Philippine Tax Authority TKOs Manny Pacquiao

Why are tax authorities always hate figures? The Good Book portrayed them as untouchables, and tax collectors have had something of an image problem since biblical times. While the entire Philippine nation was cheering Manny Pacquiao to victory over Timothy Bradley in last Sunday's title bout--which he won handily--someone was already seeing Philippine peso signs in her eyes. No, not Manny's manager but the country's tax collecting head honcho, Kim Henares of the Bureau on Internal Revenue (BIR). As the picture above implies, these two pugilists have had previous run-ins. Last year, the congressman accused her of "harassing" him over back taxes:

Pacquiao—who is also a congressman representing Sarangani province—has been slapped with a P2.2-billion bill by the BIR, which alleges that he failed to pay taxes for his income from boxing in recent years. For this, tax authorities have ordered local banks to freeze his accounts.

This prompted Pacquiao to call a press conference, saying that he was being harassed by local authorities for taxes that had supposedly been settled in the United States. [The US Internal Revenue Service itself has issued a levy on Pacquiao’s US bank accounts to recoup more than $18 million in alleged tax liabilities from 2006 to 2010.]

The "Taxman versus Pacman" trope meme has been circulating around the Philippine blogosphere. Kim Henares has become a celebrity herself over her tax crusading. As most development scholars know, collecting revenues is problematic in poor countries where limited institutional capabilities makes it easy for tax cheats to declare Mitt Romney-like incomes--or none at all. IFIs like the World Bank have been especially critical of the Philippines' inability to raise taxes collections as a percentage of GDP. For the past few years, it has not even crossed the relatively low 13% threshold. Quoth the World Bank on the Philippines:

Higher investments can be sustained by institutionalizing reforms in public finance. In this regard, a comprehensive program of tax policy and administrative measures should be pursued to raise tax revenues by up to 8 percent of GDP. The government’s medium-term target of an additional 3 percentage points of GDP by 2016 is on the right track. Higher revenues need not be equated with higher tax rates as tax administration can be improved substantially.

For instance, in the first quarter of 2013, the Bureau of Internal Revenue announced a campaign to boost tax collection from self-employed and professionals (SEPs) such as doctors, lawyers, and traders. The government estimates that only about 403,000 out of 1.8 million SEPs paid taxes and the average income declared by SEPs is not far from the income of a minimum wage worker [my italics]. Successful implementation of this campaign can generate up to 2 percent of GDP in tax revenues without raising tax rates.

Actually, there is a method to Henares' madness. She has taken to chasing the Philippines bling-bling crowd who take pride in ostentatious displays of wealth in a poor nation. Yes, professionals--doctors, lawyers and so on--tend to hide income from medical operations and billable hours. But, going after celebrities like Pacquiao has proven especially fruitful in gaining public attention with the message that no one is safe from the taxman. Ever seen the IRS head get featured in gossip columns? She does in the Philippines:

With her staff members diligently helping her, auditing books and sales reports, she knows exactly who, and how much or little, the rich and famous are paying and evading paying. Her first salvo was running after  reported tax evading celebrities as Judy Ann Santos, Regine Velasquez and Richard Gomez. When President Aquino told a meeting of the federation of Chinese businessmen that most of them were not paying the right taxes, he was using information provided by Henares.

Henares joined BIR in 2010. Statistics from her office showed that BIR collection for 2013 grew by 15 percent, exceeding the December 2013 target by 6.44 percent. For December 2013, collections from BIR operations amounted to P94.07 billion. Which is P8.25 billion or 9.1 percent more than collections made in December 2012.

You have to be tough to go after the Philippines' rich and famous like Manny. Fortunately, she appears up to the job. Her hobby is combat shooting (with a competition-spec .45 by the looks of it in the link). Speaking of whom, here's who you're up against, Manny: the submachine gun-toting BIR chief...

Tax honcho Kim Henares has got Manny Pacquiao in the crosshairs

Anyway, after Manny's cool $20 million in earnings from the Bradley fight, Attorney Henares has fired another warning shot already. The interesting IPE angle here is that Pacquiao can pay taxes from his matches in either the United States or the Philippines. What Henares is arguing is that he's better off paying them back home since (a) the tax rate there is lower and (b) a poorer country needs the money more as his tax bill climbs:

WBO Welterweight champion Manny Pacquiao now faces P2.56-billion in tax deficiencies after Sunday's match, Bureau of Internal Revenue (BIR) Commissioner Kim Henares said. In an interview over dzMM [radio] on Monday, Henares added up Pacquiao's guaranteed $20 million purse from his rematch with Timothy Bradley to his alleged back taxes of P1.1 billion from 2008 to 2009 and interests.

The People's Champion can settle the liabilities in the United States where his last fight was held and organized. Henares said, however, that the US Internal Revenue Service demands a 40 percent tax contribution from Pacquiao's earnings, while the BIR only asks for 32 percent.

Kim Henares gets two thumbs up from me--a true kickass woman if there ever was one. Yes, the Philippines certainly stands to benefit from improved revenue collection. Manny Pacquiao is a tax-dodging sissy next to her. Fair is fair so pay up, man! You learn early on who to pick fights with. My advice to Manny is to not @#$% around with Kimmy. I sure wouldn't.

UPDATE: Some lawmakers are apparently upset with Henares' brazen PR stunts designed to get Manny to pay. As I mention above, there are reasons why she must resort to publicity to get her objectives accomplished.