Paving the Way for Tax Reform

AT THE HEART OF LUMAGUI’S LEADERSHIP IS THE RECOGNITION OF THE SACRIFICES MADE BY THOSE WITHIN THE BIR. HE EMPHASIZES THAT IT TAKES A DEEP LEVEL OF COMMITMENT TO WORK IN SUCH A CRITICAL AGENCY. “THAT IS THE ESSENCE OF PUBLIC SERVICE—TO SERVE THE PEOPLE, EVEN IF IT MEANS GOING ABOVE AND BEYOND THE CALL OF DUTY.”

Committee (DBCC) on March 22, 2024. This marks the first time in two decades that the agency has fully reached its annual collection objective. Although final figures are expected by mid-February 2025, the BIR projects that total collections will continue to exceed expectations. These achievements are a testament to the dedication of the BIR’s revenue officers and the success of programs designed to encourage taxpayer compliance and robust tax enforcement initiatives.

Lumagui’s vision goes beyond revenue collection. He is committed to transforming the BIR into a serviceoriented, business-friendly agency. While continuing to strengthen tax enforcement, he prioritizes improving efficiency and fostering trust in the system. Digitalization projects and ISO certifications are key to this effort, as they streamline processes and enhance service quality.

“Our goal is to make paying taxes a seamless experience for Filipinos,” Lumagui explains. “Through digital advancements and ISO certification, we aim to encourage voluntary compliance and deliver excellent service to taxpayers.” With these initiatives, Lumagui is setting the stage for a more efficient and transparent tax system that benefits both the government and the public.

TAXING TIMES

For the average Filipino, paying taxes isn’t just a legal obligation but a civic duty that fuels the nation’s growth and progress. Every peso remitted contributes to the development and improvement of the Philippines, making tax compliance a vital part of building a better country. The BIR emphasizes this dual role of taxes, urging citizens to see them as a tangible investment in the nation’s prosperity. In turn, taxpayers have every right to expect transparent and efficient systems from the government, particularly when it comes to understanding how their hard-earned contributions are utilized. Like any government agency, the BIR faces its fair share of challenges, and Lumagui stands at the forefront of tackling them. Among the most pressing issues are those tied to outdated systems and taxpayer noncompliance, including tax evasion, illicit trade, organized crime, money laundering, and fraudulent transactions designed to defraud the government. "Generally, if you look at the Tax Code," Lumagui explains, "when it is evident that the taxpayer fails to file returns, supply correct and accurate information, and pay taxes, there could potentially be a tax evasion scheme at work."

However, he emphasizes that identifying evasion is far from straightforward. "Blind auditing can harm the system," he asserts, advocating for a targeted, evidence-based approach to uphold fairness and maintain the integrity of the tax system. This perspective is rooted in Lumagui’s extensive expertise in tax law and years of hands-on experience within the bureau. Before stepping into his current role as commissioner, he led tax fraud operations across several revenue regions, including Region 6 (Manila), Region 7B (East National Capital Region), and Region 4 (Pampanga). For Lumagui, illicit trade is one of the most insidious threats. In 2023, the BIR filed tax evasion charges against 69 illegal cigarette traders and 53 erring taxpayers, underscoring its stance that such activities are not only illegal but also dangerous. Illicit trade not only robs the government of rightful revenues but also introduces substandard products into the market, posing significant health risks compared to regulated tobacco products.

“The fight against illicit trade is a priority for the BIR,” Lumagui emphasizes. “Pursuing these offenders relentlessly helps maintain a level playing field and protects legitimate businesses in the country.” However, Lumagui believes the battle cannot be fought alone. “Any campaign against illicit trade must be a concerted effort among government agencies. The BIR is committed to contributing in every way possible,” he explains. “This is a crime against the Filipino people, and we will prosecute offenders to the fullest extent of the law. By doing so, we send a clear message: illicit trade will not be tolerated. Our goal is to safeguard legitimate businesses that uphold their tax obligations and ensure fairness across the board.” Since Lumagui’s appointment as commissioner in 2022 by President Ferdinand Marcos Jr., the BIR has embraced a forward-thinking approach, launching task forces and implementing initiatives to modernize its programs. Lumagui gave a marching order for the agency to adopt an industryfocused and data-driven methodology, leveraging analytical tools to identify trends and patterns specific to each sector. This strategy involves a thorough examination of potential industryspecific tax evasion schemes, pinpointing anomalies, and identifying individuals actively participating in such schemes. Designed to be robust and systematic, this initiative reinforces the BIR’s commitment to safeguarding the agency's integrity while protecting the interests of Filipino taxpayers.

RATE AND RAFT

Lumagui emphasizes that the true measure of reforms and programs lies in their dual impact: fostering voluntary compliance among taxpayers and ensuring the effectiveness of enforcement initiatives. Two standout operations, the Run After Tax Evaders (RATE) Program and the recently introduced Run After Fake Transactions (RAFT) Program, exemplify this approach in tackling tax evasion head-on.

The RATE Program, a long-standing initiative, empowers the bureau to investigate and file criminal cases against tax offenders through the Department of Justice (DOJ). Nationwide raids uncover evidence of evasion, which is subsequently handed over to the DOJ for prosecution in judicial courts.

Lumagui's RAFT Program, introduced in 2023, takes direct aim at fraudulent schemes, specifically targeting the production and use of “ghost receipts” to fabricate transactions. This initiative holds all parties accountable—whether sellers, users, or enablers—through civil, criminal, and administrative action. Ghost receipts have long undermined the tax system, allowing businesses to overstate expenses, reduce declared income, and ultimately slash their income and value added tax payments, depriving the government of crucial revenues. Since its launch, RAFT has made significant strides, with the bureau filing criminal charges against four companies involved in the sale of fake receipts in March 2023, cheating the government of over Php25 billion in lost revenue. Just three months later, the agency filed cases against three corporate buyers linked to a syndicate dealing in ghost receipts. These fraudulent transactions amounted to an estimated Php17.9 billion in unpaid taxes. These cases serve as a powerful reminder of the gravity of the issue and the high stakes in the ongoing battle against such schemes.

Lumagui remains resolute in his mission to deter would-be evaders and criminals. “I want to change taxpayers’ behavior,” he affirms, “ensuring that any wrongdoing will not go unnoticed.” His firm stance is a clear message: accountability in the tax system is nonnegotiable.

GOING DIGITAL

Acknowledging the global trend toward digital solutions for better taxpayer services, Lumagui is committed to keeping the agency aligned with modern practices. Central to this effort is the BIR’s Digital Transformation Program (DX), a comprehensive initiative designed to streamline taxpayer services and offer Filipinos safer, more convenient options for meeting their tax responsibilities. The program is closely tied to the goals of the Ease of Paying Taxes (EoPT) Act, which seeks to simplify processes and improve overall taxpayer satisfaction. Guided by the DX Roadmap, the initiative is structured around four key pillars, encompassing 22 carefully planned and approved projects. With a clear timeline in place, the BIR is working toward achieving full digital integration across the agency by 2028.

The push for digitalization proved especially critical during the COVID-19 pandemic, when the nation relied heavily on online platforms to conduct transactions. The program aligns with Lumagui’s mission to transform the BIR into a data-driven organization, fostering a more innovative and responsive tax system. However, the path to full digitalization is not without challenges. High implementation costs, persistent skepticism about the reliability of digital platforms for financial transactions, and uneven internet connectivity across the country’s revenue regions remain significant hurdles. Many taxpayers still favor traditional systems, hesitant to transition to digital platforms.

Despite these obstacles, the BIR remains undeterred. Several other innovative initiatives under the DX Program are being introduced and implemented to improve taxpayer services and streamline processes. Among these is "Revie," a chatbot integrated into the agency’s website to assist taxpayers with online inquiries and concerns. Additionally, a single hotline number has been established to enhance accessibility. Key digital systems are also being rolled out, including the Electronic Filing and Payment System (eFPS), the Electronic Fund Transfer Instructions System (eFTIS), and the eAppointment platform, which allows taxpayers to book meetings regarding taxation matters. The Electronic One-Time Transaction System (eONETT) is another notable addition, simplifying processes for one-time transactions. To further encourage digital adoption, the BIR has expanded its e-payment channels, making online tax payments more accessible. Taxpayers can now settle their obligations through platforms like GCash, Maya, and the e-payment systems of major banks, including Union Bank of the Philippines, Land Bank of the Philippines, and the Development Bank of the Philippines via the PayTax Online System For Lumagui, the vision is clear: a transparent, efficient, and accessible tax system that meets the needs of the modern Filipino. The DX Program is not just a technological upgrade— it is a step toward building a stronger partnership between the BIR and the public, one founded on trust and convenience.

LIFESTYLE CHECKS

With the growing use of social media and online platforms as sources of income, the BIR has intensified efforts to regulate social media influencers and ensure their compliance with tax laws. Lifestyle checks, a strategy previously employed by the DOJ to examine government employees, have been extended by the BIR to monitor influencers earning significant income from their platforms.

The BIR has also expanded its focus to include small online sellers, closely monitoring their tax compliance. To support these entrepreneurs, the agency provides tax exemptions and simplified obligations. Under the Tax Code, individuals earning Php250,000 or less annually are exempt from income tax. Additionally, online sellers are not subject to withholding tax from e-commerce platforms if their total gross remittances in a taxable year do not exceed Php500,000. "During the pandemic, when most transactions moved online, the BIR instructed RDOs to research social media influencers and freelancers," Lumagui shares. "Many online sellers and influencers were identified, some of whom were required to register with the BIR if they hadn’t already. For those already registered, their compliance continues to be monitored. We’ve maintained a constant dialogue with them to ensure they understand and meet their obligations."

BEYOND JUST POLICY

Implementing new initiatives comes with its challenges, and the commissioner acknowledges that resistance to change is a constant hurdle the BIR faces. He points out that this resistance is a natural reaction, especially in frontline agencies like the BIR, where established routines create a comfort zone that is hard to break. "I could choose to be an autocratic leader and compel everyone to fall in line with my projects, but such an approach would only foster resentment and even more resistance, and will not ensure the revenuers’ commitment," Lumagui shares. Rather than forceful measures, Lumagui values open communication and engagement, believing this approach will build a culture of trust and shared purpose. "I much prefer ‘connecting’ with my fellow revenuers as often as possible, so that I can speak directly with them about our priority programs. This approach will help me to convince them of the importance of their support and collaboration in our flagship projects, and indeed, in all our undertakings." In line with his commitment to tax enforcement and compliance, Lumagui recognizes that strengthening the BIR goes beyond just policy—it starts with empowering the agency's workforce. As he often shares, the agency’s successes are a direct result of collaborative effort, and he firmly believes that if the BIR is to uphold integrity within the tax system, its employees must possess both competence and integrity. This, in turn, requires creating better working conditions.

One of Lumagui's most personal priorities is increasing the salaries and benefits of BIR employees. He emphasizes that improving compensation is key to attracting and retaining a skilled, dedicated workforce. "I believe that to strengthen the bureau, we need an empowered workforce. We need to be able to hire competent people with integrity. To do this, we must improve the working conditions in the bureau," Lumagui explains. "Currently, our salaries and benefits are too low, averaging about half or even one-third compared to the private sector and other government agencies. This is why one of the major programs I am passionate about is increasing the salaries and benefits of our employees." In addition to improving employee welfare, Lumagui has set his sights on establishing an International Tax Department within the BIR to focus on cross-border transactions. He firmly believes that the BIR must keep pace with the evolving landscape of international taxation.

A FOOLPROOF FUTURE

Since taking the reins of the Philippines' largest tax collection agency, Lumagui has overseen a BIR that is more transparent and future-focused. His vision goes beyond reforms and digital advancements, aiming to establish the agency as a regional leader in taxation. With initiatives like the rollout of new eServices, the chatbot "Revie," and achieving 100% ISO certification, Lumagui is confident the BIR will be a key player in Asia's tax landscape. "Under my leadership, the BIR has undergone significant transformation— from institutional changes to the introduction of innovative services and systems," he says. "I envision a future where the BIR is a digitally-driven agency, powered by a workforce of empowered professionals committed to excellence and aligned with global best practices. We are on track to become a stronger voice in regional tax discussions as international finance and taxation continue to evolve."

Lumagui also recognizes the hard work and dedication of BIR employees, understanding the sacrifices they make in service to the nation. "From the commissioner to the messengers, we are all public servants. It requires determination, commitment, and sometimes sacrifice to live up to that responsibility," he reflects. "Public servants often work long hours for modest pay, many sacrificing time with their families. As a parent myself, with twin sons under five and a newborn daughter, I understand the anxiety of being away from them. But I hope that my work contributes to a better future, not just for my children, but for all the children of this generation.