'Unbelievable': Ex-BIR chief reacts to Pharmally exec's low taxes

Benise Balaoing, ABS-CBN News

Posted at Oct 29 2021 12:49 PM

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MANILA – How can a person who purchased a Lamborghini Urus worth P25 million pay only P97,241 in income tax?

Ex-Bureau of Internal Revenue chief Kim Henares made this observation after a Senate inquiry questioned the low amount of taxes paid by two top executives of embattled pandemic supplier Pharmally Pharmaceutical Corp.

On Wednesday, the Senate Blue Ribbon Committee’s probe on government’s allegedly dubious deals with Pharmally revealed that the company’s Secretary and Treasurer Mohit Dargani only paid P22,062 in 2019 and P97,241 in 2020.
There was "no information" available regarding his taxable income and taxes paid in 2018, according to the Bureau of Internal Revenue (BIR).

His taxable income was also "unreadable," the bureau indicated. This could mean that the source could have submitted poor copy or the document was hard to read. 

“Let’s say with Mohit Dargani, when you pay a P22,000 income tax that means, after expenses, and after taxes, you have around P44,000 left. Yeah, P44,000 left. For the year,” said former BIR Commissioner Kim Henares on ANC’s “Rundown.”

“I wouldn’t say that they’re paying less than what a minimum wage earner is paying. The minimum wage earner is exempted from taxes. So I would say that, let’s say him ‘no, because the first P250,000 is exempt, P250,000+P44,000 so a year, he’s probably only earning P295,000.”

“I’m just saying that it’s unbelievable because when you hear them saying that they own a Ferrari, a Lamborghini, So how can somebody who has a net income after taxes of around P290,000 afford to buy those kind of cars?” she explained.

Henares noted that Dargani may have earned through dividends from the company. But she noted that Pharmally did not declare dividends as well.

“I think what will happen is that if they don’t earn salaries they would receive it via dividend. But if you earn something by dividend, it is subject to final withholding tax of 10 percent. So it will not really come out in your income tax return.”

“But then you will now have to look at the corporation, did they declare dividend or not? And from my understanding if you look at the Pharmally income tax return and financial statement, they never declared any dividend,” she said.

“So that now becomes unbelievable given their lifestyle, and given that the, you have a company that’s doing a turnover of P12 billion. Let’s say assuming you’re company is doing a turnover of P12 billion, probably you divide it by 12, because there is 12 months in a year, so every month you have a probably an inventory, you will require an inventory of 1 or 2 months right, so, you would have to have a capital of at least, P2 billion?”

“So given the way this company looks like, the question is, the question if we do a net worth method is how do you explain your net worth when you only declared this type of income? There must be a lot of income that you did not declare,” she explained.

Henares also questioned the purchase of luxury cars by Pharmally executives.

Senate Blue Ribbon Committee Chairman Richard Gordon said Mohit Dargani, Pharmally's secretary and treasurer, supposedly borrowed money from the company to buy a luxury car for his sister Twinkle, the firm's president.

But the outsourced accountant, Jeff Mariano, said he did not see any documents reflecting such transactions.

“Remember they said they had to borrow from somebody right?” Henares noted.

“They had to borrow from somebody, so that means, the company does not have any money. So if it doesn’t have any money how can you borrow from that company?”

Henares said there may have been an intent on the part of the Dargani siblings to confuse the country’s tax bureau, given how some of their tax data were “unreadable.”

“First I don’t understand the term ‘unreadable.’ Because normally, you file the return, and, the thing there is when the taxpayer filed their return we don’t really look at it at the time it filed. We normally looked at it when it is being encoded by somebody in the tax bureau.” 

“So I think it is just, there must be an intent, to confuse the BIR by submitting [an] incomplete tax return. It’s just the filing was just to be able to show that they complied and that it’s not logged as non-filer,” she said.

She added, however, that this merits further investigation.

“You have to investigate and look at it as probably these are indication of intent to commit tax evasion. Because our tax law said tax evasion is committed when there’s a willful intent not to pay the right taxes,” she said.

Yang taxes also unbelievable - Henares

Thursday’s Senate probe showed that Davao-based businessman Michael Yang, who allegedly lent Pharmally money, did not file his income tax return (ITR) from the year 2014 up to 2017, according to the bureau. 

This was "based on the verification made by the District's Collection Section," the presentation read. 

"The ITRs for 2014 to 2017 could not be found in the records (Document Processing Division)."
But Yang paid P7,600 worth of taxes in 2018 from his taxable income P208,000.

“For Mr. Yang, I understand that he has a business in Davao,” Henares said. “So, unless that business is a corporation, if it’s a sole proprietor he should have filed an income tax return under his name.”

“Or if he has other businesses, remember during the Corona impeachment if you’re employee of a single corporation, and you don’t have any other income, and that the taxes are properly withheld, you’re not required to file an income tax return.”

“But if you are a mixed-income earner, you’re a two-source of income then you’re required to file an income tax return. But you could properly look at this income, if he is not filing, but he is an employee, then you look at the alpha list of the company that hires him,” she explained.

She adds, however, “I would think that for him to be able to lend money, right, to Pharmally, and to be able to let a house in Forbes Park, this, he should have reported a lot of income through the years and paid a lot of taxes.”

Asked if she thinks the P7,600 in taxes Yang paid in 2018 is believable, Henares said, “No, it’s not because of the surrounding facts that came out in the investigation.”

As for former Budget Undersecretary Christopher Lao, Henares said government records must be checked to see why there is a problem with his taxes.

The latest Senate hearing showed that the lawyer paid no taxes in 2017 for supposedly having no taxable income. 

While he filed his ITR in 2018 and 2019 through the eBIR platform, these "could not be viewed" by the BIR. 

Last year, Lao did not file his ITR. BIR Davao City certified this.

“Now for Christopher Lao, the thing there is, if he’s a government employee, and he’s just hired by one government agency, he doesn’t have to file an income tax return because the presumption is that his taxes are being withheld properly.”

“So now you’re in the alpha list of--before that he was in HLURB right, and after that it was DBM, so you now have to check on the alpha list of HLURB and DBM,” she said.

Pandemic suppliers also had ‘incorrect’ tax records

Tigerphil Marketing Corporation, Pharmally's alleged medical supplier, meanwhile, paid P2,234 in taxes in 2017 from their taxable income P7,447.

Despite this, however, Drilon said the firm's taxable income from 2017 to 2019 might be "under-declared."

“That amount of Tigerphil I think is still not correct,” Henares said.

“If we look at who their supplier is, they said their supplier was Greentrends Trading International Inc, but if you look at what the BIR sent the Senate, they said they did not file any income tax return for 2015 to 2021. In fact, they did not file any returns so they have open cases.”

“If that’s the case, the sale of Tigerphil to Pharmally, they cannot take any deduction. Because I would presume that Greentrends Trading International Inc will be unable to issue any receipt to them. Because Greentrend is not reporting any sale,” she explained.

“So if they’re not reporting any sale, what is the basis of the cost of Tigerphil?” she said.

“There’s something to be collected there somewhere,” she added.

Xuzhou Construction, yet another China-based company which bagged the second biggest pandemic deal with the government, is now a foreign corporation doing business in the Philippines, Henares said, adding that the should pay their due taxes.

“The problem with Xuzhou is Mr. Han, the representative, he’s here two months, then one month china, and two months Philippines then one month China, so if that’s the case he is now causing the company to have a permanent establishment in the Philippines. Because he’s been in the Philippines for more than 180 days.”

“So, because of that, you can now say that Xuzhou Construction Machinery Group is actually a foreign corporation doing business in the Philippines, and should be reporting the sales they make in the Philippines as their income, and they can deduct expenses from that and then pay the taxes due their own,” she said.

Henares said the tax bureau must now pursue it leads on companies and individuals allegedly not paying their proper taxes.

“Because we’re in a self-assessment regime in the Philippines, so the BIR is really after the fact,” she said.

“So having seen all of this, the BIR have leads that they can follow up on, to determine, because you have to make [an] exact assessment, you cannot be an estimate."

"So you now have all these data, and from there, you can now generate an assessment of how much taxes should be paid together with surcharge and interest,” she said.

--ANC, 29 October 2021