[Ask the Tax Whiz] Will the new audit rules protect honest taxpayers?

RMO No. 22-2026 enhances risk-based selection and accountability in BIR audits, emphasizing the importance of reliable records and credible advisers for businesses. An Annual Tax Review (ATR) is recommended as a preventive measure to identify potential tax issues before they escalate, complementing routine accounting practices. The order does not exempt small businesses from audits but suggests reducing routine audits for low-risk entities while ensuring accountability for tax crimes among public officials and professionals. This is AI-generated. Read the article for full context. Report any errors. Part 1 | [Ask the Tax Whiz] Why is the BIR auditing your business?Part 2 | [Ask the Tax Whiz] The BIR sent an audit notice. What now? In the third and final installment of this series, the Philippine Tax Whiz examines the safeguards under Revenue Memorandum Order (RMO) No. 22-2026—and explains why an annual tax review can help businesses prevent costly disputes without compromising their integrity. A business can lose money and still pay the correct taxes. A taxpayer can accumulate wealth while concealing taxable income. Effective tax administration must distinguish between the two. RMO No. 22-2026 strengthens risk-based selection and accountability in a Bureau of Internal Revenue (BIR) audit. For businesses, however, protection also begins before an audit notice arrives: knowing your tax exposure, keeping reliable records, and choosing credible advisers. From a global tax policy perspective, predictable enforcement protects revenue, strengthens investor confidence, and allows businesses to grow. 1. If computers help select taxpayers, does that make audit fair? It can reduce arbitrary selection, but fairness depends on reliable data and sound judgment. RMO No. 22-2026 generally provides system-assisted, risk-based selection for priority cases and anonymized assignment. Mandatory cases follow a different selection process. These safeguards reduce opportunities for personal influence. They do not replace the obligation to validate discrepancies, consider explanations, and respect due process. Technology should improve the quality of decisions—not merely accelerate them. 2. My business has low profits or large VAT credits. Should I worry? Understand the indicators and prepare your explanations. The priority criteria include income tax due below 2% of gross sales or revenues, input VAT exceeding 75% of output VAT, and substantial sales accompanied by a net loss. These are audit indicators, not automatic tax deficiencies. A low-margin retailer, an exporter, and a business purchasing equipment have different financial profiles. Risk assessment should account for those differences. Your records should explain why the figures are commercially reasonable and legally supportable. 3. Are small businesses now protected from yearly audits? The order creates no blanket MSME exemption or three-year audit holiday. The general one-eLA rule concerns audit authority for a particular taxable year. My recommendation remains to reduce routine audit frequency for demonstrably low-risk micro and small businesses, with targeted examinations when credible risk indicators warrant them. A three-year cycle would require appropriate adoption. Meanwhile, compliance assistance and proportionate enforcement should help small businesses correct problems without unnecessary disruption. 4. Why not focus more on unexplained wealth? The order already recognizes third-party intelligence, publicly available information, and validated discrepancies as grounds for selecting mandatory cases. I propose a nationwide, risk-based investigation of potentially undeclared taxable income behind unexplained wealth—including that of high-net-worth individuals and public officials. Authorities should reconcile tax information with lawfully accessible asset, property, and corporate records. Wealth growth alone does not prove evasion. Legitimate sources must be checked, and due process observed. The same standard should apply regardless of political affiliation, wealth, or influence. 5. Who checks whether BIR examiners are doing their jobs properly? Section V(10) provides for Revalida, or “Audit of Auditors,” through the Tax Audit Review Division, subject to the BIR Commissioner’s approval. The order calls for separate detailed guidelines. Section VII also identifies unauthorized audit, improper case selection, misclassification, and unjustified reporting delays as grounds for administrative sanctions. Accountability must extend to public officials and professionals who enable tax crimes. Section 253(C) of the Tax Code prescribes the maximum penalty for a convicted public officer or employee, plus dismissal from public service and perpetual disqualification from holding public office, voting, and participating in elections. For a convicted Certified Public Accountants (CPA), the law expressly provides automatic revocation or cancellation of the CPA certificate. Section 253(B) also makes anyone who willfully aids or abets a tax crime liable in the same manner as the principal offender. These consequences require criminal conviction—not merely an audit finding. Public office and professional credentials carry responsibilities; neither should shield anyone from accountability. 6. I already have an accountant. Why would I need an Annual Tax Review? Routine filing and an Annual Tax Review (ATR) serve different purposes. Filing meets recurring obligations; a review examines whether the returns, records, and tax positions are consistent and adequately supported. An ATR can reconcile sales across tax returns and financial statements, examine withholding compliance, test VAT claims, and identify documentation gaps before they become disputed findings. RMO No. 22-2026 does not require an ATR. It is a preventive measure that can complement your accountant’s work—much like a health checkup identifies concerns before they become emergencies. 7. Can a review really save my business millions of pesos? Potentially, depending on the business’s size and exposure—but no responsible adviser should guarantee savings. For illustration, ₱10 million in purchases carrying ₱1.2 million in input Value-Added Tax (VAT) represents a material documentation risk. Reviewing invoice validity, eligibility, and reconciliation early can help identify weaknesses and defend valid claims. Savings may come from preventing errors, avoiding associated penalties, or successfully supporting a position that might otherwise be challenged. A review cannot erase a genuine liability, manufacture missing evidence, or guarantee exemption from audit. 8. How do I find someone who can resolve tax issues without compromising my reputation? Examine the firm’s credentials, reputation, relevant experience, and methods. Require a clear engagement scope, transparent fees, documented advice, and official payment channels. Be wary of guaranteed reductions, supposed connections, or requests for unofficial payments. Credible representation means defending supportable positions and pursuing lawful remedies. Where a legal compromise settlement is appropriate, it must meet the applicable requirements and approvals. To explore an Annual Tax Review or assistance with an existing audit, email consult@acg.ph or visit www.acg.ph for an initial assessment of your needs. Tax reform should be measured by correct collections, fair treatment, timely resolution, and stronger voluntary compliance—not simply the size of proposed assessments. For government, that means pursuing serious evasion while respecting taxpayer rights. For businesses, it means investing in compliance before a dispute develops. An annual review can protect your finances; credible advice helps protect your reputation. Neither should require compromising your integrity. – Rappler.com Mon Abrea, CPA, MBA, MPA (Harvard), is a global tax policy expert and Chief Tax Advisor of Asian Consulting Group (ACGlobal). He advises governments, multinational enterprises, and international organizations on tax policy, investment competitiveness, and fiscal reform. He is the author of Reimagining the World Without Corruption and Why Invest in the Philippines? CREATE MORE Edition, and has represented the Philippines in policy dialogues at the OECD, World Bank, and other international forums.