Republic of the Philippines

CAVITE STATE UNIVERSITY

Don Severino de las Alas Campus
Indang, Cavite
GRADUATE SCHOOL AND OPEN LEARNING COLLEGE
College of Economics, Management and Development Studies

ISSUES ON GOVERNMENT TRANSACTIONS:

Tax Evasion and Bribery
DISCUSSION:
Republic Act No.7642: Tax Evasion
What is Tax Evasion and How Can You Avoid It?
 Tax evasion is a criminal act where a person or an entity deliberately fail to pay their
tax liability.
 People or entities that commit tax evasion face criminal charges and penalties.
 Those found guilty of tax evasion may be punished with jail sentences, hefty fines or
both.
 Tax evasion is illegal and criminal penalties apply, hence if caught evading tax the
director/s of the company will be fine and even imprisoned.
On the other hand, it is using illegal means to avoid paying your taxes. Usually, tax evasion
involves hiding or misrepresenting income. It can be done by underreporting income,
inflating deductions without proof, hiding or not reporting cash transactions, or hiding money
in offshore accounts. Tax evasion is part of an overall definition of tax fraud, which is illegal
intentional non-payment of taxes. Tax evasion is if you knowingly fail to report income or you
don't file an income tax return.

What Counts as Tax Evasion?

 Tax evasion includes both deliberate underpayment and deliberate nonpayment of
tax. Generally, taxpayers are considered guilty of tax evasion if it’s deemed that they
committed the act knowingly.
Examples of Tax Evasion
 Certain transactions don’t involve documentation, for instance, cash payment for
goods and services. If a taxpayer doesn’t report this kind of taxable income to the
(BIR) Bureau Internal Revenue while filing taxes, then it’ll be considered as an
attempt on the taxpayer’s part to conceal income.
 Underreporting taxable income Examples of Tax Evasion
 Intentionally underpaying taxes
 Falsifying documents related to taxable income
 Falsely claiming business expenses
 Claiming tax benefits on illegitimate dependents in tax returns
Tax Evasion and Tax Avoidance may appear to be the same thing. However, they are
entirely different acts.
For Instance, the arrangement of one's financial affairs to minimize tax liability within the law.
Under tax avoidance, taxpayers use legal means to pay lower taxes.

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 Republic of the Philippines
CAVITE STATE UNIVERSITY
Don Severino de las Alas Campus
Indang, Cavite
GRADUATE SCHOOL AND OPEN LEARNING COLLEGE
College of Economics, Management and Development Studies

Ex: Making Charitable contributions/ CSR

Common Types of Tax Evasion

 Tax Fraud
 Abusive tax
 Employment Tax Fraud
 Bankruptcy Fraud
 Corporate Fraud
 Smuggling
Tax Fraud, in this type of tax evasion, tax preparers may act fraudulently and falsely report
financial information.
 For example, a client may be eligible for tax credits of 5,000, but a dishonest tax
preparer may claim they are eligible for 15,000 in tax credits. By claiming they can
give big tax refunds, tax preparers try to negotiate higher fees in return.
Abusive tax, Schemes involve the creation of domestic and foreign trusts to capitalize on
financial secrecy laws of certain overseas jurisdictions. This way, tax evaders hide their
financial activities to avoid taxes illegally.
 For example, by taking advantage of secrecy laws and intricate financial
arrangements, they aim to hide assets and identities of investors so tax payments
can be illegally avoided.
Employment Tax Fraud, Employers must withhold Social Security, Federal, Medicare, and
Unemployment taxes from their employees’ salaries. Failure to withhold these amounts can
be regarded as tax evasion.
 For example, Deliberate concealment of salaries and benefits by the employer
through cash payments is one obvious trick (i.e., “getting paid under the table”).
Misclassification: Some businesses classify their employees as independent
contractors. This is a common form of employee tax evasion. Pyramiding: The
employer will withhold taxes owed by the employee but will deliberately fail to remit
the amount to the Internal Revenue Service IRS. The employer will then file for
bankruptcy so the liability accrued can be discharged. The employer will then launch
a new business and repeat this procedure.
Bankruptcy Fraud, under bankruptcy laws, financially distressed organizations can reduce
and manage debt to survive. The Internal Revenue Service IRS cannot demand payment of
tax liabilities, although it can demand you file returns and perform tax audits. Since this is a
powerful legal tool, certain businesses abuse bankruptcy filings to avoid paying taxes
despite being capable of discharging their tax liability.
Corporate Fraud, Certain corporate professionals commit fraudulent acts to avoid tax
payments. For instance, they may underreport income, claim excessive credits, overstate
their deductions or employ complicated financial arrangement to obscure their transactions.

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 Republic of the Philippines
CAVITE STATE UNIVERSITY
Don Severino de las Alas Campus
Indang, Cavite
GRADUATE SCHOOL AND OPEN LEARNING COLLEGE
College of Economics, Management and Development Studies

Smuggling, is importation or exportation of foreign products by illegal means. It is also

resorted to for total evasion of customs duties, as well as for the importation of contraband.
 For example, a smuggler does not have to pay any customs duty since smuggled
products are not routed through customs-tax compliant customs ports, and are
therefore not subjected to declaration and, by extension, to the payment of duties
and taxes
High-Profile Tax Evasion Cases

 Dunkin Donuts' Philippine franchisee faces tax evasion case

 RAPPLER HOLDING INC FACES TAX EVASION CASE 133.8M
 RENATO CORONA TAX EVASION 120 Million
 BIR files P30 billion tax suit against Mighty Corporation
 Cedric Lee, accused of tax evasion 194.47 Million
 Leader of Medical Association, DR. LEO OLARTE
 BIR sues Richard Gutierrez for P38.57M tax evasion
 ABS-CBN agrees to pay P152.44-M to BIR to settle tax case
 Small town lottery firm slapped with P960-M tax case
 PHP 2.2-billion tax evasion of Manny Pacquiao
What are the typical violations or grounds for the Bureau of Internal Revenue (BIR) to
file a tax evasion case against a taxpayer?
The following are considered criminal violations of the Tax Code, as stated on the BIR
website:
1. Failure to file tax return/s
2. Failure to pay taxes
3. Deliberate under declaration of income or overstatement of deductions by more than
30% of that declared per return (substantial under declaration or overstatement of
deductions)
4. Hiding or transferring assets or income
5. Non-remittance of withholding taxes
6. Claiming personal expenses as business expenses (tax shield)
7. Failure to register with the BIR
8. Keeping more than one (1) book of accounts
9. Making false entries in financial books and records
10. Use of fake Certificate of Authorizing Registration (CAR), Tax Clearance Certificate
(TCC), or other accountable forms

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 Republic of the Philippines
CAVITE STATE UNIVERSITY
Don Severino de las Alas Campus
Indang, Cavite
GRADUATE SCHOOL AND OPEN LEARNING COLLEGE
College of Economics, Management and Development Studies

So if you received a Letter of Authority (LOA) under the RATE (Run After Tax Evaders)
program, it means the BIR found some evidence of fraudulent activities which you may have
intentionally or unintentionally done.

BRIBERY (REPUBLIC ACT No. 3019 ANTI-GRAFT AND CORRUPT PRACTICES ACT)
Origin of Bribery
BRIBE entered English in the 1300s, in the sense of something stolen; it is derived from the
French briber, “to beg.” Around the 1500s, “bribe” began to acquire its current associations
with corruption.
What is Bribery?

 A practice of giving remuneration for performance of an act that is inconsistent with

the work contract.

 It is intended to induce people inside the workplace.

 It is identified to be a form of corruption and is generally immoral and for most is

illegal.

 It is defined as a practice of giving reward for performance of an act that is

inconsistent with the work contract or the nature of the work one has been hired to
perform.

Causes of Bribery

 Low Salaries
As everyone is finding a way to better their living standard as much as they can; So
mostly corruption is to be seen where there are people having fewer salaries they use
corrupt ways to achieve the goal. It is true that they do not have any other way to fulfill
their wants.

 Personal Greed
leads to an unrestricted desire for money or power, with no regard whatsoever to
moral boundaries.

 No sense of service when working in public or private Institutions

This is seen, for instance, in those who use politics for their selfish interests, instead of
serving the common good through politics.

 Decline of personal ethical sensitivity

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 Republic of the Philippines
CAVITE STATE UNIVERSITY
Don Severino de las Alas Campus
Indang, Cavite
GRADUATE SCHOOL AND OPEN LEARNING COLLEGE
College of Economics, Management and Development Studies

Due to lack of education or negative learning experiences, developed by downplaying

perverse conduct in the past.

 Downplaying or reacting mildly to bribery charges

Little power of decision within organizations to penalize, acts of corruption to set
examples creates an environment conducive to increasing corruption.

 Lack of tolerance
Tolerance of people towards bribery, complete lack of intense public outcry against
bribery and the absence of strong public forum to oppose illegal acts.
Effects of Bribery

 Bribery often makes a country less attractive for foreign investors and may thus keep
down the standard of living in the country
 American companies are forbidden to pay bribes even abroad. They complain that
they are therefore at a disadvantage to non US companies in some markets
 It prevents open access to all competitors on equal terms
 Competitors are prevented from competing on the merits of their products or services
 Often leads to higher prices

Effects of Bribery on:

Political Sector:
1. Undermines democracy by disregarding formal processes such as rigging in elections,
leading to undeserved leaders.
2. Corruption in the judiciary compromises justices for innocents.
3. corruption in public administration results in the inefficient provision of services.
Social Sector:
1. Corruption facilitates environmental destruction. While corrupt societies may have formal
legislation to protect the environment, it cannot be enforced if officials can easily be bribed.
Lead to socials issues such as Child labor.
Health sector:
1. Payments made to reputed surgeons by patients attempting to be on top of the list of
forthcoming surgeries leads to risk of death some times.
2. Bribes paid by suppliers to the automotive industry in order to sell low-quality connectors
used for instance in safety equipment such as airbags, bribes paid by suppliers to
manufacturers of defibrillators (to sell low-quality capacitors) leads to health risk due to
compromised facilities
Education Sector:

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 Republic of the Philippines
CAVITE STATE UNIVERSITY
Don Severino de las Alas Campus
Indang, Cavite
GRADUATE SCHOOL AND OPEN LEARNING COLLEGE
College of Economics, Management and Development Studies

1. contributions paid by wealthy parents to the "social and culture fund" of a prestigious
university in exchange for it to accept their children(admission) leads to minimum seats for
capable students due to merit less selection.
2. Bribes paid to obtain diplomas. Leads to fake expression of qualification during
employment.
Economic Sector:
1. Bribery often makes a country less attractive for foreign investors and may thus keep
down the standard of living in the country.
2. Fake degree holders will not able to serve their country efficiently as compared to eligible,
result in less generation of capital.

FORMS OF BRIBERY
• Tips and Discounts
• Funding
• Promotion
• (rise of position/rank)
• Lavish entertainment
• Supporting a favored cause
• Donation to a political party
• Education for family members
• Tangible assets
Examples of Bribery

 A motorist offers a certain amount of money to a police officer in order not to be

issued ticket for over speeding.
 A narcotics smuggler bribes a judge to lessen criminal penalties.
How Bribery is CONSIDERED?
TAKING BRIBE = Stealing or Begging but, the Recipient considered it as a gift.
However, not all examples of gift-giving and accepting gifts are qualified as Bribery.
Remedies in Bribery

 Strengthening of Institutions, by camera in most government office.

 Supremacy of Law (Law to dismiss from service if found to be involved in corruption).

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 Republic of the Philippines
CAVITE STATE UNIVERSITY
Don Severino de las Alas Campus
Indang, Cavite
GRADUATE SCHOOL AND OPEN LEARNING COLLEGE
College of Economics, Management and Development Studies

 Prevalence of code of conduct.

 Proper check and balance on all officials as well as

 citizens.

 Increase in salaries and incentives.

 Restoration of judiciary on free basis.

 Hiring of new employees on merit rather than

 beneficiaries.

 Proper awareness campaigns need to be formed.

Why bribery is unethical?

 It is generally used as an instrument to gain personal or corporate advantage.

 It corrupts the concept of justice and equality.

 Bribery produces cynicism and a general distrust of institution

 It destroys people’s trust in the integrity of professional services, of government and

the courts, of law enforcement, religion, and anything it touches.

 It treats people as commodities whose honor can be bought and sold.

 It thus tends to degrade the respect we owe to other human beings.

Prepared by:
GLAZED DAISY NILO
Master in Management

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