BI helps Philippines fight tax fraud

Business intelligence software is playing a significant role in the Philippine Bureau of Internal Revenue’s (BIR) fight against tax fraud and evasion practices. In fact, the agency has even created a BI task force.

“We used to do everything manually until we automated data matching (of VAT transactions versus VAT declarations) and came up with the e-report card system in 2003 and from then on moved to business intelligence through data mining,” said BIR acting assistant commissioner Charo Curiba. Through business intelligence, the bureau matches third-party information from other public and private offices and its own database to detect discrepancies in declarations and other data deviations.

Curiba said the BI task force (BITF) was formed in 2004 to handle declaration discrepancies of the taxpayers that were uncovered through the BI software and to recommend projects centered on imploring analysis of data through data mining in order to increase revenue collection.

“We do data integration for the BIR — all data declarations, third-party information, even utilities data; they basically run their analytics on our platform. Once the data is integrated, that’s where the BI task force comes in,” said Sawfin Saw Buan, industry sales manager at SAS Institute (Philippines) Inc., the provider of business intelligence software to the BIR.

Saw Buan shared that in a VAT relief project for the BIR in 2003, they were able to help the bureau uncover almost P80 billion (US$1.5 billion) of under-declarations in value added tax (VAT) from businesses, out of which the BIR was able to collect P7 billion to P8 billion. Through the BI software, what the bureau has been trying to do for several years was easily accomplished in three months, the SAS official added.

Curiba said the BI system was put in place to detect patterns of tax declarations and/or payments suggestive of tax fraud or evasion practices; to develop benchmarks for prioritization of industries on which audit activities should be focused; and to identify areas for improvement in taxpayer administration and better revenue collection.

In 2004, the bureau was able to issue 7,744 letter notices (LN) to taxpayers with anomalous tax declarations, out of which 1,156 were collected, amounting to more than P1 billion worth of tax payments recovered. Last year, more than 12,000 LNs were issued, out of which close to 2,000 were collected amounting to more than P2.5 billion.

“The more than P2 billion we collected last year is way above our expectation,” said Curiba. Acknowledging that much still needs to be done, the BIR official said that they are at least on the right track. “The management has shown appreciation for the performance of the BITF and wants to institutionalize this task force,” said Curiba.

Moving forward, the bureau hopes to establish new strategies to handle new sources of information, like monthly sales reports from cash register machines or monthly point-of-sale machines, professionals’ income and tax profiles, and hospitals’ data, among others, for more comprehensive data matching.

The bureau hopes to upgrade the system to the latest version of SAS and enhance it based on new taxation laws, particularly the 2 percent increase in VAT, said Curiba. As of now, the system is still based on the 10 percent VAT law.

The bureau is also working on developing churn predictive analysis or the ability to predict how much revenue they may collect from specific industries in the future.

“The potential for revenue is really big with the BI system in place,” said Curiba.