxpayers nor in the Forbes list of 40 richest individuals: Antonio Cojuangco who was the biggest contributor to his cousin President Aquino’s electoral campaign in 2010, San Miguel and Philippine Airlines chairman Ramon Ang, and plastics king William Gatchalian.

However, an Ayala executive, writing in a business paper, had defended the Ayalas’ and other known tycoons’ non-inclusion in the BIR top taxpayers’ listing in the past years:

“For many top executives, the company withholds and pays their individual income taxes directly to the BIR under a procedure known as ‘substituted filing.’ Provided the individual has only that single source of still taxable income, he does not need to file an income tax return. These substituted filings were likely not captured by the BIR’s top 500 list.”

This doesn’t seem to hold water. The Ayalas definitely have more than a “single source of taxable income.” If they had used “substituted filing” for their firms, executives of Ayala firms such as Aurelio Montinola 3rd of the Bank of the Philippine Islands and Gerardo Ablaza of Manila Water wouldn’t be among the BIR’s top 10 taxpayers.

If the BIR really allows taxpayers to let their companies file their income tax returns, this is a most shameless system since with millions of taxpayers—even those from whom taxes were already collected in the form of taxes withheld—are required to submit their income tax returns, often having to endure the heat of summer in crowded BIR offices to beat the April 15 deadline.

The Ayala executive—who also surprisingly is not in the BIR list of top taxpayers—in his column also claimed:

“Then there are cases of individuals who have incorporated their business, such that the income is earned by the corporation, which then pays the appropriate corporate income taxes. Additionally, the dividend income the individual derives from the corporation is levied a final tax collected at source. There is no requirement that this be subject of an individual income tax filing. This is true as well for those whose income is passive, i.e. derived primarily from interest and dividends, which are imposed final taxes withheld at source. These are not captured in BIR’s top 500. “

It seems highly unlikely though that Jaime Augusto’s and Fernando’s salaries in Ayala Corp., in which they are CEO and COOs respectively, as well as in other Ayala firms where they are board members, are all paid out not to them as individuals but to their holding firms.

If the BIR list of the country’s top taxpayers is accurate, and that most of our magnates aren’t paying the right taxes, it’s certainly one of the most shameless features of our society. It is indeed the height of hypocrisy for our rich to rant against corruption, yet evade taxes. And the BIR—even as it releases this list—isn’t doing much to run after the richest tax evaders and instead chases small businessmen, celebrities, and doctors.