world bank document · asycuda automated system for customs data management bir bureau of internal...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 11355-PH

STAFF APPRAISAL REPORT

PHILIPPINES

TAx COMPUTERIZATION PROJECT

MARCH 31. 1993

Industry and Energy Operations DivisionCountry Department IEast Asia Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS(as of January 1993)

Currency Unit = Peso PP 1 US$0.038US$1 = P26.0

ABBREVIATIONS AND ACRONYMS

ADB Asian Development BankASEAN Association of South-East Asian NationsASYCUDA Automated System for Customs Data ManagementBIR Bureau of Internal RevenueBOC Bureau of CustomsCISS Comprehensive Import Supervision SchemeCISS Computer Information System ServicesDOF Department of FinanceGB GigabytesGDP Gross Domestic ProductGSIS Government Services Insurance SystemICC Investment Coordinating CommitteeIFB Invitation for BidIFRR Internal Financial Rate of ReturnIMF International Monetary FundISSP Information System Strategic PlanIT Intelligent TerminalMB MegabytesMICP Manila International Container PortMIS Management Information SystemNCC National Computer CommitteeNCS New Computer SystemNAIA Ninoy Aquino International AirportNO National OfficePIU Project Implementation UnitRISSI Revenue Information System ServicesPSRME Public Sector Resource, Mobilization and ExpenditureRDO Revenue District OfficeRO Revenue OfficeSGS Societe General du SurveillanceTIN Tax Identification NumberUNCTAD United Nations Conference on Trade and DevelopmentVAT Value-Added Tax

FISCAL YEARJanuary 1 to December 31

FOR OFFICIAL USE ONLY

Philippines

Tax Computerization Project

Loan and Project Summary

Bormwerw Republic of the Philippines

Amount: US$63 million equivalent.

Terms: 20 years, including 5 years of grace, at the Bank's standard variable interest rate.

Er>ksDescription: The project would establish a computerized integrated tax administration system to

process all taxes, by providing the hardware, tax software, related data-entryprocessing equipment, complementary equipment, training, initial operational supportand technical assistance to establish a modem tax collection system for the Bureau ofInternal Revenue (BIR) and the Bureau of Customs (BOC).

BeRfitSand Rislks: The project will substantially increase government revenues, which are critical for the

country's development. The computerized system will improve tax administration andcollection, increasing its efficiency, effectiveness and equity. The project has alreadybeen instrumental in improving tax procedures, regulations and legislation throughtechnical assistance during project preparation. In the future, it would helpdecentralize the processing of tax returns, improve access to tax records, promoteauditability at each level, and provide adequate taxpayer records. The proposedsystems would allow the two Bureaus to cross-check data from other data bases, carryout on-line inquiries, accelerate the processing of taxes and returns and improve BIR'sand BOC's management information system. The new system is expected toconsiderably increase revenues from taxpayers who are avoiding or underpaying theirtaxes.

The main risk is associated with the procurement process. In general, the award oflarge contracts for computer hardware and software is technically complex,controversial and subject to political pressure. This risk has been minimized in theproposed project through the design of a transparent system for procurement, undera turn-key contract. While little risk is involved with overall project implementation,given the rigorous qualifications proposed for the two turn-key contractors, there isstill a risk that BIR and BOC may not be able to retain adequately trained andqualified staff to operate the much-expanded computerized tax system. However, thisrisk is lessened by the massive training programs included in the project (whichprovide for expected staff attrition), by the supplier initially operating the system andby the potential to extend this assistance, if needed.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

- ii -

Project Cost: 1/

Local Foreign TotalMillion Million Million

US$ USs USs

Bureau of Customs 9.9 17.5 27.4

a) Hardware System 2.0 10.3 12.3b) ASYCUDASoftware System 0.0 1.9 1.9c) Other Project Cost 2.9 2.9 5.8d) Technical Assist. & Admin. 0.1 2.5 2.6e) Taxes And Duties 4.8 0.0 4.8

Bureau of Internal Revenue 18.0 37.0 54.9

a) Hardware & Software 2.6 32.6 35.2b) Other Project Cost 5.2 2.0 7.2c) Technical Assist. & Admin. 0.2 2.5 2.7d) Taxes And Duties 9.9 0.0 9.9

Total Base Cost 27.8 54.5 82.3

Physical Contingencies 0.8 2.9 3.7Price Contingencies 0.8 5.5 6.3

Total Cost with Contingencies 29.4 63.0 92.4Interest During Construction 0.0 13.8 13.8Totl Fincing Required 29.4 76.8 106.2

To be Fmance by:Bureau of Customs 10.3 4.8 15.1Bureau of Internal Revenue 19.1 9.0 28.1World Bank 0.0 63.0 63.0Total Fimnaced 29.4 76.8 106.2

1/ Due to rounding the last digit in totals may not add.Includes VATand custom taxes equivalent to US$15 million.

Bank Fiscal Year EY24 EY95 EY29 EX92 EX2- ---- (US$ million) ------

Annual 8.9 13.8 17.6 16.4 6.3Cumulative 8.9 22.7 40.3 56.7 63.0

Economic Rate of Reor: N.A.

ME: IBRD No. 24362

- iii -

Philippines


Table of ContentsPage No.

Loan and Project Summary .................................. i

I. TAX SYSTEMAND REVENUES ................................... 1Background .................................. 1The 1986 Tax Reform Package ................................... 1The 1991-92 Tax Reform .................................. 2Tax System .................................. 3Tax Evaluation .................................. 5Tax Revenue Trends .................................. 5Present Computerization .................................. S

H. THE BENEFICIARIES ................................ 7The Bureau of Internal Revenue . ................................ 7Personnel ................................ 7BIR Organization ................................ 7BIR Staff Training and Development ................................ 8Performance Indicators ................................ 9The Bureau of Customs ................................ 9BOC Personnel ................................... 10BOC Organization ................................ 10Staff Training and Development ................................ 10BOC Performance Indicators ................................ 11Comprehensive Import Supervision Scheme ............................... 11Further Tax Reforms ................................ 11

IH. THE PROJECT .................................. 15Project Origin .................................. 15Rationale for Bank Involvement .................................. 15Project Objectives .................................. 15Project Description .................................. 15The new Computer System (NCS) .................................. 16Staffing and Training .................................. 17Organization Study .................................. 19Project Cost .................................. 19Financing Plan .................................. 19Implementation .................................. 19Procurement ................................... 20Disbursements .................................. 22Operation and Maintenance .................................. 23Status of Project Preparation .................................. 23Environmental Impact ................................... 23Project Monitoring and Supervision .................................. 23

This report is based on the findings of an appraisal mission consisting of Claudio Fernanesa(Principal Financial Analyst) and Antoun Moussa (Senior Information Technology Specialist) whovisited Philippines in November 1992. The Peer Reviewers were Jaime Vazquez-Caro (LATPS) andJohn Crotty (ME). The Project was cleared by Callisto Madavo, Director (EAlDR) and VineetNayyar, Chief (EAIIE).

- iv -

IV. PROJECT BENEFITS ................................................ 25Introduction 2.................................................... 2Least-cost Solution .................................................. 25Tax Potential and Evasion . ........................................... 26Main Project Benefits ............................................... 27Other Benefits .................................................... 28Financial Rate of Return ............................................ 28Risks .................................................... 29

V. AGREEMENTS REACHEDANDRECOMMiENDATION ........................ 30

ANNEES

1. Comparative Tax Structure ........................................ 312. Overview of Taxes in Philippines .................................... 333. Tax Colection Statistics and Indicators . .............................. 384. Tax Reforms BIR and BOC ......................................... 435. Action Plan ................................................ 466. Project Description: New Computer System ............................ 497. Project Cost ................................................ 608. Non-Computer Equipment and Services ............................... 639. Staffing Computer and Information System ............................ 71

10. Training Programs ............................................... 7311. Estimated Schedule of Loan Disbursements ............................. 8012. Financial Rate of Return........................................... 8113. Project Implementation and Supervision - Terms of Reference ................ 8414. Organization Study - Terms of Reference .............................. 8715. Project Implementation Schedule .................................... 9016. Documents Available in the Project File ............................... 94

CHARTS

1. Organization of the Bureau of Internal Revenue 952. Organization of the Bureau of Customs ............................... 96

MAEIBRD No. 24362

- 1 -

L. Tax System and Revenues

1.1 B* _gzuwd. Lack of government effort (e.g. total taxes divided by GDP) of 14.8%.revenues and commercial borrowing are constraining Tax staistics and indicators referenced in PSRMEarethe consucon of ifasruue which is critcal to presewtod in Annex 3. Although the share of incomethe country's economic development. While 55% of taxes to total taxes has increased gradually, fromthe population of 64.3 million in 1991 were poor, 22% in 1980 to 33% in 1990 (Frigure 1.1), as inthe population growth is still high and will add other developing countres, the problems inanother 26 million (40% increase) within the next collecting them are so severe that the Government20 years. Thus, th Government will need additional relies heavily on indirect taxes.revenues to provide services to the expandedpopulation, correct existig deficiencies and create 1.3 Tax revenues have been increasingjobs. The Bank's Country Economic Report, "Public rapidly due to the country's economic developmentSector Resourco Mobilization and Expenditure and improvements in the tax administration system.Management" (PSRME,February 20, 1992) reviewed Various taxes are colleced by the Bureau of Internalthe isues of public resource mobilization and public Revenue (BIR) and the Bureau of Customs (BOC)expeaditure. Its conclusions are reflected in this (see Chapter E), both under the Departunent ofchapter and in the comparison between the tax FPance (DOF).structure and the Bank's Reference structure (Annex1). The tax system is described in Annex 2, and isanalyzed below. The 1986 Tax Reform Package

1.4 The tax reform of 1986 aimed atX OF TOTAL TAXES COLLECTED establishing a comprehensive and progressive tax

system, characteized by efficiency, equity andl …… - productivity. It included changes in three key areas:

s7_ ==- _ ___ (a) Direct Taxes. This included-- ~~....... rationalizing the direct tax system,d - - - - eliminating double taxation in

! 4 - - - -_ dividends, sandardizing corporaterates, diminatin surtax, reducing

- - - _-s - - personal exemptions, and imposing a

_ . _ final tax on interest income.

¶ _

a IMMME TAXM (b) Indirect Taxes. This includedeALL 010 TAN A ALL*an TAM substituting various sale taxes for a

Figure 1.1 10% value added tax (VAT), changingexcise taxes from specific to advalorem, simplifying the tax rate for

1.2 Taxes are the main source of pubLic utilities, reducing rates forgoverment revenue in the Philippines, accounting export tax and minimiing taxin 1991 for 83% of the total and resulting in a tax

- 2 -

exemptions for government and private taxpayers (representing almost 80% of the taxentities. collection) to file their return and process all their

tax trmnsaction at one RDO; (b) establishing monthly(c) Tax Administratio This included VATreurns; (c) establishing increased penalties for

establishing VAT units and zonal tax evasion (including for the first time in thevaluation for property taxes, sttling Philippines mandatory imprisonment penalties) anddelinquent accounts and unpaid taxes, (d) elimnatg the presentation of tax returns byand defining guidelines for audit of taxpayers paying withholding taxes and with onlyselected taxpayenr. salaries revenues (this will allow BIR to focus its tax

audit efforts on more complex retrns). However,since the limit approved by Congress was only

The 1991-92 Tax Reform P60,000/year, new legislation is being considered toraise this limit to about P500,000; in the interimsuch returns will only be reviewed by sampling.

1.5 The Tax Reform. Since mid-1991, the Other improvements adopted by BIR are described inIMPhas provided technical assistance to improve BIR Table 2.2 and Annex 4.and BOC tax administration and procedures, inpreparation for their computerization. An adviser 1.7 Furdfer Improvements. In order tohas also been appointed to help support BOC tax optimize the benefits of the computerzation, BIR isreform. Steern committees with high level support further undertaking the following: (a) monitoringhave been working actively to implement measures compliance with the new payment system; (b)identified a critical for tax improvement. The appointing senior level staff and reallocate staff toimplementation of key procedural reforms has been track those who are not filing returns; (c) definingsatisfactorily accomplished for both BIR and BOC the staff and training requirements for RDOs; (d)including the approval of improved legislation implementing training for BIR and staff from the(paras. 1.6 and 1.9). banks; (e) substantially increasing the number of

audits and tax fraud cases pursued; and (f)1.6 BIR Tax Refor. BIR has established a monitorng the performance of the RDOs. Theunique Tax Identification Number (TIN): about 4.9 consultants have identified additional improvementsmillion were issued, of which only 10% were that could simplify the VATand increase its revenuesgenerated from previous masterfiles. Second, it (including additional goods and services, improvingintroduced a new system through which taxes could the registration system and increasing violationbe paid at banks. It also created a final withholding penalties). The completion of the review of thetax on compensation income. Further, it developed coverage of the VAT as well as other key projectpilot VAT software that is already used in two pilot implementation matters are included in the projectrevenue district offices (RDOs). These and other Action Plan (Annex 5 and para. 2.25).measures recommended during project preparationhave been incorporated in the design and 1.8 BOC Custom Administration Reform.specifications of the new computerized systems. In As shown in Table 2.3 and Annex 4, BOC has alsoaddition, BIR has appointed adequate staff for made significant progress with tax reforms such asproject preparation and, with consultant's support, using computer system to clear manifests, simplifyinghas completed the planning and technical custom forms, strengthening the review systems,specifications for computerization. The project establishing an internal audit and implementing theAction Plan (Annex 5, Page 2) shows the targets TIN system. Moreover, since 1992, a Comprehensiveagreed at negotiations for BIR including the already Import Supervision Scheme being carried out by theaccomplished recent approval of legislation as Societe General du Surveillance (SGS) has beenfollows: (a) establishing a unit for processing taxes extended to all countries trading with thefor large taxpayers, which would 1,500 large Philippines. Progress is being achieved satisfactorily

-3 -

X OF TOTAL TAXES COLLECTED computerized tax administration, are included in thespecifications for the )C software.

411111 _ _____Tax System

1.10 Tax collecidon in 1991 waS P183.4I _ _ -;7 - - - billion, representing 83% of total Governmet

revenues (Annex 3, Table 1). The most important8 .. _ ; e =< _ taxes, as a percentage of total tax revenues, are

. _ , e;_customs taxes (35.1%), corporate, individual income- - -c _ _ _ taxes and Interest withholding taxes (33.3%), exuise

taxes (13.9)%, and VATtaxs (8.4%), soe Fure 1.2.t . £ ' Other taxes add up to 9.3% of total. The tax system

CONKM'M 1|1om * OIV#DU%l OHMS A D8Cl VA'T is expWned in Annex 2, and the taxes colced

Figre 1.2 during the last ten yeas are lised in Annex 3.

TAX EFFORTCU T_ GM

in completng the 11 improvements identified by theIMP (deails in Annex 4), including: supervising …_

bonded warehouses, assessing duties and taxes,controlling bank remittances to the Treasury, - - -

compiling and exchanging information on importers aand exporters and prortizing complementary - - -

equipment and facilities (see Annex 8). Medium-term X_measures include the use of the Gatt valuationsystem to replace the home consumption valuationused at present; this is being studied given the…_concern on reduced tax revenues. The certification ofthis legislation is part of the tranche conditionality . _ ,,, a V 1z1_

under the Economic Integration Project approved Fg 1.3recently by the Board.

1.9 BOC is focusing efforts in the approvalof three legislative measures to improve the custom 1.11 Corporate Ilome Tax. Corporatetax administration. These three bills have been income tax is levied on the net accrued profits ofcertified by the President as administrative bills and companies. Domestic companies are generally taxedhave been approved by the House and the Senate in on their worldwide profits and foreign companies onsecond readings. This legislation would: (a) simplify their profits in the Philippines. Net profit excludesimport clearance procedures (climinating mandatory depreciation and depletion allowances (at set rates),10% review of each cargo); in the interim, a customs interest, other taxes, losses carried forward and badmemorandum sets that containedzed shipments, debts. Companies file tax returns within 180 days of(most of the present cargo) with intact and the end of their fiscal year. Profits and taxes areuntampered SGS seals would not be inspected; (b) estimated at mid-year and paid thereafter.establish increased penalties for smuggling; and (c)consolidate customs tax legislation. Procedural and 1.12 Corporate taxes provided 13.6% of totalother changes resulting from this legislation and tax revenues in 1991 and 2% of GDP. Thefrom the conversion from a manual to a percentage collected is less than that in comparable

-4-

ASEAN countries, since the tax rate is a uniform of total excise tax collections: tobacco (31.5%),35% (which is also lower than other ASEAN alcoholic products (30.5%) and fuel and oilscountries). The effective tax rates are progresive but (28.2%). This tax is levied on an ad valorem basis,extremely low since there is no check on busine6s which automatically increases revenues withdeductions or sales clsimed. The probability of a economic growth or inflation. However, to reducecorporate tax return audit is very low. Therefore, the impact of high oil prices during the Oulf War,business can underreport income with impunity. the excise tax on oil products was changed to aSimplified income tax forms have been introduced in specific tax. The proposed new computerized system1993 and tax deductions were reduced. However, would provide the capacity to bill and collect theuntil the tax computedzation is in place, it will be VATand the excise tax jointly. However, because thedifficult to cross-check reported income and poor spend a higher portion of income on some ofdeductions and tax evasion which is estimated at these products, this tax is somewhat regressive.about 40% of total taxes. Because of theirprecarious financial condition, several government 1.15 Individual Income Tax. This taxcorporations are exempt from income and customs represents only 11.3% of the total and accounts fortaxes. about 1.7% of GDP, which is also low compared

with the ASEAN countries. The PSRME report1.13 Value Added Tax (VAT). Although estinates that tax evasion is higher for income taxesintroduced only in 1987 (replacing several sales than for other taxes, and that less than 40% of thetaxes), VATcoilections have been steadily increasing tax potential is being collected, mainly because ofand represent 8.6% of total taxes and 1.3% of GDP tax evasion by independent professionals (see alsoin 1991. This continuous increase compares 4.9). This tax is levied on personal income, using afavorably with other taxes (Figure 1.3), but it is progressive rate: the maximum is 35%, which isestimated that VATevasion is at least 40%, mainly about 5%-10% lower than other ASEANcountries.because of under reporting and lack of receipts for Moreover, only the top 30% of earners pay anany purchase. The VAT was a major effective rate higher than 10%. The wealthiest 10%

improvement over the sales tax, which resulted in taxpayers declare about 70% of the total grossmultiple, cascading rates when intermediate goods income, but after deductions, their taxable income is(raw materials, minerals and primary products) were about 62% of the total, and the actual tax is onlyused to produce other goods. Thus, some items were about 40% of the total taxes due (Figure 1.4).taxed heavily, particularly those produced by small There is considerable room to improve the collectionenterprises which lack integrated production and structure of income taxes, particularly bysystems, making it extremely difficult to manage tax providing different tax rates for different incomerebates to exporters. The initial VAThad problems, sources and by reducing the large evasion by self-partially because computerization was inadequate or employed taxpayers.non-existent. IMFhas been providing assistance toimprove the VAT effectiveness and enforcement, 1.16 Customs Duties. Export duties, whichsince (as in other countries), it is expected to be a were about 1.5% of taxes in the mid-1980s, weresubstantial source of revenue, particularly after its eliminated in 1987. Import duties constitute a largecomputerization. In the future VATcoverage should share of taxes (35.1% of the total and 5.2% of GDP),be extended to hotels, restaurants and professional which has been increasing with improved economicservices. development in recent years (Figure 1.3). This trend

is noteworthy given the increase in duty exemptions1.14 Excise Taxes. As elsewhere in approved by the Board of Investments (BOI) todeveloping countries, excise taxes are very provide incentives for new investments and theimportant, accounting for 13.9% of all those reducdon in average tariff rates: effecdve tariffscollected and 2.1% of GDP in 1991. Excise taxes are (total duties to imports) therefore decreased fromlevied on eight items, but three of them provide 90% 23.8% in 1980 to 18% in 1986 and 16% in 1990.

Tax Evaluation 15.3% p.a. between 1986-91. As a result, the taxeffort (taxe on GDP) increased 37% during this five-

1.17 The key problem with the tax system in year period, from 10.8% to 14.8%, which isthe Philippines is that only about 60% of the remarkable. However, the tax effort is stiU muchpotentl tax is collected. According to the PSRME lower than everd other ASEANcountries and ranksreport, the slructure of the tax system is sound, tax sixth after Malaysia (22.1%), Indonesia (19.1%), andrates are not high and the number of bands is not Singapore (17.0%), although it is stil better thanexcessive (see Annex 1). However, the high reliance Thailand (13.7%). The proposed computerizationon indirect taxes, although comparable to countries would substantially improve the tax effort withoutwith a similar GDP, leads to a regressive system increasing taxes, by making tax avoidance morewhere low-income eaners and fixed wage employees difficult.pay a higher share of their income in taxes, since taxcollection is low and evasion is high particularly at 1.21 Higher tax revenues are due to ahigher incomes. This weakens the public's combination of factors, particularly economicwillingn to pay and therefore lowers the tax slf- development, incrased busines activity andcompliance. Nevertheess the consolidated tax inflation. However, the above-mentionedburden for all taxes is broadly neutral, with aU improvements are clearly the result of recent reformsdeciles paying about 10% of their income in taxes. as weU as adminisrtive improvements, increased

audits, setting collection targets and highlighting the1.18 There has been a substantial collection performance of the best and worst RDOs,improvement in tax collection, as reflected by an and public relations campaigns. Revenues collectedincrease in the tax ratio from 9.8% in 1984 to 12.5% are expected to grow at relatively high rates due toin 1987 and 14.8% by 1991. After the above- improved economic growth and the steady growth inmentioned reforms were completed, the tax system the number of taxpayers, but mostly because ofbecame sounder, but stil does not generate reduced evasion due to the tax computerization.sufficient funds, as measured by the actual versus Moreover, the new system will allow the same stafftarget taxation, or compared with the estimated tax to handle greater volumes and wiU result inpotential or the tax ratios achieved by other ASEAN improved slf-compliance, once taxpayers perceivecountries. Further efforts are needed to improve the the improved Government capacity to implement theefficiency and fairness of the tax administration and tax laws.reduce tax evasion. This will be achieved by theproposed tax computerization, that wil provide easyand effective ways to detect tax evasion and fraud by Present Computerizationcorrelating several databases that exist withingovernment departments (see para. 4.9). 1.22 The system by which taxes are

processed is slow, inefficient and unable to copewith present tax volumes. Currently, only a fraction

Tax Revenue Trends of the individual and corporate tax returns arecomputer-processed. There is little cross-checling,

1.19 Largely due to measures introduced even of computer-processed returns, and collectionsince 1984 (para. 1.4), total tax revenues of P60 and compliance verifications are rudimentary even inbillion in 1985 doubled by 1989 (to P123 billion) Manila. Because most taxes are still manuallyand tripled by 1991 (to P183 billion). Total taxes processed, there are considerable delays in handlingcollected by each bureau are shown in Figure 1.1. tax returns, which affects tax compliance, collection

statistics and the management of the tax system.1.20 Tax revenues show high elasticity(higher than one) and increased faster than the 1.23 The existing computer system isGDP,--22.8% p.a.,compared with a GDPincreaw of inadequate to handle the current workload, which

results in a lage backlog of unproced retun. It 1.25 Tax administration is also hindered byis also difficult to ue for on-line inquiries. Outside obsolete computer software. The current programsManila, the computer is used only for prnting the were converted from older programs that operatedTIN and preparing tax payment datistics. The use of under different computer systems. Key stlaff left BIRthe computer for activities lice issuig tax during the ongoing reorganization of the computerassesment or refind notices, routine matching of departent, mainly beause of salary diffeentalsinformation, mathematical verifications, monitoring with the private sector. The remaining staff are fullycollection and investigation tus, auditing results, occupied in keeping the old software running,issuing arrears notices, and identifying stop filers leaving little time to develop new software or(taxpayers that no longer file returns), is minimal. additional capabilities.

1.24 The lack of tax data retrieval capabilityto assist auditors in data processing or applyingaudit criteria to tax returns explains the negligiblenumber of tax fraud investigations pursued and taxfraud convictionu. While the system produces reportsfor national tax revenues, its accuracy is difficult tojudge and different tax collection numbers arequoted by different sources.

DISTRIBUTION OF INCOME TAXES

-D _ __ - _ _ _ - --- aSsK2 3U

8~O 4X _ - - 1 46

I.5

to4 60 70U as2 40 3u 86 100 ^ 9fl

Y OF TAXPAYERSo U GROSS INCOME

O # TAXA3LE INCOME a Y EFFECTIVE TAX

Fgre 1.4

II. The Beneficiaries

The Bureau of Intemnal Revenue (BIR) Table 2.1 -BIR Staff

2.1 The project will support tax collection --improvements of the Bureau of Internal Revenue rNtio- Regio- Total S

(BIR), the major revenue collecting agency of nal nal

government, and the Bureau of Customs. In 1991, Office OfficeBIRwas responsible for raising 53% of total national Assess 403 2298 2701 24.51

revenues and for financing 47% of total government montexpenditures. It administers the individual and Excise 261 110 371 3.4Z

corporate income taxes, excise taxes, value-added Coll1c- 331 3282 3613 32.7Z

taxes, percentage taxes and other minor taxes. tion I

Administration of these taxes include theirassessment and collection, and enforcing penalties Lega 56 44 100 0.92

for non-compliance. Gen. 837 2091 2928 26.5XAdami.

Computer 543 251 794 7.22

Personndl Staff

Management 142 387 529 4.82

2.2 BIRhas 10,661 employees; about 2,191 am TOTAL 2573 8463 11036

assigned to the national office while the remaining8,470 (80%) work in 19 regional offices. Most x of Total 23.3X 76.7Z 100.02

perform collection, administrative and assessmentfunctions, with 33% in tax collection, 32% ingeneral administration, and 26% in tax assessmentwork (Table 2.1). BIR Organization

2.4 BIR is part of the Department of Finance(DOF), and is headed by the commissioner of

2.3 Of the staff 533 are in managerial or internal revenue who is assisted by two deputyadministrative positions (5% of the total). Upper commissioners, one for assessment and collection,level staff are well-educated, highly trained and and the other, for legal and administration (seecomply with the necessary civil service eligibility. Chart 1). The office of the commissioner sets theMany are lawyers (313), accountants (1,913), policies and standards of operation. The Bureau haslawyer-accountants (52), or hold advanced degrees a central office and 19 revenue regional officesin public administration, business management, (RO), which are further subdivided into 97 revenueeconomics and other related fields (197). Since BIR district offices (RDO). The central office is basicallyis covered by civil service rles on qualification concerned with formulating national policies,standards, its permanent employees have to meet planning programs, executing internal revenue lawsminimum requirements regarding educational and rules, and directing and controlling the entireattainment as well as the necessary work experience internal revenue service.for civil servants.

-8 -

2.5 lTere ar nine service group under theoffice of the commusioner and tho deputy BI R COLLECTION COW1PARSO TO TARGETcommisioners. They comprise:

(a) A_emmi, whih oversees anem andaudit functions, processes tax credit andrefunds of direct taxe;

(b) CoUKecoa, which sets standards and 5 *procedures related to collection activities,and evaluates collection performance andenforcement; '. L

(c) Exci Tax, which implements policies andwork programs on the adminitrtion of P4m 2.1excise taxes such as on tobacco, alcohol,oil, and other products;

(d) Speci Opetions, which audit industries, adminisvtrve, ficl operations, and specialimplements the value-added tax, tansfer investations.taxes, overeas international tax affairs, andthe banking, financial and insurance 2.7 The revenue district offices (RDOs) plansctors; and develop programs, methods and procedure for

the efficient, effoctive and economical assessment(e) Legal, which interprets internal revenue and collection of taxes according to standards set by

laws, tax treaties and other pertnent laws; the commmioner and the regional directors. Alsothey implement the tax laws within the revenue

(t) Fancial, which performs budgets, controls districts. Each RDO has units for assessment,finances, performs revenue accounting, collection, VAT,withholding tax and administration.monitors payments and analyzes sttics;

(g) Aminve, which manages peronnel, BIR Staff Training and Devlopmentsupplies, taining and other generalservices; 2.8 The professional development of BIR

personnel requirea regular training programs.(h) Paning and Reserch, which develops Training courses include orientation to and updating

policies, plans and strategies to improve of BIRpolicies and programs, techniques of tax auditBIR's performance; and and stategies for revenue enforcement. The Bureau

also conduct computer taining programs to develop(i) Inpection, which peforms fiscal control and upgrade staff skills in the use of computer

and inspection activities, systems and applications. Many staff haveparticipated in external trang progams at local

2.6 The ROs implement the Bureau's laws, and foreign institutions, such as the annualpolicies, plans, programs, rules and regulations Development Economics by the University of thewithin a region. They also coordinate with local Philippines, the International Tax Program ofgovernment units and regional offices of Harvard University, and Tax Administration CoursesGovernment bureaus and agencies for a more conducted by the Ministries of Finance of Japan andefficient administration of internal revenue laws. other Asian countries. In 1988 622 employeesEach RO is headed by a regional and an assistant attended 1,691 training classes. The previousregional director, and include the following Revenue Information Systems Services, Inc. (RISSI)divisions: assessment, collection, legal, has now being incorporated within BIR However,

-9-

this resulted in substantial reductions of informatics 2.10 The cost efficiency of taxstaff (mainly due to retirements). A major administration has improved considerably, currentlyrecruitment of informatics staff is underway, and representing P0.9 for every P100 BIR collects. Asrecommendations to improve staff salaries and shown in Figure 2.3, tax collection per staff membercompensation would be included in the institutional in 1985 pesos decreased to P4.5 million by mid-80s,study (para. 3.19). but almost doubled to P7 million (US$400,000 per

staff member) in 1992, indicating considerablePerformance Indicators increases in efficiency. The total number of tax

returns have been increasing by about 5% p.a. and2.9 BIR has shown a rapid increase in tax reached 3.4 million in 1991: 80% of returns werecollection (Figure 2.2), with almost all taxes filed by individual taxpayers.increasing six times between 1982-90, and fastergrowth rates in recent years (particularly for incometaxes). Within the last five years (1986-91), the TAX COLLECTED PER BIR STAFFBureau almost tripled its tax collections, from P47 -'(ATMiT IamAC -

billion to P117 billion, for an average of 20% per = -1

annum. As a percentage of GNP, the taxes it ' = - -

colected increased from 7.72% to 9.46% during the ' z - - __

same period. Despite these increases in tax -

coliection, BIR was able to surpass the ambitiousrevenue targets set by the government only twice (in - -

1987 and 1989, Figure 2.1). Collection targets are i --

set under Executive Order No. 45 ((September a_ _ .1986), with the goal of increasing BIR'stax effort by ' = =0.5% a year until reaching 12% by 1994. However, a F- ."the recent slowdown in economic growth and the

a MILLION IIICI

decrease in excise tax rates on some petroleum . MILWI a- mf, UIO* A

products made it difficult to meet the revenue Figuro 2.3targets. BIR staff receive a 10% bonus on collectionsthat exceed the yearly targets, but since the bonus isdistributed uniformly among the staff and the targetsare becoming increasingly difficult to achieve, the 2.11 The Bureau has also made substantialimpact of the incentive has been eroded. gains in investigating tax fraud, and completed 3,147

cases between 1986-91, which increased taxBI R TAX COLLECT ION collection by almost P1 biUlion pesos. However, this

is stil inadequate, and only 828 tax fraud cases were-0 - - - - investigated in 1991, or about 0.2 per 1,000X - -__ _ _ taxpayers. Support for audit efforts would be

X0- _ provided by the new computer system, and the- - -: _ establishment of increased penalties for tax evasion

@ o ___ - - _ and the strengthening of the fraud investigationsand prosecution capability.

10 _ _

a - 4 T - - The Bureau of Customs

_9 I"uh 2.12 The other beneficiary of the project is. I*IVISCA. A Uccim N V WITH a the Bureau of Customs (BOC), which is responsible

FVgro 2.2 for facilitating trade, assessing and collecting dutieson imported articles (including VAT) and preventingsmuggling.

- 10 -

(b) FinanCia, which supervises the budgeting,BOC Personnel planning and policy research and

mangement information systems;2.13 Staff currently number 6,350, five percent of whom work in the central office. The others (c) Collection, which is responsible forare assigned to 13 collection districts. About 51% collections, assessment audits, and bondsare university graduates, particularly lawyers, audits;accountants, engineers, chemists, and graduates inpublic or customs administration. Another 3% (d) hmport and Asssment, which setsfinished vocational courses, and 46% are high school valuation and classification criteria, andor college level graduates. monitors and coordinates warehouse

activities;2.14 About 29% of the staff processcommercial declarations of imports; 18% inspect (e) Port Opertions, which is in charge ofvessels, aircraft and other vehicles; 3% process air auctions and cargo disposal, exportpassengers; and 2% work on cargo control and coordination and port operations;inspection. The remaining 48% handle collectionsand other agency functions. (f) Iteigce and Investigation, which

investigates and prosecutes cases; and

BOC Organization (g) Enfinemeat and Security, which supervisescustoms police, the water patrol and radio

2.15 The BOC is also attached to the comn nnications.Department of Finance. It is headed by thecommissioner of customs, who is assisted by four 2.18 Each collection district is headed by adeputies responsible for administration, collections, district collector, who is assisted by a deputyassessments and operations, intelligence and collector for administration and another forenforcement. The office of the commissioner operations. In large districts, such as the Port ofinitiates, implements and coordinates the Bureau's Manila, the MICP,the NALAand Cebu, two deputiespolicies and programs. are in charge of administration and assessments.

The NAIAcustoms office has a deputy collector for2.16 The BOC organization is shown in passenger services. Each collection district isChart 2, and includes a central office and 13 authorzed to have as many sub-ports as necessary tocollection districts: Port of Manila, the Manila maximize revenue collections and prevent smugglingInternational Container Port (MICP), the Ninoy and fraud.Aquino International Airport (NAIA), the districtports of San Fernando, Batangas, Legaspi, Tacloban,Cebu, Iloilo, Surigao, Cagayan de Oro, Zamboanga BOC Staff Taining and Developmentand Davao. The Port of Manila accounted for 44.4%of its collections in 1990 followed by the MICP, 2.19 The Bureau has established annualwhich collected nearly 24%. The other major ports training programs for its personnel: in 1991 1,200are Cebu, Batangas and the NAIA. employees attended 66 courses. Courses included:

cargo valuation and appraisal, the techniques2.17 The central office consist of seven employed by SOS, and the ASEAN generalizedservice groups, as follows: system of preferences. Trainers from the Australian

and US customs Services were invited to provide(a) Leg1 , which handles appeals, litigation, anti-smuggling training for selected intelligence

rulings and tax exemptions; personnel. Also, 21 Bureau personnel were sentabroad to study customs systems and developcoordinating measures to facilitate trade in the Asianregion.

TAX COLLECTED PER BOC STAFF TRADE PER BOC STAFF CTONS AND USS)cWTAIdT mc WSS M .ACIO

.. _ _____ -_ C - -" - I I0 I-

a~ii~zzz~ _ -e e " _ ie a " _ ii __-4

Is

14h 166 I ur

a ul"u j a "a*_ vmWW* UILLION1 *N * TFw MILL.WWW

FWire 2.4 Fge 2.5

BOCs Performance Indicatorsits efforts in collecting revenue from non-traditional

2.20 BOC has considerably improved its soures such as auction sales and the collection ofperformance in recent years: collections increased back accounts. It raised some P1.4 billion from thisalmost five times during the last five years, from sOurce in 1990.P17.5 billion in 1986 to P64.4 billion in 1991, or a32% average yearly increase. As a percentage of 2.23 During the last two years, the Bureau,GNP, collections from import duties increased from however, has been unable to meet the ambitious2.9% in 1986 to 5.2% in 1991 (Annex 3, Table S Government revenue targets because of theand Figure 1.1). In addition, the staff efficiency has dowdown in economic growth and previous foreignincreased considerably in this period, and the tax currency restrictions (which oontributed to reducedcollected (pesos per staff in constant 1985 prices) imports). Emergency economic measures were alsoincreased 2.5 times between 1986-91, from P2.3 adopted by government, including a reduction ofmillion per person to P5.7 million per person tariff duties on basic commodities.(Figure 2.4). BOC's cost efficiency also increasedconsiderably, and the Bureau spent only about P0.6 Comprehensive Import Supervision Schemfor every for P100 collected in 1991.

2.24 The Government has contracted withthe Societe General du Surveillance (SOS) forpreshipment inspection servce coverig goodsvalued at more than US$500 per invoice. Initial

2.21 Other indicators also point to greater results from even major trading partners wereefficiency, particularly in tonnage cleared from positive (see Figure 2.6), and the system wasvessels per employee, which rose from 15,000 to extended to all countries in 1992. However, there is26,000 tons between 1986-90, and the increase in some duplication of CISS and BOC expenses; whiletotal trade per staff member, which more than minor in relation to the tax collected, these shoulddoubled from US$1.4 million to US$3.1 million be reduced overtime. Measures and improvementsduring the same period (see Figure 2.5). would be recommended by the institutional study for

BOC (para. 3.19).2.22 BOC also introduced innovations incustoms administration in recent years: for example Further Tax Reformsan express processng system was implemented tostemline the flow of documents and transactions in 2.25 It should be noted tht although thethe release of cargo. Further, the Bureau intensified deficiencies have been corrected and amre icluded in

.12 -

the improved systems and procedures specified for (d) Expansion of withholding tax for otherthe new software, the tax system will always depend sources of income.on a properly funded and honest tax administration.Some further improvements are needed (Tables 2.2 (e) Publication in newspapers of the listand 2.3), that would be promoted by the new taxpayers which committed criminalprocedures and controls established un the violations of the tax code.project. Agreement was reached at negotiations thatBIR and BOC would implement in a timely manner (f) Completion of Operation Suyod -a fullan Action Plan (Annex 5), that includes 1LJM_alh house-to-house survey to identify VATtargets for: (a) completion of legislation; (b) evaders and register additional taxpayers.implementation of improved procedures; (c)procurement, awarding and implementation of the (g) Training and using well-selected examinersturn-key contracts; (d) strengthening the informatica to investigate and prosecute evadersstaff; (e) implementing a reorganization study and particularly self-employed professionals like(f) bidding and awarding contracts for non-computer doctors, lawyers and accountants.equipment.

(h) A nationwide -Raffle of Sales Receipts- to2.26 In addition, BIR's Busines Plan for insil the habit of requiring and iuimng1993 includes other targeted improvements receipts when purchases are made.including:

(i) Intensified the surveillance and prosecution(a) Closer relation with non-government of taxpayers who do not issue sales receipt.

organizations to assist in the identification Substantial penalties would be appliedand prosecution of erring BIR personnel or including closure of second time violatorstaxpayers. and prosecution and imprisonment of

habitual violators.(b) Requring independent professionals to pay

quarterly income taxes. 2.27 The task of improving the taxadministration is never ending and is likely to be

(c) Imposing stiffer penalties for under drastically modified with the progressive use ofreporting quarterly corporate retus. computers not only by BIR/BOC but also by the

txpayers.

CISS INSPECTIONS AND RESULTSTAX I KFA8E I N Ut U i 1 I N

180 X

110g o

70

40

AWIT.TAX Uh$ WILL.

A WT I Af I1 1N_C. X MAL I,N_CT,O1.

Figure 2.6

- 13 -

Table 2.2 - Further Tax Improvements by BIR

Problem Actions

Slow, cumbersome process A new payment system through banks has been successfullyfor tax payments introduced. Computerization will allow easy monitoring of

compliance and reconciliation of accounts.

Accounts receivable are high BIR has decentraized its coUections, is takdng actions to focus on the(about 12%) monitoring of large taxpayers, and the TIN is being applied for aU

tax purposes. Stronger tax enforcement and follow-up is also needed,which will be facilitated by computerization.

Excessive centralization RDO and local offices have collection and audit target.. The newcomputerized tax administation will collect aU regional andprovincial data in decentalzed computers, delegating almostcompletely the tax enforcement and audit to the local offices.However, the central mainframe system wiU allow BIR to superviseeach RDO's data transactions and collections.

Lack of taxpayers A unique TIN was establied. However, lack of a nationaidentification and different identification system and generalized used of nicknames makes ittax codes for various taxes. difficult to verify if a person obtained two TIN codes. This should be

prevented by tax penalties and monitoring, which will detect severalthousand cases of duplicated TINs.

Weak enforcement. Only half Computer systems will speed up reviews and provide priorities for taxof about 9,000 warrants and audits and enforcement. Monitoring indicators are being provided tolevies have been closed. each of the RDO.

Uneven workloads, The number of potential assessments in some RDOs, even if only 10%inadequate tax audits of the assessments are audited, is three times the recommended

maximum of 30 per staff. This would require a redeployment of stafffrom other functions, which will be analyzed and recommended bythe Institutional Study (par. 3.19).

Lack of data exchange The number of taxpayers is only a fraction of those that are requiredto do so because of BIR'slimited capacity to exchange data withother government data sources. This would identify potendaltaxpayers, including newly registered companies and production data(Department of Trade and Industry), payers of Social Security (SSSand GSIS), sales of land and telephone services (Secretary ofTransportation and Communications), civil works contract withGovernment (Secretary of Public Works and Highways), interest paidby financial institutions (Department of Secretary and Central Bank),list of registered companies (Securities and Exchange Commission)and persons travelling overseas (Bureau of Customs).

Low prosecution of tax fraud A new law established increased penalties for fraud (including(0.03% of tax files), due to imprisonment). Legislation to establish *confidential positions"inadequate legal support, low (including higher salaries and protection against suits by taxpayers) ispenalties, and low priority for also being considered. More legal support is needed for auditing taxostax fraud in normal courts. and prosecuting fraud.

- 14 -

Table 2.3 - Further Improvements by BOC

Probl=Aemo

Measures to improve BOC Substantl progress achieved in all areas (see details in Annexbased in the 11 4). Eight Working Groups established by BOC to provide andrecommendations from IMP implemented further recommendations by mid-1993 (Annex 4).

Smuggling of goods subject to Lck of even one high-speed boat is a major impediment in ahigh custom duties costs an country comprising seven thousand islands. Priority equipmentestimated US$1 billion/year for cargo opening and handling, and laboratory and office

equipment are included in the project. Customs police need tobe increased.

Inadequate clasification and The Societe General du Surveillance (SGS) has been doingvaluation of goods preshipment inspections and revising valuations. About 65% of

the shipments have been found to require increased valuations.The implementation of the GATr system, which is moretansparent and less arbitrary, is being studied and is likely tobe implemented within the next four years.

Different taxpayer The recently established TIN is now being used for al BOCidentification for each taxes transactions.

Cumbersome, slow procedures Assessment and inspection functions are being consolidated.for processing cargo Legislation has been Certified by the President to eliminate the

required 10% inspection of _g cargo. This has beeneliminated by reliance in SOS inspections, when available.

Dilapidated and iadequate The project would funace esential improvements to workingfacilities and equipment, facilities and equipment for customs administration.facilitatig pilferage. BOClacks minimum laboratory,transportation andcommunication equipment.

Complicated, slow duty A one-stop shop (DOF, BIR, DTI and BOC) has beendrawback process and lack of successfully established to simplify and speedup the collectionintegration among tax and of duty drawback by exporters.trade agencies. The new computer system will provide an integrated system,

computer terminals and linkaes to facilitate sharing of dataamong concerned institutions.

- 1S -

mi. The Project

Project Origin Rationale for Bank Involvement

3.1 During the past two years BIRand BOC 3.3 The Bank provided assistance forhave been studying and implementing key project preparation and mobilized technicalimprovements in the country's tax administration. assistance to support administrative, procedural andThese efforts have been supported by two technical legal reforms to improve tax administration andassistance missions from IMF and the project ensure successful computerization. Procurement ofpreparation missions from the Bank. An Information the required hardware and software is technicallySystem Strategic Plan (ISSP) and pilot VATsoftware complex and would substantially benefit from Bankfor BIR were financed by a technical assistance grant experience in similar projects and the use of afrom ADB. A grant from the Japanese Grant Facility transparent evaluation methodology. The proposedfinanced the consultants (Crown Agents) who project will establish a modern tax administrationprepared an ISSP for BOC, analyzed the reforms which, in line with the Bank's lending strategy forneeded, and prepared the tender documents for the the Philippines, would increase governmentproject. These efforts have resulted in the revenues, support improved fiscal policies and ensureimplementation of a reform program (para. 1.4-1.9) that tax collection is efficient and equitable, byto modernize the tax administration and increase its distributing the fiscal burden fairly among Filipinos.efficiency, equity and effectiveness. It wil conclude Bank involvement in the project will also ensure thatwith the introduction of a new computer system adequate priority is given not only to the(NCS) under the project. The NCS will establish a commissioning of hardware and software, but to themodern tax administration system to accurately implementation of other institutional andcheck results, integrate all tax records, cross-check, organizational improvements, technology transferaudit and verify tax-related data, and improve and staff development.taxpayer information and services (Annex 6). Theproposed project was identified by a Bank mission in Project ObjectivesFebruary 1991 and was approved by the InvestmentCoordinating Committee (ICC) in September 1992. 3.4 The main objective is to support

improvements in tax administration by providing3.2 Lessons Learned from Previous Bak technical assistance, staff training, hardware,Operations. Very few projects have been completed software and priority equipment and facilities. Thisby the Bank in this sector. The proposed project will make the tax administration more efficient andreflects the current experience from a few projects accelerate the process and collection of revenues andthat are under preparation and supervision and the improve the access and auditability of tax records.experience of a similar project in Thailand,particularly regarding: (a) separating the tax Project Descriptionimprovements and computerization from otherprojects; (b) selecting carefully the team responsible 3.5 The project would establish a modem,for developing the software; (c) carrying out computerized, integrated tax administration systemadequate tax administration reforms prior to the for BIR and BOC to process and audit all taxes, bycomputerization; and (d) specifying the basic providing the hardware, software, related data-entryinformation technology accurately, but allowing for processing equipment, complementary equipment,creative improvements by the hardware vendors and training, initial operational support and technicalsoftware application developers. assistance. It includes the following components:

- 16 -

(a) Provision of computer hardware and software for about 19 regional offices and 44 revenue districtto establish a tax collection system for BIR, offices, which would provide a computerized systemcomprising, inter alia: (a) a mainframe for coUecting the tax in al 97 RDOs in thecomputer integrating BIR's tax information Philippines. Compatible, standardized operatingsystems; (b) computing facilities, systems and database software wiU be used by thecommunication and data-entry systems at mainframe and microcomputers to minimizeabout 19 BIR regional offices and about 44 software-related expenses, support, training andBIR district offices; and (c) software for aU maintenance. BIRis expected to triple the number oftaxes administered by BIR (income, excise, tax returns it processe by the year 2000 and itswithholding and VAT); software will cover individual, corporate income,

excise and withholding taxes as well as other(b) Provision of computer hardware and software percentage taxes, tax assessments and tax auditing.

to establish a tax collection system for BOC,comprising, inter alia: (a) two main 3.8 Technical assistance financed by ancomputers for software development and for ADB grant prepared the VAT software (using aintegrating aU tax data at the Office of the Progrss databae), which has been applied in a pilotCommissioner of BOC; (b) microcomputer base to two RDOs. The project wiUl integrate thesystems for the Manila Port and its Food VAT software with the other tax databases andTerminal Inc., Manila International Container provide the hardware and technical assistance to usePort, Batangas Port, Cebu Port, Manila the VAT in all RDOs.International Airport and Cebu InternationalAirport; (c) microcomputer systems for 3.9 The BIR component will also includeintegrated processing of export-related taxes integrated administration systems devolved toand (d) customs tax software. regional or district levels for personnel, management

accountability, and other management information(c) Priority office equipment and utility vehicles purposes. Amanagement information system at the

for BIR and BOC and laboratory equipment national office (NO) will integrate all taxes andfor BOC to operate and manage the tax databases and allow cross-checking and exchange ofsystem; information with other government departments or

private agencies like the Securities and Exchange(d) Training of BIR and BOC staff; and Commission (SEC), the land register, Social Security

System (SSS), etc.(e) Technical assistance for project

implementation and for the required 3.10 BOC Syst and Aplication Software.reorganization of BIR and BOC. BOC computerization wil include: (a) two main

computers for software development and forThe New Computer Systems (NCS) integrating aU tax data at the Office of the

Commissioner of BOC; (b) microcomputer systems3.6 Details of the NCS for BIR and BOC, for the Manila Port and its Food terminal Inc.,their components, specifications and implementation Manila International Container Port, Batangas Port,are given in Annex 6. Key features are described Cebu Port, Manila International Airport and Cebubelow. International Airport; (c) microcomputer systems for

integrated processing of export-related taxes and (d)3.7 The BlR'sSydh . The NCS is based on customs tax software. The integrated processing ofdecentralized tax colection by the ROs and RDOs, aU taxes for export-related industries under the 'one-with a central control, backup and auditing capacity stop shop' established by DOF is also beingat the national office. This includes a large considered and may be financed by the project oncemainframe at the national office, communicatons its design is completed. All computer, will usesystems and the data entry and computing facilities systems and database compatible with BIR and

- 17 -

standardized software to minimize software-related transactions and entries, the need for supervisor'sexpenses, support, training and maintenance. The approval for large transactions, spot checks bycustoms tax software wiU use the Automated System secuity officers, and periodic and random auditingfor Customs Data Management (ASYCUDA) of the databases, programs and controls.developed by the United Nations Conference onTrade and Development (UNCTAD). A new and Staffing and Trainingimproved version (ASYCUDA+ +) wil be inoperation by mid-1993, but additional enhancements 3.14 Both BIR and BOC will substantiaUywill be provided for managing bonded warehouses increase the number of technical staff to support the(which process materials for exports), for duty computedzation program. A key improvement fordrawback and forinterfacing with other government BIR has been the integration of the previousimport or export agencies (Central Bank, the Board computer processing services, the Revenueof Investments, the Department of Trade and Information Systems Services, Inc. (RISSI) within itsIndustry) and BIR. The software wiU have the Computer Information System Service departmentcapacity to handle manifest control, import and (CISS), which now employs about 400 staff. Inexport processing, goods valuation, warehousing addition, BIR needs to obtain approval for increasingmanagement, duties and taxes, transhipment and the number of high-grade categories to facilitatetrade statistics. appointing and retainiug competent staff.

3.11 Daabase Improvemaets. The transition 3.15 Current BIR and BOC trainingfrom existing computer systems to the NCS requires programs wiU be continued and expanded with localintensive efforts to improve current databases, financing and grants from several foreign donors.identify and remove inactive or duplicate TINs, add Project-supported training wil be provided by thepotential taxpayers from other databases and supplier of the computer system and by the trainingdistribute data to the regions (to define local divisions of the two bureaus. For BIR, the GTZ hasdatabases). The use of a unique TIN for aU taxes will agreed in principle to provide a DM 1.8 million grantallow cross-checking and verification of income and for 'change management' and training. In addition,deductions, and wil be used for aU taxpayers USAID is planning to provide technical support totransactions. BIR, which may include a possible twinning

arrangement with the USAInternal Revenue Service3.12 Communications. The project design (IRS), the reorganization study and some projectconforms with international protocols and standards. implementation support. In case this grantThe X25 and LAN systems will be used for materializes the respective loan components wouldnetworldng, interconnecting aU computer systems be reallocated or cancelled.and supporting file transfers, as weU as processingelectronic mail, data enquiries and backup. Similar 3.16 A summary of training programs issystems are used successfully by several large presented in Annex 10. BOC training programscorporations in the Philippines. would include computer systems and ASYCUDA

training and several training programs supported by3.13 Data Security and Integriy. The the Japanese International Cooperation Agencyconfidentiality and security of the database wiU be (JICA) and the Societe Generale du Surveillancestringently guarded by, among other things, (SGS). Extensive training, both technical andmeasures to protect the computer hardware from professional, is needed since customs operations willfire and physical access, the use of employee undergo a major transformation from manual toidentification codes and badges, adequate computerized systems and enhanced procedures.redundancy and frequent backup requirements, useand frequent change of passwords, use of restrictedterminals to input new data and modify records,encryption and compression of data, recording of all

- 18 -

Table 3.1 - Project Cost

____Mii Pss % of Mil usS pbyse

Bva of Customs 2562 4SS.8 712.0 333% 9.85 17.53 27.39 5.0%

a) Hardwae System 52.4 267.1 319.5 14.9% 2.01 10.27 12.29 5.0%

b) ASYCUDA Software Sytem 0.0 49.6 49.6 2.3% 0.00 1.91 1.91 6.8%

c) Other Project Cost 76.3 752 151. 7.1% 2.94 2.89 53 &7%

d) Technical Asisl & Admin. 3.0 64.0 67.0 3.1% 0.12 2.46 258 5.0%

e) Taxes And Duties 2] 124.5 0.0 124.5 5.8% 4.79 0.00 4.79 0.0%

Bumsau Intam Renae 466.9 961.8 1428.6 66.7% 17.96 36.99 54.95 4.2%

a) Hardware & Software 68.7 846.5 915.2 42.8% 2.64 32.56 3520 5.0%

b) Other Project Cast 136.0 513 187.3 8.7% 5.23 1.97 7.20 5.9%

c) Technical Asist & Admin. 5.0 64.0 69.0 3.2% 0.19 2.46 2.65 5.0%

d) Taxes And Duties 2] 257.2 0.0 257.2 12.0% 9.89 0.00 9.89 0.0%

Towi De Cst 3J 7fl 1417A6 2140.7 10% 2711 5452 8233

h_i Coltinscade 1.7 76 9. 4.5% 0.76 24 3. 4.5%

.Pu Co.tincim !LS2 415 =SS7 260 0.0 .54 634.

TOWal COnt 1 3 1.5 792.4 D % 2 37 63w00 9m37

1] Due to rounding, the lat digit in totals may appear not to add.2] Incudes VAT and custom tax equivalent to US$1S million.3] The base costs is in 1/1993 prices.

facilitate the early transfer of system operations to3.17 The computer supplier will provide BIR and BOC personnel.training in information technology to about 2,000BIR and 650 BOC staff. Both classroom and on-the- 3.18 Because of low government salaries, ajob training will be provided in hardware and relatively high turnover of systems analysts issoftware operations, database management, expected. Thus Congress is considering a bill tocomputer-based auditing, computer terminal establish 'confidential positions" (higher salaries, notoperations, etc., in addition to extensive trining in regulated by the civil service), which would solve thethe use of computerized procedures. The respective problem. Nevertheless, the project includessuppliers of the computer systems will use the provisions for replacing and training highly qualifiedBureaus' staff to complement their own technical recent graduates, if they agree to stay with the taxstaff in carrying out systems operations to help administration for a certain number of years.transfer technology to both Bureaus; this will

- 19 -

Organizational Study during the 1993-98 period. Total estimated pricecontingencies over the implementation period

3.19 BIRand BOCorganizational structures amount to about 6.3% of the base costs. The projectare adequate for the present administration. cost summary is shown in Table 3.1 and detailedHowever, after computerization they will face project cost estimates and annual investments aredifferent procedures which would eliminate some presented in Annex 7.manual jobs and add other technical jobs. Someredundancy is forecast for BOC. An organizational 3.22 Project costs are based on consultant'sstudy under the project would recommend the estimates of a turn-key contract for BIR and BOCchanges in the organization, staffing, operaions and including computer hardware, training, and initialtraining required, and redeployment of staff to other systems operations. The software for BIR is alsojobs, including increasing emphasis in following up included in its turn-key contract. The software fornon-filers, auditing tax activities, prosecuting fraud BOC (ASYCUDA)will be contracted with UNCTAD.and strengthening the enforcement of tax laws. The project cost also covers technical assistance,

training and the priority equipment forBIRand BOC3.20 The organizational study would: (a) tax administration. This equipment was reviewedassess the impact of the NCS on BIR and BOC and prioritized by the Government and the Bank.organization, administration, procedures and Technical assistance for project implementationoperations; (b) recommend ways to further includes about 5 person-years of foreign and 17strengthen the central data processing services; (c) person-years of local consultant services. The turn-define changes in staff responsibilities, positions and key contracts will be at a fixed price, because thetraining and (d) recommend measures to improve expected reduction in computer prices wouldretention of computer specialists. Agreement was compensate for other cost increases.reached with Government during negotiations thata study to improve BIR'sand BOC'sorganization and Financing Planprocedures will be completed by consultantspecialists in tax administration and furnished to the 3.23 The proposed Bank loan of US$63Bank for comments no later than May 31, 1995, and million will finance the foreign component of thethat the agreed recommendations would be project, which represents 68% of the project costintroduced thereafter. Terms of Reference for the (72.5% excluding taxes) or about 59% of the totalstudy are included in Annex 14. financing requirement of US$106 million, including

interest during construction (see Table 3.2). Of theProject Cost $63 milion loan, $42.7 million wiU be allocated to

BIR and $20.3 miUion to BOC. The remaining costs3.21 The base cost is estimated at P2,141 wil be financed by budgetary allocations.million (US$82.3 million) and the total cost, Government has already included a total allocationincluding physical and price contingencies but of P127 million for BIR and P100 million for BOCexcluding interest during construction, is P2,792 in the 1993 budget. Agreement was obtained atmillion (US$92.4 million), of which the BIR negotiations that annual budgetary allocations andcomponent is $61.7 million and the BOC component counterpart funds (which include local costs andis $30.7 million. The foreign exchange is estimated taxes, Table 3.2) will be approved to ensure theat P1890 million (US$63 million). The project cost implementation of the project in a timely manner.includes taxes and duties estimated at US$15million. The base cost has been expressed in January Implementation1993 prices. Physical contingencies are low,averaging 5% of total base costs, given the 3.24 Impbtion Schedule. The projectdecreasing trends in computer prices. Price will be implemented in phases, according to thecontingencies assume that foreign cost increases schedule shown in Annex 15. Advance contractingwould be 3.7% p.a. and local cost increases 7% p.a. will expedite project implementation and the bid

-20 -

invitation for the turn-key contracts was issued on informatics specialists and at least three other staff;March 31, 1993. and (b) appoint consultants for project

implementation.3.25 Theimplementation schedule isrealisticand assumes that the total computer hardware and 3.28 The project wil be one of the largestsoftware will be operating by July 1998 and that the integrated computer systems in the Philippines. Theproject wil be completed by December 31, 1998. turn-key supplier will initially be responsible for itsThis is reflected in the agreed Action Plan (Annex 5). full operation, but wiDl be phased out graduaDly as

BIR and BOC staff are recruited and trained. The3.26 Implementation Responsibilities. supplier's responsibilities during the contractualSuccess of the project wiDl depend greatly on the period wil include: (a) appointing technical, trainingestablishment of an effective central and regional and user coordination managers; (b) designing,organization to manage it. BIR and BOC developing and implementing all tax software (thisimplementation will be directed by their respective would be the responsibility of UNCTAD for theProject Directors, who are high-level staff appointed ASYCUDAcustoms software); (c) instaling, testingfor this purpose. They have already been involved in and commissioning hardware, software andproject preparation. Ahigh-level Steering Committee communications; (d) managing hardware,(FINCOM), chaired by DOF's Secretary, was telecommunications and data administration; (e)appointed to oversee the total project and promote providing technical and user documentation; (f)interagency coordination. Given the importance of providing training in computer technology; (g)the project for enhancing Government's revenues, maintaining hardware and software; and (h)DOF engaged informatics experts to undertake a providing database management assistance.detailed review of all aspects of the project. Based ona thorough reassessment of the project and its 3.29 Payment to the computer supplier willbidding documents, the project was strongly be contingent on the successful completion of majorendorsed and recommendations were provided to milestones for each project component. Advanceenhance its design, including the formulation of a payments include 10% upon signing, deploying theBusiness Plan for BIR and BOC. project staff and providing a detailed project

implementation plan. The remaining amount will be3.27 The Project Directors wil be supported paid on a quarterly basis, according to a schedule ofby a Project Implementation Unit (PIU), which wil deliveries and the software and hardware acceptanceinclude informatics specialists and at least six fuDl- and commissioning (which is detailed in thetime staff in two sections: administrative (to handle respective turn-key contracts). Another 10% wil bemanpower, organization, training, site preparation retained from the price of each delivery until 3 yearsand financing) and technical, including two after its acceptance. Penalties are included in theinformatics experts (to oversee the computer contract to assure timely compliance with thehardware, software and communications). Most of schedule.this staff have already been appointed and have beeninvolved in project and bidding preparation. Further, Procureentthe PIUs wiD interact with the computer supplier tocoordinate inputs from the various divisions. In 3.30 The bulk of services, materials andaddition, a substantial amount of consultant advice equipment for the proposed project, totaling aboutis needed for project implementation. Terms of US$42 million for BIR and US$16.1 million for BOCreference for such assistance were discussed at (excluding technical assistance, site preparation andnegotiations (Annex 13). Since the completion of taxes), will be procured through internationalthese arrangements is essential for the competitive bidding (ICB), in accordance with Bankimplementation of the project, as conditions of guidelines. Procurement arrangements for theeffectiveness BIR and BOC will: (a) establish the PIU project are summarized in Table 3.3.including the project manager, two high-level

- 21 -

Table 3.2 Financing Plan and Budgetary Rirements

Total Totl % of Million USSMillin Million TotalI~~~~

1993 1994 1995 1996 1997 1998

Projec Cost

Bureau of Customs 921.7 30.65 21L9% 4.2 9.9 8.0 4.5 2.5 1.5

Bureau of atermal Revenue 1.7 61.72 58.1% 7.0 15.6 15.7 12.7 8.6 2.2

[To Projeot 27?2 9237 S7.0% 11. 2S5 236 17.2 1Ll 3.7

IDC - BOC 1505 4.80 45% 0.0 0.5 0.9 L3 15 0.6

IDC - BIR 284A 9.04 85% 0.0 0.8 1.6 2.4 2.9 13

Interest During Consruction 434.9 L1383 110% 0.0 1.2 2.6 3.7 4A L9

Todl to be FPnned S73 106. 1000% 11.2 23 22 209 1S6

Fmanced by.

World Bank Lon-BOC 609.7 20.29 19.1% 2.7 6.7 5.8 2.7 13 1.1

World Bank Loan-BIR 1289.6 42.70 40.2% 4.9 11.7 11.8 85 4.8 L0

Tech. Assis Grants 21 0.0 0.00 0.0% 0.0 0.0 0.0 0.0 0.0 0.0

Srbtot 189.2 63.0 59.3% 76 1&4 17A6 112 6.1 2.1

Govnmam~ combbt

Bureau of Custo 462.6 1S.16 143% 15 3.7 3.1 3.1 2.7 11

Bureau of Intenal Renue 8655 28.06 26.4% 2.1 4.7 S5 6.6 6.7 2.4

Total Budgetay Contributions 1328.1 43.21 40.7% 3.6 8.4 8.6 9.7 9A 3I5

Total FIancng 32273 106.21 100.0% 11.2 26.8 26.2 20.9 15.5 5.6

Budgary Requkemeat Millon Pea

BOC Total Cost (W/MDC) 1000.6 1153 3053 270.0 1813 1283 71.6

World Bank lan S73.7 73.4 196.9 175.9 85.8 41.8 36.0

BOC Counterpart 426.9 41.9 108.6 94.1 9S.7 865 35.7

BIR Total Cast (W/IDC) 20401 192.0 4833 52S.2 470.9 368.8 115.0

World Bank LoaIn 1254.8 134A 345. 357.2 264.2 IS3.6 34.8

BIR Counterpart 785.2 S7.6 137.7 168.0 206.7 215.3 80.2

1] Due to rounding ls digits my sem no to add.21 Indudes pants being considered ftom USAID and KFW.

- 22 -

3.31 The turn-key contraets will include all with UNCTAD under a sole source contract; (b)the hardware, software, computer training, initial consulting services financed by the Bank, which willoperation and five years of maintenance. These be awarded according to Bank guidelines for the usecontracts are expected to be awarded by December of consultants; (c) other special laboratory and1993 and will be subject to prior Bank review. A technical equipment each costing less thanturn-key contract will ensure a single responsibility US$200,000 and aggregating to no more thanfor the overall success of the hardware and software, US$1.0 million can be procured using limitedsimplify procurement and testing, and speed-up international bidding and (d) construction ofproject procurement. buildings and facilities with a total cost of US$4.9

million, which would be procured following local3.32 Bidevaluation procedures forprocuring procedures and would not be financed by the Bank.the hardware and software are designed to ensure In evaluating bids obtained through ICBproceduresthe best price/performance ratio for the tax system. (other than the turn-key contraets), domestic priceThe procedures were designed by the project preference in bid evaluation will apply, followingconsultants and endorsed by high-level informatics procedures acceptable to the Bank. A margin ofspecialists from government agencies and private preference equal to 15% of the CIF bid price ofcorporations in the Philippines. The procedure imported goods or the actual customs duties andstresses the need to separate the price and technical import taxes, whichever is less, will be allowed forbids, to ensure the best evaluation for a system domestic manufacturers. Prior Bank review of bidwhere the total country's revenues are at risk. Since documents and approval of contract awards will bethe software, training and operational support for mandatory for all contracts expected to cost thethe turn-key contracts represents more than 60% of equivalent of US$0.2 million or more, which willthe cost, these contracts are more akin to technical cover about 98% of total contract value. Details ofassistance than to hardware supply. The technical the procurement arrangements are presented inand commercial bids would be opened in public in Table 3.3.subsequent stages. Adequate measures will be takento ensure the confidentiality of the price envelope. DisbutsementsDomestic preferences do not apply for this type ofcontract. 3.35 The Bank loan will be disbursed

against: (a) 100% of the foreign expenditures for the3.33 Bid prices for the hardware component turn-key contracts; (b) 100% of foreign expendituresof the turn-key contracts will be at fixed prices. The for imported equipment and materials; (c) 100% ofrelated five-year contract for services will be local expenditures (ex-factory) for locallyadjustable. A point system will be used to evaluate manufactured items; (d) 70% of other locallythe technical characteristics of each proposal. Final procured goods and services and (e) 100% ofbid evaluation will give a 50% weight to the expenditures for consulting services, including thetechnical performance and a 50% weight to the ASYCUDA software installation and training.present value (discounted at 10% p.a.) of the Disbursement of the Bank loan is expected to takepayments proposed for the five-year contract. This fiveyears to complete, which matches the scheduledwill ensure technical excellence and cost payments set under the turn-key contract. Contractseffectiveness. Communications and other services for US$200,000 or less would be disbursed underwill be included in the turn-key contracts. the statement of expenditures (SOE). To facilitate

disbursements for consultant services and non-3.34 Procurement following ICBprocedures computer equipment Special Accounts of US$1.0is expected to total about 86% of the loan amount. million each have been provided for BIR and BOCProcurement of other project goods and services using a commercial Bank. Retroactive financing willwould be awarded under ICBprocedures except for: be permitted to the extent of US$6.0 million(a) the installation, expansion and training of tho equivalent for payments mado prior to the date ofproprietary ASYCUDAsoftware would be contracted the loan agreement but after January 31, 1993.

- 23 -

Estimated disbursements are shown in Annex 11. Environmental ImpactThe project is expected to be completed byDecember 31, 1998 and the closing date for the loan 3.39 There are no environmental issueswiU be June 30, 1999. related to the project.

Operation and Maintenance Project Monitoring and Supevision

3.36 BIR and BOC must be prepared to 3.40 For satisfactory monitoring of projectoperate their computer systems after the five-year implementation, agreement wM reached atcontract is completed. The main concern, which is negotaon tiat:the maintenance of the software, would be allayedusing software produced under clear specifications, (a) BIR and BOC wiU send to the Bank, not laterwith adequate flow diagrams and testing, and than July 31, and January 31 of each year,proper documentation. The gradual phasing out of semiannual reports updating the project cost,operations by the supplier and assumption of the project implementation and the Actionincreased responsibility by BIR and BOC wil be Plan;provided for by a large training program and earlyhiring of additional informatica staff by each Bureau (b) No later than June 30 of each year BIR andfor project implementation, operation and BOC will send to the Bank a summary of themaintenance (see Action Plan, Annex 5). project cost accounts and the Special Account,

as audited by independent auditors acceptableStatus of Project Preparation to the Bank;

3.37 An Information System Strategic Plan (c) Parts 1 and 3 of the project completion report(ISSP) was prepared by BIR incorporating comments (PCR) wiU be drafted by the Bank not laterfrom ADB and the Bank and was approved by the than six months after completion of theGovernment in September 1992. The ISSP project. BIR and BOC will review parts 1 andrecommended the basic hardware configuration for 3 and prepare part 2 for their respectivethe computerized tax administration systems, and components within three months thereafter.was approved by the National Computer Committee.The bidding documents, which include detailed 3.41 Bank supervision of the project willsoftware and hardware alone with specifications for require about 60 staff-weeks. The most criticalthe turn-key contracts, have been reviewed and periods wiUl be in 1993, when project procurementagreed with the Bank. A General Procurement Notice and the bidding evaluation would require onewas published in Development Business in systems and one procurement specialist to review theSeptember 1992. bidding documents and the technical and economic

evaluation of the turn-key contract. After these3.38 A separate contract has been signed contracts are awarded, project supervision willwith UNCTADfor the implementation, training and require three missions per year during the first twoexpansion of the proprietary ASYCUDAsoftware. years, and two missions per year thereafter. MissionsLand for project facilities is already available and the would generally coincide with the testing of theconstruction, expansion or rehabilitation of existing hardware and software, as specified in the schedulebuildings and facilities are priorities in BOC and BIR of the turn-key contract. These missions, will includebudgets in 1993. These works are being financed the task manager and computer and taxand procured locally. administraton specialists.

- 24 -

Table 3.3 Procurement At (US Mion)

Procurment Method ICB Other NBF Total

Cvil Works 0.0 0.0 4.9 4.9

0O 0.0 0.0 O0

BOC Computer Sysem and 14.1 0.0 0.0 14.1

Reated Service (14.1) A 0.0 (14.1)

ASYCUDA Software 0.0 2.2 0.0 2.2

0.0 (2) 0.0 (2.2)

Other BOC Equipment 1. LO 0.0 2.0

(0.9) (0.5) 0.0 (L4)

BIR Computer Syem nd 39.7 0.0 0.0 39.7

Related Servics (37A) 0.0 0.0 (37.6)

Other BIR Equipent 1i 0.5 0.0 2.3

(L8) (0.5) 0.0 (2.3)

Coasultants 0.0 S4 0.0 S4

0.0 (54) 0.0 (5.4)

Miacous (taxs) O 0. 2L8 21.8

. OA 0.0 (0.0)

ToW S6. 91 26. 924

Total EBRD ( (630)

Notes Amounts in panthbes ae to be financed by the Bank lam'Other refers to dirct procurement of proprietary software, imited Inteatbinal bidding and coastant srvicsNBF, Not Bank Financed (inudes buidings, ta esad duties)

- 25 -

IV. Project Benefits

Introduction decentralized system at the ROs and RDIO, with twomain computers integating national data, backing

4.1 If the Philippines's ongoing tax reform the other mini/microcomputers, establishing ais to be sustained, the system must be able to management information system and providing forprocess vast amounts of tax data, which it cannot do cros checking and verification of all tax records.at present. Other than in Manila, computerized taxsystems are mainly used to produce taxpayer labels. 4.4 Three key factors affected the optionThe system has only limited capacity to elicit and chosen: (a) BIR and BOC have decentralized theprocess information about taxpayers due to a lack of responsibilty for tax administration and are maklingadequate hardware and software. The computerzed the RDOs accountable for tax colections; (b) thesystem under the project will substantialy improve telephone system is unreliable, particularly for inter-existing administrative procedures and data island communications and data transfer; (c)processing to cope with a rapidly expanding because of unreliable power supply and outages inworkload. The NCS would handle the additional different locations at different hours, distributedvolumes of data, integrate aU tax information and processing is more reliable than a national grid. Thegreatly improve tax collection management. Also, it bidding specifications provide adequate flexibility forwill improve equity by reducing widespread tax bidders to provide the most cost effective system,evasion which leads to higher taxes for those who and the best alternative wil be evaluated andcomply. selected based on a combination of price and

performance.

Least-cost Solution 4.5 The BOC configuration is partly linkedto the software requirements which affect the project

4.2 The consultants and the Government hardware and the system requirements. Threeanalyzed the possibilty of expanding BIR'scurrent software alternatives were considered: (a) the use ofcomputer system, but found it could not handle even the ASYCUDAsoftware for customs taxes, which isa fraction of the expected data processing developed, provided free and supported by UNCTAD;requirements. For its part, BOC has practically no (b) the SOFIXcustom software developed in Francecomputerization. Thus, the NCS was designed to and (c) ad hoc software developed by the turn-keyprocess the required information (accounting, billing contractor. However, SOFIXrequires a proprietaryand collection, auditing, consumer information, and hardware, for which there is no computer backup ormanagement reporting) for al taxes in al regions service in Philippines, which is a critical concern toand provinces in the Philippines. the reliability and sustainability of the proposed

system. Therefore, the Government decided to call4.3 Consultants evaluated three alternatives for international bid for the required hardware andwith various degree of decentraization and tax data operating system, and use the ASYCUDAprogram.integration (see Table 4.1). However, comparing The needs of the customs tax administraion werealternative computer systems is complex because of evaluated and it was found that although the newdifferences in reliability, capacities, data procesing version (ASYCUDA + +)is adequate, some ad hoccoverage and communications, as weil as the modules would be required to satisfy specianumber of operational staff needed. The least coost requirements and for integration with other relatedand more reliable alternative for BIR was a databases in the country.

- 26 -

Table 4.1 - Alterative Options for BIR

Alernative Adantaps Disadvaiitages

1). A centralized system using two large o No communication problems o Will not provide services tomainframes and smaller servers with no o Technical staff only at the national taxpayers at RDOLcommunicationL All paperwork is processed office. Does not center responsibility forat the NO. Databaes are updated on econd o Lower cost. asssment and collection toshift RDOL

o Bottlenecks are likely to continue.

2) Centralized system with two large mainframe, o Data capture at RDOs o Very complex and unrelableand a comprehensive communications o RDO and RO have on-line access communication network, bothnetwork, with smaller servers and on-line o Full local taxpayer vi because of the telephone systemdumb terminals in 44 RDOs and 19 ROe o Minimum technical staff at RDOL and power supply.

o Very complex on-line TP systemsneeded.

o Very complex and expensive, bothin its initial cost and operationalexpenseL

3) Decentralized system based on smaller o No problem with communications o Some computer expertise neededspecialist serve, with 40 RDOs provided o Simpler application software at each RDO.with their own in-house and self-sufficient tax o Each RDO is responsible for its o Additional building space isprocessing computers Two mainframes own processing needed.backing up each other will periodicaly collect o Total initial and operational cost o Increased support costLRDO data, maintain a national MIS, etc The cheaper than option 2.second mainframe would be used by 4 RDOssharing the sme building.

4.6 Although the ASYCUDA program is countrywide filed returns as independentprovided free, it would require some expenses to professionals. A similar problem is observed forprogram such additional features. UNCTAD has corporations; even if half of the SEC registeredsigned a contract guaranteeing to the Government corporations are inactive or are non-profitthat a fully tested ASYCUDA+ +will be operational organizations, the number of corporate incomeby mid-1993, and that the required expansions or returns should be about twice the 110,000 thatimprovements will be added no later than June 30, presently file. This indicates a large potential to1994, so as to be on schedule with the instalation of increase tax revenues and distribute the tax burdenthe hardware. more equitably among the population.

Tax Potential and Evasion 4.8 The PSRME analyzed the collection fromseveral taxes, and concluded that at present, only

4.7 Tax evasion in the Philippines is declining, about 50% of individual income taxes, and aboutbut is believed to be widespread. It is difficult to 60% of the corporate income taxes and the VATareprovide any accurate estimate of the tax potential collected. These findings are similar to theand the amount of tax evasion that could be conclusions of a recent United Nations report. Inrecovered; however, it is known that of 22.8 million fact, several studies of the tax collection potentialwho were employed in 1991, only 2.75 milion (Annex 12) estimate that tax evasion could be 30%-(12%) filed returns. Even if 70% of these employees 50%. If only 22 % of the evaded taxes are collecteddo not have taxable income, the number of after the computers are in place, the tax colectedindividual tax filers should be 2.5 times higher. will increase to 19% of the GDP, which isMoreover, the total number of tax filers is about the comparable to present ratios observed in severalsame as the number of university graduates during ASEAN countries (Figure 4.1). The project benefitsjust the last 12 years and only 1,500 persons are estimated as the difference between tax

- 27 -

collection with and without the project, and assume tax evaders and calculate their obligations. Some ofthat the 19% tax/GDP ratio would be achieved these databases are with: (a) Department of Tradegradually between 1997 and 2001. Evidence of the and Industry, (newly registered companies andfeasibility of the tax improvements proposed has just corporations' production data); (b) Social Securitybeen obtained from the application of a limited (SSS) and GSIS, (those enrolled in these systems);computerization of the VAT system in two pilot (c) Secretary of Transportation andRDO, which showed improvements in tax collection Communications, (land sales and telephoneof 40%. services); (d) Secretary of Public Works and

Highways, (contracts awarded by the Government);(e) Department of Finance and Central Bank,

ASEAN S TAX TO GDP RATIOS IN 1990 (interest payments); (f) Securities and ExchangeCommission, (registered companies) and (g) Bureau

.- _ of Customs, (overseas travellers and workers). TheNCS will improve assessments by verifying itemizedcosts, crosschecking for claimed payments,establishing proxies for income, auditing and cross-referencing taxpayer records, and improving thetimely processing of taxpayers' data and refunds.

4.11 Because of the Government's enhancedcapacity to verify and audit records, it is expectedthat most taxpayers will comply voluntarily andreport income more accurately. Additional benefitsfrom the tax computerization would be increased

Figure 4.1 efficiency and reduced unit costs. Since the NCS willallow BIR and BOC to achieve their targets, theGovernment is strongly supporting the

4.9 It is also believed that many taxpayers implementation of the NCS, including legislation,substantially under-report their income, because the staffing and budgeting.Government cannot verify the income anddeductions reported, and the penalties for tax 4.12 Increasing the tax revenues would beevaders are inadequate. For example, a sample of particularly important to reduce the fiscal deficit andestimated versus reported income for Manila doctors debt burden faced by Government. The consolidatedindicates the income of self-employed professionals public deficit is sizeable and rose from 2.8 percent ofis about 4-15 times the reported income. In the same GNP in 1987 to 5.5 percent in 1990. This has beenmanner, overstated deductions for dependents and increasingly financed by the issuance of governmentbusiness expenses reduce the amount collected. In securities, which has been very costly since theaddition, tax holidays and fiscal incentives are average interest rate paid on government securitiesprovided for new investments and Government during 1991 was 21.1% and the interest costcorporations: DOFcalculated that these exemptions amounted to F63.3 bilUion --about twice the enirealone are about 1.5% of GNP. fiscal deficit in that year. The relatively short nature

of these instruments has further contributed tointerest rate volatility.

Main Project Benefits4.13 The main benefits of computerization

4.10 The proposed project will help the are:Government improve its tax procedures andcollections from tax evaders by establishing a (a) Faster, more accurate and improved taxcomputerized, efficient tax administration. At processing and collections;present, it is impossible to cross-check or exchangeinformation with other official databases to identify (b) Improved taxpayer compliance since the

- 28 -

new system can identify eligible filers from increases in the number of returns. Additionalother databases. Identification of benefits, which are difficult to quantify but will havestop-filers, mathematical verification and an important impact on tax compliance, are greaterimproved auditing, identification of taxpayer satisfaction resulting from improvedauditing priorities, verification of tax response to queries, quiccer refunds, and publicliabilities before refunds are paid, awareness that all taxpayers will be treated fairly.preparation of data comparators for Staff satisfaction should also improve because moreprevious years and cross-check of career development options will be available,withholding amounts recorded by Further, staff will be able to work more accurately,taxpayers and employees. The impact of with less effort, and in a more pleasant environment.computerization on identifying delinquentreturns has been documented in many Financial Rate of Retumother countries IL;

4.16 It is impossible to estimate an(c) Improved self-compliance. The knowledge economic rate of return for the project, since its

that returns are computerized and fully main result is a transfer of revenues from the privatechecked will increase self-compliance and to the public sector as a result of improved taxreporting and reduce the number of non- collection. However, financial benefits can befilers; and estimated from its costs and revenues. The project

benefits are the additional taxes collected (beyond(d) A better managed tax system, which can Government targets) because of the project (Annex

provide accurate and relevant information, 12, Table 2). The project is extremely cost-effective,both at the central and regional levels. This and assuming a gradual achievement of benefitswill permit better planning, inter-tax during the project's seven-year useful life, itsenquiries and comparisons, and facilitate benefit-to-cost ratio is 47 to 61 tim (for discountthe implementation of tax policies. rates between 10% and 20%). In simpler terms, the

P2.1 billion present value of project expenditures4.14 The NCS will achieve these benefits by will be recovered in just one year by an increase increating a database on eligible taxpayers, providing revenues of less than 1%. The substantial benefitsall tax processing notices, mailing refunds and are also shown by the project's extremely highdelinquent notices, processing tax returns and internal financial rate of return (IERR) of 250%following up on non-filers and stop-filers. It will (Annex 12, Table 2). This rate undeestimates totalmaintain up to five years of data for each taxpayer, project benefits since some important benefits whichcross-reference their incomes, deductions and taxes are difficult to quantify are not included in thewithheld, and compare declared income with income analysis (see para. 4.15). Sensitivity analysisestimates. Also it will be used to keep monthly indicates that the IFRRwould be 1859% even if therecords, make assessments, submit tax bills, facilitate start of the project benefits are postponed for threethe location of all unregistered taxpayers, and years. The impact of increases in projectimprove the handling of delinquent taxpayers. expenditures is totally negligible. Moreover, theFinally, it will provide adequate and timely project benefits are likely to be fully achieved duringinformation on all aspects of tax administration, the five-year project implementation period, inincluding periodic reports for policy-makers. which case the benefit cost ratio (at a discount rate

of 12%) will increase to 200 times and the rate ofOtb0r Benefits return to 300%. (Annex 12, Table 3).

4.15 The system should reduce manualtasks such as sorting, classifying, reviewing, verifyingand storing data, and typing notices and bills. Thesetasks now require the time of almost half the staff.However, once the system is computerized fewadditional staff will be needed, even assuming rapid

-29-

Risks

4.17 The main risk is associated with theprocurement process. In general, the award of largecontracts for computer hardware and software istechnically complex, controversial and subject topolitical pressure. This risk has been minimized inthe proposed project through the design of atransparent system for procurement, under a turn-key contract. While little risk is involved with overallproject implementation, given the rigorousqualifications proposed for the two turn-keycontractors, there is still a risk that BIR and BOCmay not be able to retain adequately trained andqualified staff to operate the much-expandedcomputerized tax system. However, this risk islessened by the massive training programs includedin the project (which provide for expected staffattrition), by the supplier initially operating thesystem and by the potential to extend this assistance,if needed.

IL In United Ste, a policy of pursuing dedinquenttxpayers through the use of computen incred the numberof additional tax reurn from 689,000 to 3.6 million from1977483.

- 30 -

V. Agreements Reached and Recommendation

5.1 The following are conditions for loan (b) A study to improve BIR's and BOC'seffectiveness: (a) establishing a Project organization and procedures will beImplementation Unit for BIR and BOC including a completed by consultant specialists inproject manager, two high-level system analysts and tax administration and furnished to theat least three other staff (para. 3.27); and (b) Bank for comments no later than Mayappointing consultants for project implementation 31, 1995, and that the agreed(pan. 3.27). recommendations will would be

carried-out thereafter (pan. 3.20).5.2 Agreement was reached with theGovernment, BIR and BOC on the following: (c) Budgetary allocations and counterpart

funds needed by BIR and BOC will be(a) BIR and BOC would implement in a approved annually to ensure a timely

timely manner an Action Plan (Annex project implementation (para. 3.23).5), that includes inter ali targets for:(a) completion of legislation; (b) (d) Periodic project monitoring indicators,implementation of improved audit reports and a project completionprocedures; (c) procurement, awarding report will be submitted to the Bankand implementation of the turn-key (pan. 3.40).contracts; (d) strengthening theinformatics staff; (e) implementing areorganization study and (f) biddingand awarding contracts for non-computer equipment (pam. 2.25).

5.3 Subject to the above conditions and agem_nts, thepropound projet would constitut a suitable basis for a Bank lonof US$63 milion equivalent to the Remblic of Phi , for aperiod of 20 yeas, icluhding a gmo prod of 5 yeas, at dhe Banck'sstandard varible intmt rate.

- 31 -

ANNEX 1 - Page 1

PH1LIPPINES


Tax Structure Compared with World Bank Reference 1/

Table 1 - Taxes on Firms and Individuals

World Bank Reference PhIppines System

Personal income taxes should be subject to Maximum individual tax rate is 35%; tax base,ma=imum marginal rate of 50%, and should be however, is smallraised from wide bases.Exemption levels should be high (preferable Exemption level of 12,000 per married persontwice per capita GDP) so as to exclude low (1986) is low; it is below per capita GDP as wellincome persons. as below annual income derived from daily

minimum wage.System should feature gradually marginal Marginal tax rate scheduled for individuals isincome tax. progressive, but not steeply so.Withholding taxes should be used for wage and Withholding taxes are applied to wage andinterest incomes, and presumptive taxation interest incomes; however, self-employed escapeshould be applied to hard-to-tax groups. tax net easily and presumptive taxation not used.Company income taxes should have single Corporate income tax has unitary rate of 35%,statutory rate comparable to maximum personal which is identical to maximum personal incomeincome tax rate. tax rate.Tax preferences should be limited to cases Tax exemptions are relatively broad in scope andwhere market imperfections cannot be long in duration; their justification in terms ofaddressed more directly. market imperfections is weak.Deductions and exemptions should be equal While statutory variation is smalL deductions andacross sectors and assets. exemptions vary gready across sectors in practice.Indexing provisions should be generally Indexing only done for personal exemptionapplicable. levels.A 10-15% border withholding tax should be Profit remittances generally taxed at 15%.applied to repatration of profit, dividend.

A/ Source: World Bank, Public Sector Resource Mobilization and Expenditure, February 1992.

- 32 -

ANNEX 1 - Page 2

PHELIPPINES

Tax Computeriztion Project

Tax Structure Compared with World Bank Reference

Table 2 - Taxes on Goods and Services

Word Bank Reference Philippin Systm

Primary source of revenue should be a single- VAT is a major tax, though not primany source;rate VAT (between 10 and 20%) with crediting VAT rate is flat 10% with crediting provisionsprovisions and zero rating of exports and goods and zero rating for exports and food andconsumed largely by the poor. agricultural products.

Excise taxes (with simple and non- Excise revenue largely raised from alcoholdiscriminatory rate structure) should be applied tobacco and petroleum; rate structureto luxury goods. discriminates against foreign producers.

Level and variation of nominal tariffs should be Level and variation of nominal tariffs havelow; exports should get inputs at world prices. declined in 1980s and are now relatively low;

exports are eligible for duty-drawback

Export taxes should be eliminated. Export taxes were abolished in 1986.

- 33 -Annex 2 - Page 1 of 5

Philippines

Tax Computeizatio Project

An Ovaview of the Philippine Tax System

1. The Philippines raised P182 bilion of tax revenues in 1991 representing 82.44% ofits total public revenues. The major sources of its internal revenues are the income taxes, theVAT and the excise taxes. Import tariffs are the main trade tax since export taxes were abolishedin 1986. On the aggregate, 68% of the government revenues are raised from indirect taxes. Thetax effort of the Philippines is estimated at 14.52% of its GNP in 1991. This is a significantimprovement considering that its tax effort for the last two decades had been at 12% on theaverage. The elasticity has also improved from 0.53% in the '70s to 1.07% from 1986-1990. Taxcollection is thus able to grow proportionately with the increase in national income.

2. The major features of the tax system of the Philippines are briefly summarized.

Snome Tax

3. Individual Income Tax The taxation of individuals uses different bases and differentrates depending on income. Fixed-income earners are taxed using the modified gross incomebase, i.e., gross income less personal and additional exemptions. The tax rates range from 0% to35%.

4. Business and professional income earners are taxed using the simplified net incometax scheme. Besides personal exemptions, taxpayers are allowed to claim certain deductions.Expenditures on representation, traveling, advertisements, and bad debts are not allowed to beclaimed as deductions. There are also limitations in claiming interest and charitable contributionsas deductible expenses for income tax purposes. For example, deductions can only be claimed forcontributions which have been made to rehabilitation programs in nationally proclaimed disasterareas. The applicable tax rates range from 3% to 30% with the structure consisting of only fivetax brackets.

5. Passive incomes are separately taxed as follows:

(a) Interest income, royalties and prizes exceeding P3,000 are subject to a 20% finalwithholding tax on gross.

(b) Capital gains on real properties are imposed a 5% final tax on the gross selling priceor fair market value (which ever is higher). The tax is payable within 30 days fromdate of sale. Only individuals are subject to this tax.

(c) Capital gains on the sale or exchange of shares of stocks which are listed or tradedin any local stock exchange are subject to a tax rate of 0.25%. Both corporate andindividual taxpayers are liable.

- 34 -

Annex 2 - Page 2 of 5

(d) Net capital gains from the sale or exchange of shares of stocks which are not listedor traded in the local stock exchange are taxed at 10% if the gains are P100,000 orless, and 20 percent on the succeeding amounts.

(e) There is no tax on dividends which are distributed to resident citizens.

6. Resident aliens who are engaged in trade or business in the Philippines are taxedlike the resident citizens on their incomes from Philippine sources. Non-resident aliens who arenot engaged in trade or business in the Philippines are subject to a 30% tax on their grossincomes which are received from Philippine sources.

7. Personal exemptions are given with the intent of exempting families living below thepoverty threshold from income taxation. The exemption levels vary depending on the civil statusof the taxpayer and the number of his dependents. They range from P9,000 for a singletaxpayer to P8,000 for a married taxpayer. An additional exemption of P5,000 can be claimedfor each dependent but the number of dependents who are entitled to the exemption is limited tofour.

8. Tax Payments. For individual income tax, payment is on pay-as-you-file' basis. Thetaxpayer pays the tax due per return at the time of filing. If tax due is more than P2,000, thetaxpayer has an option to pay 50% only and the balance before July 15. In the case ofcompensation income, the employer withholds the tax monthly.

9. For all taxes, income tax deficiency assessments are the result of investigations. Oncethe taxpayer is agreeable, the tax is paid with surcharges, interests, and compromise penalties.Audited income tax returns are conducted to verifiy correctness of the tax paid. Employers areconstituted as withholding agents and their remittances are monitored for compliance.Delinquent taxpayers will be issued warrants of distraint, levies on properties, annotation of taxliens and in extreme cases, filing of civil or criminal actions in court.

The Corporate Income Tax

10. Domestic corporations are taxed on their net worldwide income at 35%.Subsidiaries of foreign corporations are taxed just like domestic corporations except that anyforeign tax paid on income from foreign sources can be claimed as a tax credit subject to certainlimitations.

11. Resident foreign corporations which are incorporated under foreign laws but areengaged in trade or business in the Philippines are taxed on their net income from Philippinesources at 35%.

12. Any profit remitted by a branch to its head office is subject to a tax of 15% exceptthose which are registered with the Export Processing Zone.

13. Non-resident foreign corporations which are not engaged in trade or business in thePhilippines are taxed only on the gross amount of Philippine source income at 35%.

14. There are corporate entities which are subject to preferential tax rates, including thefollowing:

(a) International carriers doing business in the Philippines pay a 2.5% final tax on grossPhilippine billings.

- 35 -


(b) Philippine incorporated mutual life insurance companies are subject to a 10% tax ogross investment income, and net capital gains.

(c) The gross Philippine income of non-resident cinematographic film owners, lessors ordistributors is subject to a 25% final withholding tax;

(d) Rentals, lease, and charter fees payable to non-resident owners of vessels charteredby Philippine nationals are subject to a 4% final withholding tax.

(e) Offshore banking units are exempt on offshore income but are subject to a 10%final tax on onshore income.

15. Tax Payment. For corporate income tax, payment is on 'pay-as-you-file basis.Taxpayer pays the tax due per return at the time of filing. Unlike individual income tax,corporations are not given the option to pay 50% of the tax due per return and upon filing thewhole amount of the tax due must be paid.

Other Direct Taxes

16. The other taxes imposed by government are the estate and donor's taxes and thereal property tax.

17. The estate tax is imposed on the fair market value of the net estate at rates rangingfrom 5% to 35%. Estate tax is self assessing in nature and is paid upon filing, and the tax liabilityis initially determined by the executor, administrator or their heir who initially determnes the taxliability.

18. The donor's tax is imposed on the transfer of property by gift at rates ranging from1.5% to 20%. The tax is coUlected when the tax return is filed, which is required within 30 daysfrom the date of a donation.

19. The real property tax is imposed and collected by local governments on the assessedvalue of lands, buildings, and improvements at rates ranging from 1% to 2%. The assessed valueis a percentage of the market value of the real properties, which is differentiated according toland use. For example, the assessed value for commercial and industrial lands is 50% of theirmarket value.

The Value-added Tax

20. The VAT was introduced in the Philippines in 1988 and replaced a complicatednetwork of indirect taxes. The VAT replaced the manufacturer's sales tax, the turnover tax, theadvance sales tax on imports, the miller's tax, forest charges, and other percentage taxes onservices. The VAT was designed to eliminate if not to minimize the multiple taxation of goodsand services. It was also intended to enhance efficiency in the allocation of resources.

21. The Philippine VAT is of the consumption type and covers almost all sales and goodsand services including imports. it is computed using the tax credit method under which inputtaxes paid by a VAT trader are deducted from the VAT due. A standard rate of 10% is imposedwith a provision for the zero-rating of exports. Exemptions from the VAT are given to the sale ofagricultural products in their original state, the sale of small firms (i.e., those with annualturnover of 0200,000 or less), petroleum products, and medical and educational services, amongothers.

- 36 -


22. An excise tax of 20% is imposed on non-essential commodities in addition to theVAT. These include jewelry items, perfumes, yachts and other vessels intended for sports.

Ote Pecentage Taxes

23. There are several goods and services which are still outside the VAT system and areimposed percentage taxes of varied rates. These inlude caterers, amusement activities,franchises, financial transactions, overseas communications common carriers and hotels.

24. The caterer's tax is imposed on the gross receipts of proprietors or operators ofrestaurants and other eating places. The lowest tax rate of 4% is imposed on the sale of food orrefreshments and the highest rate of 25% is applied on food served by establishments within aracetrack or Jai-alai.

25. The amusement tax is levied on the gross receipts of operators of amusement placessuch as cockpits, nightclubs, professional basketball games, and boxing exhibitions. Rates arealso differentiated with the lowest rate of 15% on boxing exhibitions, and the highest rate of30% on racetracks. The tax on other amusement places such as theaters is imposed and collectedby local governments at a unitary rate of 30%.

26. The franchise tax is collected from franchise holders and is also based on grossreceipts. Electric utilities, city gas and water supply are taxed at 2%; telephone, radio orbroadcasting stations are taxed at 3%, and all other franchises are taxable at 5%.

27. A tax on gross receipts by banks and financial institutions is imposed at varied ratesdepending on the maturity of the financial instruments. Instruments with long-term maturity(over four years) are subject to 1% and instruments maturing within five years are imposed a 5%tax. Accredited banks accept payment of these taxes while in places where no accredited bankpresent payment is through collection agents.

28. The tax on overseas communications is at 10% which is payable on the amount paidfor overseas messages (telephone, telegraph or other means of communications).

29. The common carrier's tax is imposed at 3% on transportation contractors andpersons who transport passengers or freight for hire, the common carriers by land, air or water.

30. The hotel room tax is paid by proprietors or operators of hotels, motels, resthouses,and resorts at 12%.

The Excise Taxes

31. The major products which are subject to excise taxation are petroleum, cigarettesand alcoholic beverages. The excise taxes are imposed besides a 10% VAT.

32. Petroleum products are taxed with specific taxes which are differentiated. Dieselfuel oil which is used by public utility vehicles is subject to a lower rate of 00.45 per liter whilehigher rates are imposed on regular and premium gasoline at F2.28 and F2.52 per liter ofvolume of volume capacity, respectively. Liquified petroleum gas and bunker fuel oil are exemptfrom excise taxation. Specific taxes shall be paid within 15 days after removal of petroleumproducts from the place of production.

- 37 -Annex 2 - Page 5 of 5

33. The tax rates on cigarettes and alcoholic beverages are also varied anddifferentiated. The tax rate on locally manufactured cigarettes bearing a foreign brand is 55%,and is 45% for other locally manufactured cigarettes. An excise tax of 60% attaches to beer.Distilled spirits and wines are subject to fixed tax rates with the highest rate of P26.00 beingimposed on sparkling wines. On locally manufactured products, manufacturers make deposit forVAT, specific tax or inspection fee, as the case may be. Before removal of goods from place ofproduction, the taxpayer determines the amount of taxes due which is verified by the revenueofficer assigned to each factory.

34. Automobiles are subject ad valorem rates ranging from 15% to 100% of themanufacturer's selling price besides the VAT. Payment on collection of ad valorem and specific taxrespectively on automobiles is made upon removal from the place of production.

Custom Duties

35. Custom duties are imposed on imported goods according to their classification underthe Tariff and Customs Code. Before the Tariff Reform in 1991, the duties were generally advalorem with a maximum rate of 50%. Under the Tariff Reform Program, the rates will begradually reduced over a five-year period starting in 1991 with the maximum rate at 30%.

Other Minor Taxes

36. The documentary stamp tax requires affixing a documentary stamp to somedocuments. Where the tax is substantial, the tax is paid directly. Other taxes are also imposedunder special laws include the mining tax, travel tax, immigration tax, and motor vehicle fees.The latter group contributes only about 3% to total revenues.

- 38 -

Philippines Aanx 3 - Pap I


Tax Collection Statistics and Indicators

Table 1 - Gross Domestic Product Bmuon Peso

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992Estimate

Gross Domestic Product (Billion Pesos)GDP - Current Pricem 243.7 281.6 3172 369.1 524.5 571.9 60.9 685.1 802.5 9252 1074.3 1239.1 1338.3GDP - 1985 Prima 609.8 63Q6 653. 665.7 617.0 571.9 591.4 619.7 658.5 698.4 715.2 710.5 7212GDP Growth 3.4% 3.6% 1.9% -7.3% -7.3% 3.4% 4.8% 6.3% 6.1% 2.4% -0.6% 1.5%

Gross National Product (Billion Pesos)GNP - Current Prima 243.3 2805 313.5 363.3 50C.5 556.1 596.3 673.1 7952 913.8 1076.5 12532 1353.4GNP - 1985 Prime 60.6 6283 646.2 655.5 5983 556.1 579.2 608.7 652.3 689.7 716.8 718.5 725.7

Other Slat utiaPopulation-Million 48.10 49.54 5128 52.06 53.35 54.67 56.00 57.36 58.72 6Q10 61.48 62.87 64.26Consumer Prim Index 1.39 1.57 1.73 1.91 2.86 3.53 3.55 3.69 4.01 4.44 5.00 5.55 5.93Price Index 1991100 0.25 028 0.31 0.34 0.52 0.64 0.64 Q66 072 0.80 Q90 1.00 1.07Avg. Exchange P(USS 7.50 7.90 8.50 11.10 16.70 18.60 20.40 20.50 21.10 21.80 24.10 26.35 26.00

Table 2 - Total Government Revenues BmUo Peso.

1980 1981 1982 1983 1984 198U 1986 1987 1988 1989 1990 991 92Estimate

Total Revenues 32J1 37.49 3S36 45.80 58.05 67.84 79.43 103.20 112.53 152.60 180.89 22065 250.12

Total Taxes 2861 328 33.95 40.M 51.31 6013 65.68 85.91 90.02 122.65 151.75 183.43 211.12

Bareau Internal Reavme 17.17 21.00 20.07 21.46 32.09 41.66 46.99 58.59 6339 82.19 104.04 117.28 135.85

Burea of Cutoms 9.87 1005 12.10 16.49 17.19 16.78 17.50 25.99 25.01 3838 45.95 64.35 73.43Import Duties and Taxs 9.44 9.74 11.81 16.23 15.45 15.79 16.86 25.98 25.01 3838 45.95 64.35 73.43Export Taxes 43 031 029 Q26 1.74 1.00 Q64 Q02 0.00

Other Oflie 1.57 1.93 1.78 2.07 2.03 1.69 1.19 1.33 1.62 2.09 1.77 1.80 1.84

Nootax Revemn 4.20 4.51 4.41 5.78 6.74 7.71 13.75 17.29 22.51 29.95 29.14 37.22 39.00

1] Sources: Natnal Stathlatt Coordination Boud, BIR and BOC

- 39 -

Aane 3 - Page 2

Philippines



Table 3 - Tax Collection by the Bureau of Internal Revenue Bnuon Poses

1980 19S1 1982 1953 1984 195 198 1987 198 199 196 199 1992

BIR Tax Collection 17.17 21.00 20.07 21.44 32.09 41.44 46.99 58.59 63.39 2.19 104.04 17.28 135.85

Incoe Taxe 6.69 10.42 8.50 a 13.72 17.65 19.37 21.84 27.65 37.46 49.44 61.00 71.44Compay 2193 5.83 4.50 4.80 A21 8.43 8.6 12.28 13.09 15.18 19.0 24.93 32.55

Corporate 0.00 3.16 3.31 3.13 6.13 4.86 4.83 7.52 9.43 11.02 12.4S 17.09 21.78WithhoMing 0.00 2.67 1.19 1.67 2.08 3.57 3.85 4.76 3.66 4.16 6.82 7.84 10.78

Individual 3.76 4.48 3.88 3.87 4.48 5.60 6.01 7.31 802 10.9 tU.7S 20.65 24.45Individul 1.61 1.74 0.77 0.66 0.62 0.59 0.81 0.64 1.16 1.52 1.94 2.37 3.21Wibolding on Wage 1.68 1.73 2.09 2.33 2.60 3.22 3.28 4.04 5.33 7.76 11.32 15.73 16.89Capital ains 0.07 0.08 0.11 0.25 0.11 0.12 0.22 0.44 0.71 0.94 0.99 1.08 1.61Widioding at Soume 0.40 0.94 0.91 0.64 1.15 1.67 1.69 2.19 0.82 0.74 1.50 1.47 2.00

Other (Depoeats-Witholdins) 0.10 0.12 0.20 1.03 3.62 4.68 2.2 6.54 11.32 14.39 15.42 14.43

Fzcie Tame 4.U4 5.09 5.75 6.55 10.06 13.34 16.4 22.72 20.1U 24.86 28.87 25.41 26.03Alcoholic Producs 0.70 0.87 1.22 1.48 2.38 2.78 2.64 3.71 3.42 4.28 5.65 7.75 7.88Tobacco Producs 1.37 1.48 1.60 1.87 2.19 3.02 5.12 6.87 5.92 6.31 7.15 8o. 857Fuel and Oi 2.67 2.73 2.1S 3.12 5.30 7.39 851 11.9t 9.73 9.66 13.50 7.17 7.15Mceilsneous 0.10 0.00 0.05 0.08 0.19 0.15 0.19 0.23 1.0 4.61 2.S 2.49 2.43

Val" Adde Tax (VAT)(S Ta until 1986) 3.00 3.71 5.93 7.15 10.13 134. 15." 20.79

Other Taes 5.64 5.50 5.83 6.0S 831 7.67 7.4 809 .44 9.74 245 15.41 17.60Other Percentag Tas 3.S6 4.78 4.90 4.90 6.60 4.53 5.48 6.09 4.17 5.49 7.19 9.23 10.93OtherTan 1.78 0.72 0.93 1.15 1.71 3.14 1.98 2.00 4.27 4.25 5.4U 6.18 6.67

Tax Collection In Current PricesTax Colectina-B. Peso 17.17 21.00 20.07 21.4 32.09 41.66 46.99 5&.59 63.39 819 104.04 117.28 135.85CoUeetoa Tarets- BiUio Peos 47.26 57.26 6.85 79.75 104.92 117.76 139.10% Actual Collection oan Target 99.4% 102.3% 92.1% 103.1% 99.2% 99.6% 97.7%TanStaff-Milion Peac 2.47 2.66 2.39 2.55 3.71 4.66 5.37 6.89 7.09 859 10.48 10.63 12.82Collaction-Billion USS 2.29 266 2.36 1.93 1.92 2.24 2.30 2.86 3.00 3.77 4.32 4.45 5.23TawStaff- USS Milion 0.33 0.34 0.28 0.23 0.22 025 0.26 0.34 0.34 0.39 0.43 0.40 0.49

Tax Collection In Constant 1985 PricesTaxCollecton-B.Pes 42.94 47.04 41.36 3870 37.75 41.66 4.65 53.00 52.01 62.04 69.26 67.25 7321TazStaff-MiL1985 Peos 6.1S 5.95 4.92 4.60 4.37 4.66 5.22 6.23 5.51 &4 &S 609 &9t

% of BIR's Taxes loo.o% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Income Taxes 39.0% 49.1% 41.7% 40.4% 39.5% 33.7% 31.3% 33.4% 33.3% 31.8% 33.7% 389% 42.0%CorpDrate Incom Tax 17.1% 27S% 22.4% 22.4% 25.6% 20.2% 185% 21.0% 20.6% 18.5% L86% 21.3% 24.0%Individel Incom Tans 21.9% 21.3% 19.3% 1L0% 14.0% 13.4% 12.8% 5% 12.7% 13.3% 15.1% 17.6% 18.0%Eise Tas 2S2% 24.2% 2U6% 30.5% 31.4% 32.0% 35.0% 3.8% 31.8% 30.2% 27.8% 21.7% 19.2%VAT (Sale Tax *ntil 1981 0.0% 0.0% 0.0% 0.0% 00% 7.2% 7.9% 10.1% 11.3% 12.3% 12.6% 13.2% 15.3%Other Taxes 32.8% 26.7% 29.6% 29.1% 29.1% 27.1% 25.8% 17.7% 23.6% 25.6% 26.0% 26.3% 23.6%

Ta EffortTaxes on GDP 7.0% 7.5% 6.3% 5.8% 6.1% 7.3% 7.7% 8.6% 7.9% 8.9% 9.7% 9.5% 10.2%Inaome Taxes 2.7% 3.7% 2.7% 2.4% 2.6% 3.1% 3.2% 3.2% 3.4% 4.0% 4.6% 4.9% 5.3%Corporate Income 1.2% 2.1% 1.4% 1.3% 1.6% 1.5% 1.4% 1.8% 1.6% 1A% 1.8% 2.0% 2.4%Individual Income Tans 1.5% 1.6% 1.2% 1.0% 0.9% 1.0% 1.0% 1.1% 1.0% 1.2% 1.5% 1.7% 1.8%ELce Tan 2.0% 1.S% 1.8% 1.8% 1.9% 2.3% 2.7% 3.3% 2.5% 2.7% 2.7% 2.1% 1.9%VAT (Saks Tax until 1986) 0.5% 0.6% 0.9% 0.9% 1.1% 1.2% 1.2% 1.6%Other Tea 2.3% 2.0% 1.9% 1.7% 1.8% 2.0% 2.0% 1.5% 1.9% 2.3% 2.5% 2.5% 2.4%

- 40 -

Philippines A_m 3 - fP 3



Table 4 - Other BIR's Tax Information

1980 1961 1982 1963 1984 1985 1986 1987 198 1989 190 1"1 i992Estimate

Totl Number DIR Staff 6.947 7,903 8,414 8.420 8,649 8,935 8.747 82 8,945 9 9,927 11,036 10.599

Ta Ratum Fied-OW 2975.0 3043.1 2804.8 3021.A 3161.1 2839.7 2677n 2709.7 28S1B 3084.7 3234.1 3423.9 3597.5lowm Tax 2975.0 2781.4 2606.9 2754.7 2885.0 2602.7 24215 2142.3 2416.7 2476.7 2657.3 2791.1 2929.3

Indvidual Iloome Tax 2945.8 27483 2574.9 27193 2849.6 2574.1 2389.8 20933 2369.6 24345 26193 2747.4 2881.7CArporazePartnenhdp 29.2 33.1 32.0 35.4 35.4 28.6 31.7 48.9 49.2 42.2 38.0 43.7 473

Capital Gains 31 44.9 30.0 31.0 42.9 573 89A 62.1 134.8 127JPaeetape Tax Return 249.8 187.4 216.0 21&1 196.0 216 511.6 326.S 4353 419A 391.8 433.1VAT PiUers 593 69.8 81.0 81.6 82.9Esche Tax Returns 1.3 1.5 1.5Transhr Tax Returns 11.9 10Q 12.8 13.0 1Q9 84 12.9 187 133 12.7 23.1 22.9%loe TaxReturns 2.3% -7.8% 7.7% 4.6% -10.2% -5.7% 1.2% 63% 7.1% 4.8% 5.9% 5.1%

SIR Tax Fraud CaaesNo. Inetiged 1174 1841 1538 2810 834 591 828No. Cloaed 778 562 751 907 871 397 566Amount Cllected-Million P 200 38.D 770.00 230.21 16. 49.44 77.S3

Outstaadiag Ae4- RemeIabe 1130 13.26 1437 11.90 10.62

BIRts Expenses - MiLP 185.7 272.8 249.0 2473 329.0 459.9 50t7 564.0 587.2 651.4 865.0 1015.2 12793Tax Colection Coat (Expenses

on Mox Colleced) 1.08% 130I 1.24% 1.15% 1.03% 1.10% 1.07% (Q69% a93% Q79% 085% 0.8J* 094%

Tax IdicagnTx Effort (Taxes on GDP) 7.06% 7.49% 6.40% 5.91% 631% 7.49% 7.68% &70% 7.97% 8.99% 9A% 936% 10.04%

owrce: BIR Annual Reports

- 41 -

Philippines Anne 3 - Psp 4



Table 5 - Other BOC's Tax Information

1980 1981 1982 1983 1984 1985 1986 1987 198 1989 1990 1991 199Esdmate

Number BOCs StaffAuthorized 7,013 7,120 72A0 7275 7,75 7,302 7302 7,302 6,535 6,535 6,492 6,492 6,492Failed Positions 6,245 6,340 6,447 6,347 6,26 6,193 5,750 6,132 5,905 6.053 6,101 5,850 6281

Tugs Collected by DOCBillion Pesos 9.87 10.05 12.10 16.49 17.19 16.78 17.50 25.99 25.01 3838 45.95 64.35 73.43Billion 1985 Pesos 24.69 22.51 24.92 29.74 20 16.78 16.99 23.51 20.52 2S.97 30.59 36.90 39.57

Ts Collected per eac DOC StaffMillion PeaosStaff 138 1.59 1.S8 2.60 276 2.71 3.04 4.24 4.24 6.34 7.53 11.00 1.69Million 1985 Pesos 3.95 3.55 3.87 4.69 3.25 2.71 2.96 3.83 3.48 4.79 5.01 6.31 6.30

BOCs expeas-Mil. P. 112.8 129.9 146.1 141.5 150.4 187.8 234.0 373.0 427.0 07.0 953.0 1392.0 1015.0% Expenses on Revenues 1.14% 1.29% 1.21% 0.86% 0.88% 1.12% 1.34% 1.44% 1.71% 2.10% 2.07% 2.16% 138%

Other Indicators:

Arrivig Pa*sser-000 939 891 861 817 773 782 795 1043 1190 1025PuengraOCStaff 148.1 138.2 135.6 1312 124. 135.9 129.6 176.6 196.6 167.9

Net Toemap Cead, Milion Toslnternaion Trade 73382 74.331 79.0S9 82.550 72.492 67.625 73.101 76.934 77.654 83.949 91.638Dorestic Trade 52.137 4S.443 51.669 56.614 51.407 52.726 55267 57.879 60.973 70.494 7626

Total Toa a 125.719 122.774 130.758 139.164 123.899 120.351 12.368 134.813 138.627 154.443 167384ToeWBOC Staff (O0) 20.13 1936 2028 21.93 19.90 19.43 2232 21.99 23.48 25.52 27.52

Toal TradeImpors - Billion Dollan 7.727 7.946 7.667 7.487 6.070 5.111 5.044 6.737 59 10.419 12.206Exports - Balo Doabn 5.788 5.720 5.021 5.005 5391 4.629 4.S42 5.720 7.074 7.2 8186

Totl Trade-Billion USS 13.51 13.67 12.69 12.49 11.46 9.74 9.89 12.46 15.23 18.24 2039Trade USS Million per

BOCStaff 2.16 2.16 1.97 1.97 1.84 1.57 1.72 2.03 258 3.01 3.34

Fnea (Million Peso) 8.54 6.73 3.69 4.78 a8o 10.71 4.73 30.34 57.48 112.67 119.29 90.64 85.52Propery Appreb.& Seized 488 322 583 904 1096 540

Tax Effort (Taxe a GDP) 4.05% 3.57% 3.81% 4.47% 3.2% 2.93% 2.87% 3.79% 3.12% 4.15% 428% 5.19% 5.49%

Souares: BOC Annual Reports 1991 Philippine Statitical Yeabook (Nationl Statiial Coordinati Bonrd)

- 41 -

Philippines Ana=3 - Page 5



Table 6 - Tax Performance Indicators

19SD 1961 1982 1963 1964 1965 1966 1967 1966 1969 1990 1991 1992Estimate

% Tax Effort (Taxes on GDP)TOTAL 11.74% 11.71% I070% 134% 9.78% 10.51% 10L79% 12.54% 11.22% 13.26% 14.13% 140% 15.7S%

BIR 7.04% 7.46% 633% 5.81% 6.12% 728% 7.72% S55% 7.90% SBS% 9.6S% 9.46% IQ15%BOC 4.05% 357% 3.81% 4.47% 3.28% 2.93% 2.87% 3.79% 3.12% 4.15% 428% 5.19% 5.49%OTHER 065% 0.69% 056% 0.56% Q39% .30% 2C% 0.19% 020% 0.23% 166% 01% 0.14%

BIR Tax Effort 7.049% 7.46% 633% 5.81% 6.12% 7.28% 7.72% .55% 7.90% S.8S% 9.6% 9.46% 10.159Income Tax 2.74% 3.70% 2AS6% 2.40% 2.62% 309% 3.18% 3.19% 3.45% 405% 40% 4.92% 5.34%

Crporant 124% 2.07% 1.42% 130% 1.56% 1.47% 1.43% 1.79% 1.63% 1.64% 180% 2.01% 2.43%Individuals 1.54% 1.9% 1.22% 1.05% 0.85% 0.96% Q99% 1.07% 1.00% 1.18% 1.47% 1.67% I.3%

Excise Tax 1.9S% 1.81% 1.81% 1.77% 1.92% 233% 2.70% 332% 2.51% 2.69% 269% 2.05% 1.94%Value Added Tax 052% QL61% .87% 0.9% 1.10% 122% 1.25% 1.55%Other Taxes 2.31% 1.95% 1.84% 1.64% 1.58% 1.349 1.23% 1.18% 1.05% 1.05% 1.18% 1.24% 132%

% Taxes on RevenuesTotal Taxes 87.2% 88.0% S8.5% 87.4% 88.4% 88.6% 82.7% 83.2% 80.0% 8Q4% 83.9% 83.1% 84.4%BIR 523% 56.0% 52.3% 46.9% 553% 61.4% 59.2% 56.8% 56.3% 53.9% 57.5% 53.2% 54.3%BOC 30.1% 26.8% 31W% 36.0% 29S% 24.7% 22.0% 252% 222% 25.1% 25.4% 292% 29.4%OTHER 4.8% 5.1% 4.6% 43% 35% 2.5% 1.5% 13% 1.4% 1.4% 1.0% 0.8% 0.7%

% of Total Taxes:BIR 60.0% 63.7% 59.1% 53.6% 62S6% 69.3% 71.5% 68.2% 70.4% 67.% 6866% 63.9% 643%BOC 34.5% 30.5% 356% 41.2% 335% 27.9% 26.6% 30.3% 27.% 313% 30.3% 35.1% 34.8%OTHER 5'% 5.9% 5.2% 52% 3.9% 2.8% 1.8% 13% 1.8% 1.7% 1.2% 1.0% 0.9%

% of Total Taxes:BIR Taxes 60.% 63.7% 59.1% 53.% 62AS% 693% 71.5% 6S92% 7Q14% 67.0% 66% 63.9% 643%

1uome Tax 23.4% 31.6% 25.0% 222% 26.7% 293% 295% 25.4% 30.7% 31% 32A% 333% 33.8%Corporations 1012% 17.7% 133% 12.0% 16.096 14.0% 132% 143% 1435% 12.4% 127% 13.% 15.4%ladiduals 13.1% 13S% 11.4% 9.7% &87% 93% 9.1% &5% &9% .&9% 0L.4% 113% 11.6%Deposits (Witbolding) O0% 03% 0.3% 03% 2.0% 6C% 7.1% 2.6% 73% 92% 93.% a4% 6.8%

Excise Tax 16.9% 15.4% 16.9% 16.4% 19.6% 222% 25.1% 26.4% 22.4% 203% 19.0% 13.9% 12.3%Value Added Tax 5.0% 5A4% 6.9% 7.9% &3% 6 &6% &84% 9.8Other Taxes 19.7% 16.7% 172% 15.1% 162% 12.8% 11.4% 9.4% 9.4% 7.9% &3% .&4% &33%

BOC Taxes 343% 305% 35S% 41.2% 33.5% 27.9% 26.% 30.3% 27.8% 31.3% 303% 35.1% 34.8%Import Duties and Taxes 33.0% 29.5% 34.8% 40.5% 30.1% 26.3% 25.7% 302% 27.8% 313% 30Q3% 35.1% 34.8%Export Duties 13% 0.9% 0.8% 0.7% 3.4% 1.7% 1.0% 0.0% 0.% 00% 0.0% 9 0.% Q0%

Otber Taxes 53% 5.9% 5.2% 5.2% 3.9% 2.8% 1.8% 15% 1.8% 1.7% 1.2% 1.0% 0.9%

- 43 -

ANNEX 4 - Page 1Phblippines

Tax Computeization Project

Bureau of Internal Revenue Reform Progrm

Actia/ TakmI Furdr A d

|1. New Payet SystslL Fully implemented covering all kinds of taxe. Banks arelpreparing batches of returns, and control sheets by type of taxes. l

2. Eaablkh a Unique Tax IUitifatin Nunmber C). Fully implemented. ExecutiveOrder No. 53 issued by the President in February 1993 mandates the use of TIN on allcommercial and other documents such as exporters and importers declaration andownership certificates.Unified TIN bing used by Customs from February 1993.Revenue memorandum issued to implement E053.The TlN number has been established for more than five million taxpayers.Verification of the files is being completed to identify taxpayers with more than one TINnumber. l

3. Establish a large Taxpayrs UniL Legislation passed and signed into law by the Full implementation planned forPresident in February 1993. April 1993.Executive Order creating Large Taxpayers Division at BIR awaiting signature ofPresident. All implementing regulations and circulares and appointment of staffingready for immediate implementation. Discussions and dissemination of information withbanks and large taxpayers is on-going. l

4. Fh Wihholing Tax Legislation passed and signed into law and is being Legislative amendment targetedimplemented, including public information campaigns. Legislative amendment necessary for end-1993.to remove or exempt those earning only wages for more than P60,000 from filingreturns. Administrative measures are being implemented by BIR to minimize processingof P60,000 or more tax returns, in preparation to the legislative amendment.

5. InJed Penalties for EvasoL Legislation passed and signed into law by Presidentin December 1992. After its public announcement, it is applicable to current violations.

6. Value Aded Tax Jmp ubuo_ Software for improved VAT collection system Requires approval of lglation,(VATIS) is in operation in two RDO, and will be extended to all other locations that has been approved in thirdthrough the Tax Computerization project. reading by the House, and isLegislation was approved and signed into law in December 1992 changing from scheduled for second reading inquarterly to monthly VAT returns. Law implemented from February 1993. the Senate.VATIS installation to 5 more districts is being implemented. Vatis establishment inother major revenue district offices scheduled for 1993.Legislation to expand the VAT base or coverage has been presented to Congress and isscheduled for committee hearings in April 1993. Passage of legislation is expected notlater than 1993.Selectve and short verification audit program being studied for development andimplementation. Objective of the program is a broader and more productive auditcoverage. Deadline for study and establishment of program is June 30, 1993.

6. Other Relr The RISSI computer corporation has been integrated as a Departmentwithin Bm, and 404 positions have been authorized for this purpose. The fullintegration wfll be completed by June 1993. BIR completed an Information StrategicSystem Plan and completed the preparation of proposed biding documents and thespecifications for other equipment as needed for the appraisal of the TaxComputerization project.

- 44 -

Annex 4 - Page 2Philippines

Tax Computerizaion Prtjet

Customs Administraion Reform Program

Actions Taken Furtm! ActionwSchedule

1. Strengtning The Manfet Cliwaee Prciem A computenzed Manifest ClearnceSystem in Diskette submission scheme fully operational at Port of Manila (POM) andManila International Container Port (MICP) and for LAN based Automated ManifestClearance System (AMCS).Based on a Directive to be issued by the Commissioner, shipping lines or agento willsubmit Inward Foreign Manifest in diskettes strting January 1, 1993.For International Airport Customs house (NAIA), joint project study BOC/SITA (SocLiteIntl. Telecommunication Aeronautiques) for manifest-via-EDI tansmission. Airlinescheme, initiated (in February 1993).

2. SrpHiatimon of Cutous Entry Form New Import Entry Declaration (lED) form New IED form would bereviewed and updated; the new EED has been presented to the Customs Brokers mandatory from June 1993 andAssociation and approved. A Training Program on how to use the new form was training in its use is beingprepared and forms for implementation are being printed. GSD hsndling inventory completed. All other forms in uselogistics of transition to the new form). by BOC are being reviewed asDirecdy related forms such as the PDIG (Permit to deliver Imported Goods) are Included part of the Working Groups andin the Program of Implementation for the new lED form. recommendation completed byOther customs forms, such as the Order of Payment, Baggage Declaration, are being (mid-1993).prepared to reduce the number of copies.Starting January 1, 1993, the number of copies of the Import Entry Declaration ([ED)will be reduced from nine to four.

3. SimplirwHtion of CIQrance Pr ucedue The valuation, classification and examination Report on findings andof goods is now centralized in just one customs officer, expediting their clearance and presentation of proposal for newrelease. Documentary inspection will precede the physical examination and valuation of Import Clearance System wouldgoods covered by SGS pre-shipment inspection is done through examination of be completed by mid-1993. Thedocuments. Customs Memorandum Order No. 96-92 was issued, providing for the direct bill on the elimination oftransfer to importers' premies of containerized shipments with intact and untampered mandatory 10% examination hasSGS seals. been approved In first reading.A BOC Valuation Team has been established defining policies, lega isu and training Congress has Indicated that allprograms for adopting a new valuation system. In addition recommendations have been tax enhancement measprovided for valuation information facilities (databases, library and laboratory). These would be completed by end oftwo groups will consult with SGS, JICA, CCC, Tax Research Center and other relevant 1993.organizations regarding valuation systems.

4. Rdikm of Valuation Systgd Consultations with international organizations (e.g. CCC, An inter-agency groupASEAN) resulted in recommendations to move toward the adoption of the GATT (BOC/DOF/NTRC) formed toValuation Code. study effects of shifting from

home consumption value toGATT and recommendationswould be issued by mid-year1993.

7. Contml of Bank Rem-tnm to the Tinwy. A Central Bank regulation was isuedimposing penalties for late remittances at same rates used for internal revenue taxes. Comprehensive review andThis has largey reduced late remittances. further recommendadons wouldAdditional control measures to control bank documents were established (CMO No. 107- be completed by mid-1993.92) and a computer-assisted monitoring stem (port collection date vs. central officeOCOM dates) was implemented to ensure that payment through banks are properlycollected and accounted for. An initial study for direct linkage between BOC and theAuthorized Agent Banks has been completed.

- 45 -

Annex 4 - Page 3

Customs Administhion Reform Program (Contiue)

Actions Taken Furthe Ac_ on_Siedule

5. Improved Supervision of Custom Bandg W areoum (CBEW) and Bonding A Task force wouldCompanier Customs Memorandum Order No. 28-92 established that the delivery of recommend furtherimported goods to CBWs will be withheld until their obligations with the Bureau have improvements by mid-1993.been settled. This will expedite liquidation of outstanding CBW accounts.A joint Memorandum of Agreement (BOC, Insurance Commission and the Insurance andSurety Association of the Philippines) established on January 29, 1992 an accreditationsystem for bonding companies to eliminate delinquent accounts from bondingcompanies. The number of acceptable bonding companies have been reduced to six.Starting June 1992, BOC has intensified its inspection of CBW and the liquidation ofraw materials imports. As a result, 48 CBWs were closed for various violations andCBW's receivables were reduced from i14 Billion to 19 Billion during the last sixmonths. Computerized systems have been established to monitor warehouse accountsand hasten liquidation of raw material imports.The special Task Force continues to investigate bonded warehouses. Those with seriousviolations are given closure orders; comprehensive review and study for a new system infinal stage.

6. Adoptio of a New Payment Control System Report on findings andComprehensive review and study for new system in final stage. New payment control presentation of proposaVsystem will incorporate electronic linkage between BOC and AABs recommendations and its

limplementation would takel ___________________________________________________________________ place by nid-1993.

8. TIN for Imports and Exporters Done. A single Taxpayer Identification Number Comprehensive review of theC(IN) has been established to allow consolidation of information on taxpayers involved results achieved would bein international trade and establish cross-checking systems. completed by mid-1993.Presidential Directive instructing all government agencies to utilize TIN has been issuedand enforced.TIN information forms part of the importers accreditation system of the Bureau.

9. Establishment of Internal Audt A Customs Administrative Order established an Comprehensive review ofInternal Audit Unit, and defined its administrative and operational functions. A existing audit and furtherCustoms Operations Chief has been appointed. improvementInternal Audit responsibilities expanded to include personnel performance and BOC recommendations would beunits/systems efficiency. completed by April 1993.

10. Comolidation of Custa= Legisation. A special committee on studying adoption of Approval of followingKyoto Convention Annexes has been formed, to recommend draft amendments to the legislation expected by endTariff and Customs Code. 1993: (i) HB 1414 increasingThe three draft Bills have been certified by the President. Additional improved penalties for smuggling; (ii)procedures are being implemented by administrative decisions. HB 1417 eliminating

mandatory 10% examination;and (iii) HB 1415 revitalizingand stregteing BOC.

11. Imovement of Failit and Working ConitionGround floor level of Port of Manila building has been reorganized and houses all Installation and setup ofrelated offices for one-stop processing of import clearance. Backup power generators Customs valuation laboratoryinstalled for Port of Manila and Office of the Commissioner. BOC grounds lighting and library in April 1993.system repaired and operational. Laboratory and computer center facilities underconstruction; other improvements included in the project The renovation of theLaboratory equipment and materials (e.g., books, manuals, spealized computers) due Computer Center pending theto start arriving by mid-1993 (JICA grant/Japanese Customs). approval of Bank loan.

- 46 -

Annex 5 - Page 1

Phippines

Tax Compuerization Project

Action Pan

Tun-Key Contacts

1. BIR's and BOC's turn-key contracts for their tax computerization would be implemented andcompleted under the following schedule:

Target Approx. Target Date_ _ _ ___. Days _

Issuance of the Invitation for Bid (IFB) 0 March 31, 1993

Question and Answer Meeting for IFB +40 May 10, 1993

Opening of Technical Envelope +90 June 30, 1993

Submission to the Bank of the Technical Evaluation +130 August 9, 1993

Bank agreement on Technical Evaluation +151 August 31, 1993

Opening Financial Envelope +160 September 7, 1993

Draft Award Recommendation sent to the Bank + 175 September 23,1993

Bank no objection to award. +180 September 30,1993

Contract Award +187 October 7, 1993

Post-qualification verification +210 October 30, 1993

Contract Signing +240 November 30, 1993

Completion BOC Project December 31, 1998

Completion BIR Project December 31, 1998

- 47 -

Annex 5 - Page 2

Bureau of Intemal Revenue

2. BIR plans to execute the project in accordance with the following implementation plan,and would make every effort to implement in a timely manner the following key targets and milestones.

BlR's Targets Target Date

Legislation establishing increased penalties for tax evasion. Done. December 1992

Legislation establishing monthly VAT returns. Done. December 1992

Legislation establishing a unit for processing taxes for large taxpayers. Done. February 1993

Appointing a Project Director and seven full-time staff for the Project Done. March 1993.Implementation Unit.

Improving the processing of employees returns subject to withholding July 31, 1993taxes on wages.

Signing of the contract for project supervision. September 30, 1993

Sending to the Bank the Bidding documents for non-computer December 31, 1993equipment.

Reviewing the coverage of the VAT system. December 31, 1993

Appointing 20 additional computer staff. January 31, 1994

Inviting proposals for the Reorganization Study. June 30, 1994

Signing a consultancy contract for the Reorganization Study. October 31, 1994

Awarding contracts for non-computer equipment. December 31, 1994

Hiring of ten additional computer staff. January 31, 1995

Starting the implementation of the Reorganization Study June 30, 1995recommendations.

Completing the implementation of the reorganization. December 31, 1997

- 48 -Annex 5 - Page 3

Bureau of Customs

3. BOC plans to execute the project in accordance with the following implementation plan,and would make every effort to implement in a timely manner the following key targets and milestones.

BOCs Targets |Target Date

Appointing a Project Director. Done. October 1M

Legislation establishing simplified import clearance procedures December 31, 1993(eliminating mandatory 10% review of each cargo).

Legislation establishing increased penalties for smuggling. December 31, 1993

Consolidating Customs laws. December 31, 1993

Appointing two computer specialist and five full-time staff for the July 1, 1993project implementation unit.

Appointing five computer staff for project implementation. August 31, 1993

Signing the contract for project supervision. September 30, 1993

Completing the 11-Point Reform Program (Annex 4 of the Staff December 31, 1993Appraisal Report).

Sending to the Bank the bidding documents for non-computer December 31, 1993equipment.

Inviting proposals for the Reorganization Study. June 30, 1994

Signing a consultancy contract for the Reorganization Study. October 31, 1994

Awarding contracts for non-computer equipment. December 31, 1994

Appointing ten additional computer staff for project implementation. January 31, 1995

Starting the implementation of the Reorganization Study June 30, 1995recommendations.

Completing the implementation of the reorganization. December 31, 1997

- 49 -

Annex 6 - Page 1

Phippime


Project Description - New Computer System

1. The Tax Computerization Project will duties which are administered by BOC. The main taxesimplement an integrated, computerized tax administration collected by BIR include personal income tax, corporatefor the Bureau of Internal Revenue (BIR) and the income tax, excise tax and value-added tax (VAT). BIRBureau of Customs (BOC). The project would not only also collects taxes from abroad through Revenue Posts,computerization all aspects of the tax collection and Embassies and Consulates, as administered by themanagement by providing hardware, software, and International Tax Affairs Division (ITAD), and thetechnical assistance, but supports comprehensive International Carriers Committee. Tax collectionimprovements in programs, procedures, legislation and statistics are presented in Annex 3. The Bureau performsthe organization, to establish a modem tax three major taxation functions: collection, assessment andadministration. A basic achievement of the project was enforcement. The Commissioner of Internal Revenuethe establishment of a unique Tax Identification Number heads the Bureau, which has two Deputy Commissioners(TIN) unifying the diverse numbers previously used for and seven Assistant Commissioners. BIR s fieldeach tax. Moreover, as an integral part of the operations consist of 19 RO which perform oversight,computerization program legislation and new numerous audit and operational functions over 97 RDO nationwide.procedures have been establish to improve tax filing, The RDOs are responsible for the collection andcollection, assessment and audit, and to streamline, administration of all taxes that fall within the purview ofsimplify and strengthen Customs administration BIR.procedures. Complementary and badly needed equipmentwould also be procured to support operational priorities 4. The tax administration requires the processingof both Bureaus. These include equipment for Customs of about returns for five million customers, and given thetesting laboratory and inspection, publication and period filing of some returns during the year this requirescommunication, utility vehicles, telecommunication and a huge amount of data processing. Summary reports areoffice equipment and the improvement and rehabilitation needed by supervisory officials and BIR management toof building facilities required for the computers. tax coUection deficiencies and to formulate corrective

actions. At present, BIR's information technology andProject Location information processing services are provided by two

organizational entities, the Revenue Information Systems2. After the project completion al major tax Services Inc. (RISSI) and the Project Management Officeoffices in the country will have computer facilities as (PMO). These services have serious deficiencies in theirrequired for their tax collection and to provide accurate, hardware and software, uniform development standards,updated information, verification and control at the and lack of competent technical staff. These weaknessescentral level. This includes for the BIR, the national explain the limited performance and weakness of theoffice, about 19 regional offices (RO), and about 44 existing tax administration system. To strengthen theserevenue district offices (RDO). For BOC the projects services, a unified information processing departmentwill cover the central office, the Manila and Mactan headed by a Director reporting to the Commissioner hasairports and the main seaports (Manila, Manila been established and will be fully operational by June 30,International Container Port, Batangas, and Cebu). 1993. The new department wiDl be staffed by competent

technical staff from BIR, RISSI and PMO, and will beProject Description strengthened with specialists in certain areas. The New

Computer System (NCS) to be established by theA) Bureau of Internal Revenue proposed will provide substantial training to strengthen

BIR's electronic data processing (EDP) equipment,3. BIR administers and implements al personnel and techniques. These measures, takeninternal revenue laws and regulations - except custom

- 50 -

Annex 6 - Page 2

together, are expected to substantially raise the level of data entry and procwsing of taxpayers d data wfll berevenue collection without raising taxes. carry out at the RDO level. The RDO will be

dectnay rcmed and periodicay transfer dataBIR New Computer System to the NO to ensure timely and effective data

interchange and back-up.5. The BIR's NCS will support its efficientmanagement of tax collection. The specifications of the (c) Regozai Offlces. RO located in the sameNCS are based on a Technical Assistance report from building as a RDO will be use terminals tothe International Monetary Fund (IMM), and a detailed access the national MIS for informationanalysis by consultants (Crown Agents, from England), regarding its jurisdiction. Such connectivity isand BIR staff and the review of Bank's staff. This defined provided only as a gateway. ROs not sharingall aspects of an improved tax administration, including a building with RDOs wil be provided withlegislation, procedures, forms and systems to support a their own computer and terminals for linkingdecentralized tax administration, where the RO will to the national MIS. In addition, some ROsmaintain and manage their respective tax records. The would operate as Regional Data Centers,system specifications have been approved by the handling the work of non-computerizedDepartment of Finance (DOF), the National Computer RDOs.Center (NCC) and the National Economic DevelopmentDepartment (NEDA). The specifications for thehardware, software, training and project implementation, NCS Databasesare detailed in the Invitation for Bids (IFB).

7. The NCS will use a mix of centralized andThe NCS Architecture distributed databases, based on the TIN. The will ensure

accurate registration, assessment, collection, monitoring,6. The proposed NCS comprises a three-tier and audit of taxes. This will allow the integration ofnetwork of computers, performing different functions, but taxpayer accounts within a region and across regions.sharing data through telecommunication linkages (Figure Distributed tax databases will be maintained in each1). The configuration and location of equipment were computer, and mirror-image back-ups will be available atestablished by forecasting processing and data storage the NO. The central processing facility will maintain arequirements, including number of taxpayers, national cross-reference index for consolidating taxpayersassessments, coilection, refunds, audits, returns, etc. The across all 44 computerized RDOs as wells as the otherBIR's NCS includes: RDOs indirectly computerized through another RDO.

(a) National Office: a large mainframe augmented by 8. RDO computers will be register, maintain anda number of specialist servers, including update their database sub-sets. Data will be enteredtelecommunication and peripherals equipment. locally. RDO data will be transferred to the NO facilityBack-up of the above system will be provided by either electronically or through diskettes, depending ona second mainframe at the Manila Regional the availability and quality of telephone lines. DataOffice. The back-up facility wit house a mirror- captured during a working day will be used to update theimage of the national tax database, providing master files at the NO. NOYs inquiries would shown dataredundancy and uninterrupted processing. The at the close of business the previous working day.four RDO's located in the same building willshare the same machine. The National Office 9. The same standard database management(NO) facility will support a national Management system will be employed by all machines, and programInformation System (MIS) for tax administration modifications and updates will be controlled, initiatedand will house and maintain a National Taxpayer and implemented by a central system development group.Master F;le. This will ensure that regional and provincial staff cannot

initiate ad hoc program changes, and that the processing(b) Revenue District Offices. Each RDO wiil logie integrity is centrally controlled. The accuracy of

operate a medium-size computer system for its data registration and the tax auditability function will betaxpayers. This self-contained RDO is the basis the responsibility of the regional district offices.of the proposed tax administration system. The

- 51 -

Annex 6 - Page 3

System and Application Software profiles for tax assessment and for detecting non-registered taxpayers.

10. Standard operating system and applicationsoftware will be used in the mainframe/minicomputer (f) Fmally the system will also provideenvironment to minimize expenses, support, training and information about personnel, manpowermaintenance. The application software will be custom- development and planing, and andeveloped or adapted to comply with the specified Accountability Monitoring module to initiaterequirements. The common software environment will an integrated financial resources informationstrengthen data integrity, reduce the 'learning curve of system to be used by DOF and DBM.staff and minimize software maintenance. In addition tothe integration and generalization of the VAT software, 11. The tax software will support the abovewhich had already been developed (with assistance from functions in an integrated fashion. The computer networkthe Asian Development Bank), the tax application will also be used for electronic mail, particularly tosoftware will comprise six major systems, as follows: support forwarding of distribution lists, directives,

database inquiries, etc.(a) The Collection Information System covers BIR

operations on tax collection, such as acceptance, Data Security and Integrityremittance and reporting of tax payments throughcollection officers and authorized agent banks. It 12. The following measures will be taken toalso includes controlling and monitoring all ensure stringent protection of the confidentiality andcollectible receivable accounts and identification security of the database byof delinquent taxpayers.

(a) Providing access and authentication control(b) The Assessment Information System (through physically-secure environments,

encompasses all assessment functions. It covers passwords, magnetic cards, etc.) at all levels,the identification of tax cases for investigation, including the microcomputers. These controlsthe processing of tax credits/refunds and the will be managed by the respective systemcontrol over returns and other relevant source administrators;documents received by the Bureau.

(b) Restricting database access to only the staff(c) The Taxpayer Assistance Information System that "have to known".

would enhance the assistance provided by BIR totaxpayers. It provides for on-line answers to (c) Encryptioning and compressing data to negatevarious taxpayers queries (such as new tax laws, 'tapping' into communication lines and illegaltax refunds, tax incentives, etc.) and the tampering with data files;generation of tax account, VAT, non-VATwithholding TIN, etc. (d) Providing physical security, fire protection,

and admission controls at computing centers;(d) The Legal Information System would update

indexes on laws, bills, tax rulings and court (e) Providing disaster recovery and redundancydecisions, BIR's issuances including those on tax (e.g., periodic registration of critical data filesexemption and incentives by industry. It will also on optical disks and magnetic tapes), andmonitor the flow and inventory of tax procedures for back-up;cases/dockets.

(f) Guarding against illegal tampering or(e) The Planning and Control Information System modification of accounting algorithms,

will provide information from several databases decision tables, editing rules, reconfirmationon statistical planning, operations audit and zonal on invalid entries, access control lists,valuation. It will also provide consolidated documented program changes, etc. Reportsinformation on financial and non-financial data. detailing unsuccessful attempts to alter fileThis system, by comparison with external contents, or illegal use of passwords will bedatabases and internal records will build taxpayer produced for control action; and

- 52 -

Annex 6 - Page 4

17. Some important features of BOCs NCS(g) Periodic and random auditing of the databases, include:

programs and controls.(a) The adoption and use of international

Communication Networks Customs standards, forms and codification.Procedural and operational reforms are also

13. The data communication strategy has two being implemented and would be in placemajor components - Local Area Networking within the before the introduction of the NCS.NO complex, and a nationwide data and voice Moreover, the improved procedures would becommunications system connecting the NO with each RO part of the computerized system.and RDOs. The latter will be based on one or morecommercial carriers, using X.25 services and/or leasing (b) A 'Customse packaged software would bededicated lines. These communwication networks win used to minimize development efforts andinterconnect computers and support file transfers, costs. To this effect, ASYCUDA has beenelectronic mail and data inquiries. Similar systems are found acceptable, but will require the additionbeing used successfully by large local banks and several of some modules to satisfy BOC'slarge local companies. The supplier will define further requirements. These additions will also bethe use and specific technical requirements of these included in the project.networks. A number of commercial carrier services areavailable, but consultants study shows that they are (c) The adoption of a combined decentralizedgenerally not cost effective for BIR. information systems/information technology

approach, together with central databases and14. The establishment of the network will be management information systems.phased with the project implementation schedule. Thenetwork management system will provide comprehensive (d) The computerization of Customsline monitoring, loading, costing, automatic administration in seven locations, indudingreconfiguration and duplicate routing to isolate faults and five ports and two airports.ensure continuity of data transmission, as well as networkresiliency. (e) The adoption of information technology

standards compatible with BIR to enhancedata exchange.

BOC's New Computer System System and Application Software

15. BOC is mandated to facilitate trade andcollect rightful duties and taxes accruing therefrom. The 18. The new Automated Customs OperationsBOC is headed by a Customs Commissioner, assisted by System (ACOS) will be based on the core functionality of4 Deputy Commissioners, 10 Service Chiefs and 13 the Automated System for Customs Data (ASYCUDA)District Coilectors. The Collection Districts are headed software developed and supported by the United Nationsby a District Collector and are responsible for collecting Conference on Trade and Development (UNCTAD). Itduties and taxes, exercising police powers, supervising the operates on an open system client/server architectureentrance and clearance of vessels and passengers, and using Informix and Paradox RDBMS on top of a Unixsupervising and controlling cargoes and freight stations. server and MS-DOS client system, which are connected

via a local area network to each of the Customs areas to16. BOC is currently implementing an 11- be computeized. The ACOS functions will be providedpoint Reform Program based on the recommendations of by a new version (ASYCUDA+ +) to be completedan IMFs Technical Assistance Missions. BOC completed early in 1993. ASYCUDA+ + is a major enhancementin August 1992 an Information System Plan (ISP) with over previous versions, but will require the addition oftechnical assistance financed by the Bank-administered several modules to manage bonded warehouses and dutyJapanese Grant Facility. The ISP defined the New drawbacks.Computer System (NCS) required to improve andmodernize the custom adminstration. 19. In addition to the port systems there will be

also two multiuser computer systems installed at the

- 53 -

Anna 6 - Pge 5

national office (Office of the Comisioner, OCOM). use of the systems, when an Open Acce InformatiThese systems would support softwa development and System is established.major natiol applications, including a ManagmentInformatio System, Custom Valuatom System, and an Other Technical ConsiderationsIntelligence Informadt System, among others.

24. To the extent possibl, standards relating toSystem Overview database management, data socurity and integrity,

communication and networking, etc. wil be common to20. ACOS would provide an integrated BIR and BOC. Procedures for procurement ofcomputerized system for adl data required for processg equipment, services, training and technical asistance willimport nd export declaration This includes modules also be similar for both Bureaus. Data and systemfor manifest ckarance, licensing, risk assessment for architecture charts are attached.imports & exports (resulting in green, yellow and redchannel procsing), revenue management, suspense Project Implementationregimes for bonded warehousing and duty drawbackData entry would be carriet out by Customs, by direct 25. Both BIR and BOC will procure thetrader input and twough electronic data interchange. hardware, system operations, technical support services,ACOS functions would be decentralized at each port (see network equipment and management through a five-yearFigure 4), and all data required will be held at each port. turn-key contract. This is neetded because the Bureaus

limite expertise and capacity to install, commion, and21. There are some associated functions of the operate large computer systems. BIR's software wouldACOS which installed at OCOM. These include a be tailor-made and wold be included in the turn-keycomprehensive intelligence system, to analyze past contract. BOCs software and related training will betransactions and provide suspect condition filters used for provided under a separate contract between UNCrADrisk analysis for imports and exports. It will also maintain and BOC. Under the turn-key contracts, the suppliersand update a valuaion and tariff system, as well as the would be responsible for the init operation of theregistration of importers, exporters, government agences, hardwae an softwar and would gradually turn overetc. Periodicaly, each port will recewive Ove operations to BIR and BOC as staff are trained andtelecommutions or via magnetic media, updated recruited. The supplier's oilie during theinformation from the OCOM on tariffs an valuation contract period include:data, importer lists, etc. to update their local tables.Intelligence parameters suspect conditions data and (a) the appointment of technical, training andalerts may be downladed more frequently. At regular user coordination managers;intervals, daily or weekly, transaction data will betransferred from the port systems to the OCOM (b) the design, development and implementationdatabases. of the tax application software for BIR, and

the conversion of existing tax computer-basedSystem Users and Usage files and the VAT software to operate on the

new equipment;22. The man userfor the system will beappraisers, examiners, data entry clerks, cash office staff (c) provision of technical staff to install test andand gate house staff. Collectors and their commission hardware and software, operatemanagers and superisors at those ports will also be the hardware and telecommunication network,direct users. Head office managers and staff will be and perform data administration functions;indirect uwers of data from the system and would be ableto make direct enquiries (d) assist staff in the effective utilization of the

system;23. The OCOM databases will be parcularlyuseful for the Intelligence, Legal and Valuation Divisions. (e) coordinate telecommunication links andPersons external to the Bureau such as importers and services;exporters, and other government agencies will also make

*-54 -

Annex 6 - Page 6

(f) provide comprehensive technical and user inter-relationships; (h) coding structures; (i) current anddocumentation; future forms, reports, procedures and data flows; ()

processing logic for each major application and (k) other(g) maintain the hardware and software at al technical specifications and related support.

locations in agreement with pre-defined responsetimes, and guaranteeing hardware availability; 30. Two high-level Evaluation Committees wil beand establish by DOF, with participation of DOF, BIR or

BOC respectively, and high level computer experts from(h) provide facilities and database management academia, directors of computer centers for Government

services. agencies or corporations, and the National ComputerCenter. This wil ensure an impartial and knowledgeable

Project Management evaluation of tender proposals.

26. BIR's and BOCs projects wil be managed 2& The evaluation of proposals wil be based onby a Project Director, with an overal coordination one-stage and two-envelopes (technical and price). Theprovided by a High-Level Steering Committee established technical envelope wil be opened first and evaluated.by DOF. Each Project Director wil be assisted by a Responsiveness criteria will be verified, and otherProject Unit, including computer specialists. The Project technical aspects of the proposals would be rated basedUnits wil review project status, approval of payments, on a pre-established point system for each technicalagreement on Change Orders, changes in the project requirement. After Bank agreement on the technicalschedule, acceptance of the systems, approval of policy evaluation, non-responsive proposals wil be rejected, anddecisions, rulings on contractual issues, etc. their relevant price proposals returned un-opened to the

suppliers. The technical scores for the remaining27. The project will also require support from proposals will be combined with the present value of thespecialized consultants during the project price proposal in the ratio of 50% and 50%, respectively.implementation. The consultants wiDl assist the Project Given the gradual reduction in the cost of computerDirectors in monitoring the supplier's efforts, overseeing system, the proposals would be for a fixed cost, withoutsystem implementation, formally accepting the goods and inflationary adjustments, other than for training. Theservices provided, recommending the approval of combination of technical performance and costs willdeliverables, resolving technical disputes, and expediting ensure a cost effective system solution.overall project implementation. Terms of Reference areincluded in Annex 14.

Project Phasing

28. The project will be implemented in phasesdefined in the Information for Bid. A substantial numberof staff would be trained at al phases (Annex 9), withthe first phase focusing on the training of trainers.

Procurement

29. The tender documents have been preparedin accordance with World Bank guidelines forprocurement through international competitive bidding(ICB). A General Procurement Notice was published inDevelopment Business in August 1992. The tenderdocuments wil contain specifications for (a) hardwaresystems; (b) operating software; (c) telecommunicationsand networking; (d) training (e) technical support; (f)project implementation; (g) database dictionaries andstructures, data entity modelling, data charateristics and

- 55 -

Annex 6 - Figure 1 B[RMs New Computer System

-- {aMuals LAnk

ADO RDO ||ADO ||RDO NTOA -I 2e 3 L NJ

RDOCt S RDO I

AL AT UTOIZEUS

1TTII e X

, bUrCNAL~~~~~~~~~~~~~YSE

ALNUTOIZDUSR

-{)0-0 -0 0-O--0-0--}3-- -0-0-0- -0-0-0- 0-0-0- 1 MACHINE SPECIFIC

PROCESSOR PROCESSOR PROCESSOR PROCESSOR PROCESSOR PROCESSOR TERMINALS

EXISTING INTERNAL INTEGRATED DMYSYSTEMVATIS SYSTEMS TAX DMO TRAINING DEVELOP-SYSTEM (PACKAGES) ySTEM RMI MENT

| HIGH SPEED LOCAL AREA N ETWORK NATIONAL O

I /1\ _ | /NETWRK Xrv1>OFFICE 8AND a

SHARDDVISX;'5 NON- X25 R I S SI O-<-SHARED DEVICES -~FRONTEND

INTERFACE PROESOR O LOCAL AREA 0

NETWORK 0

ALL NO/ RISSITERMINALS ANDPRINTERS

POINT TO POINTREMOT-E RDOs S ROs CONNECTED RDOs a RO*

ACCESS CONTROL PROCESS

* Pusad Alo(tabn* Wortasan by Opefa Matrix

Loceion by Futwaatn WaixSystem Aca a Ashorizaion

_i %uaiterfile Widldding Tax Excse Tux Assumcuta and Audit Correspondenc_ Plcag and Cooa._i Legal Idnmaion External IntetfacesMainteance Recocliadon Rcecneisiation Process Proeu Process Proces*

* AIm.t bicha of * R__wWAwaMag Receive Ecise Tax Asaseemes * Automatic Mainas Planning Create and Mainain Recaw and File DauTMso RDOs ^vi- U_ Data fram RDO AJl Aaae Correspondenmc Stand a Systema (r: from:* Receive f,qm RDO D f to * AtVeSt and ICa Gcttiauio * DetermineDexls All~ttnRad M Produc Na.tonal* Manual C etoriaul Trends Lgislataiv. Laws GSIS

DceJ ream eat, xcseTa amAl Aa Aftasinag Conweqapoden Prodisee BisllsaIndexes sss*Reccivct lom RDO amO Iniinte Audi ad e Shic Geaentioa P oiceiesu Bgt Rliags/Cawt POEAChangesi TIN * Ahi_ g A emma * Receive and Pr Aaalyne Deciaa Indexcs SECDgtaila Tax Dobb. * procexsa Pri gCorrespondence Operational DIR Issuance, LTO 0Update ational T D * Archive Excia Tax sTa -d * Reod Received Peforn"ce Tax Eemptions/ LOC -etc.TIN Database . _____ Databu c la1-iya htabag Ccreupondeac* Prnvide a ZoAl Incconves by* Pge Deid_located A.in t Reazr Exna Tax qass* Recod aU ValuktiCo SySe n Industy Secu Give data on o NsTINS Ar. _a w 1Aanag Dat ae Conespoadene Interface to * Tax Cu aDmketu Bweau of Cusaans via* Tram a TIN Tax D _abia Entiatea to Taxpayer Extcraml Daabasca Monitoring Tcintinal LankNa inlly . Database (All held cenrally) BIR prosecutions*Iqtim on oD TIN Ta OVA.

A* i w4bv Rtcordng Dais 'i.-aicSystemW* Archive TIN Correspondence ProiingDatabase Re e * Taxpayer (All held centrally) ICaorespondence Industry

Natioal MIS Proca Bank Reconciliation Procea xL( gan tram leaive Tax Cahlics DV. Rece ivMIS Chaes Recesve Doat rano NO ! Mainai Authoized Bank istslOs EDO,~ban fronthe RON and R0 fow Transmisaion Recard Daily Paytnentu Ex NPCS

_L_Ai_ PS Rqi *- from vi t b W I inncelCo-adnate Transieion Reoded Taxpay Paymc e AtMmix Niv TAupew larface wit MI ainteam BackI)o Recondedl BaxkpaynernPayAgantst -

Plal ningContred Deciaice Support Databs*s

Na<tic 1 lodividual L dge sWitholding Cellecdoen Static Suppon | Eg| Tax Govermcnt Business and |Inpotla nd SUtDtsaexa|TDIN, DUe; |"vidua T x | T x | |Wdtas Ag | dents |StDations Table. A a b Ce A Exempiona Contractora Corporaions Exports DatabaTtiq yer Pt Cc Excin Databam Database Dautbase laISanOr Database Database D&Aabau Dsaba

Unified Reporngt Procemx Unified Ingairy Procea | Syatm Audit Procetss|DelinqueTaxpaT|yet Cre en of all Standad * Comaon Scrceen nteaca | * Maintenance of System

Databse I DStandurdI nquiry Menus journdalTern-at Tranainat St*eiaao of Ad-hoc Reportu | Ad-bac inquiries vis SQL | . Dlle Aceea Trkin|gfTnnro | T ito Ptin S aL |h R | I uiry Selection System * P forrn ace Measuring | fromfAnOn Relp{° | | * hiorgof*td Ad4hneReperu | | * Injuiry Uage | | Operaitr by Funetc fRDOa UX1N / V I / | * Rep S d Systemstering | Analysia

*Report U"age Moiuing i _I_

- 58 -Annex 6 - Figure 3 (Continue) BIR's system Architecture by Prcess

9: ~~~~~~~~~~~~~~

l X I I I 9 I

.'A 'A8 L;' 1- X

[~ ~ I ' 1 11,X S

S /

it 0 i R....... ...

ag u~ ~ ~ ~~~~~

a3 Qlb a

IPOM Mgmt POMInfo Transaction

terminals processingaMICP Computer terminalsCenter

POMLAN

| | ~~~~~~~~~~~~~~~~~~~OCOM Computer IMICP~~~~~~~~~~~~~~~~~~~~~~~~~I

Mgmt Info Transaction--' O Centerterminals pro(including POM OCOM -

i L termina s X-25 |' :>j ACOS Server) LANWAN E

.NAIA Computer < Cb Center - / | LAN CebuCebu

LAN\ FTI\Batanga LA Terminalsconnection Computer | Computer I ~ ~ Cmpute

[ Mgmt Info Tra nsaction | Transaction i Center remot Ce n Terminalsterminals I processing processing coecta (Mactan)t _ g ~~~~terminal Iterminals L(BOC building) |(PAIR CargoTemnls Terminals

- 60 -

Annex 7 - Page 1

Philippines


Table 1 - Total Project Cost

--- Million Pesos --- X Of --- Million US --- Physica X ----- Million US -----WKRXS *Bse Contin- Foroign

Local Foreign Total Cost Local Foreign Total gencias 1993 1994 1995 1996 1997------------------------------------------------------------------- __--------__----------------------------------------------------

BUREAU OF CUSTOMS 256.2 455.8 712.0 33.3Z 9.85 17.53 27.39 5.0X 64.01 3.95 9.10 7.06 3.93 2.13------------------------------------------------------------------- __--------__---------------------

a) Hardwara System 52.4 267.1 319.5 14.9Z 2.01 10.27 12.29 5.01 63.61 1.65 3.40 2.97 2.2S 1.161. Computer Bardware 0.0 99.6 99.6 4.7Z 0.00 3.83 3.83 5.01 100.01 0.57 1.15 1.15 0.38 0.002. Database software 0.0 22.1 22.1 1.0X 0.00 0.85 0.65 5.01 100.01 0.13 0.72 0.00 0.00 0.003. Berdwaro Maintemance 0.0 34.3 34.3 1.61 0.00 1.32 1.32 5.01 100.0X 0.00 0.13 0.20 0.33 0.404. Facilitie Management 0.0 62.7 62.7 2.9X 0.00 2.41 2.41 5.01 100.0X 0.36 0.72 0.60 0.48 0.245. Comunications 0.0 2.6 2.6 0.11 0.00 0.10 0.10 5.01 100.02 0.02 0.04 0.05 0.00 0.006. Uprade Taxpayer Asais.Uni 5.0 7.3 12.3 0.62 0.19 0.28 0.47 5.01 59.3Z 0.07 0.14 0.14 0.09 0.027. Computer Sorvico Contract 47.4 0.0 47.4 2.21 1.82 0.00 1.82 5.0X 0.01 0.27 0.27 0.46 0.55 0.279. Computer & System Training 0.0 38.5 38.5 1.81 0.00 1.48 1.48 5.0X 100.02 0.22 0.22 0.37 0.44 0.22

b) ASYCUDA Software Syatem 0.0 49.6 49.6 2.32 0.00 1.91 1.91 6.86 100.01 0.37 0.61 0.68 0.24 0.011. Implementation 0.0 28.2 28.2 1.31 0.00 1.09 1.09 5.01 100.01 0.22 0.33 0.33 0.22 0.002. Additional features/improv 0.0 17.6 17.6 0.81 0.00 0.68 0.68 10.01 100.01 0.14 0.24 0.30 0.00 0.003. Training-Software A system 0.0 3.8 3.8 0.21 0.00 0.15 0.15 5.01 100.01 0.01 0.04 0.05 0.02 0.01

e) Other Project Coat 76.3 75.2 151.5 7.11 2.94 2.89 5.83 8.71 49.62 1.02 2.89 0.91 0.38 0.461. Auxiliary Equipment 0.3 44.0 44.3 2.1X 0.01 1.69 1.70 10.01 99.21 0.17 0.85 0.68 0.00 0.002. Site Preparation 36.0 31.2 67.2 3.1Z 1.38 1.20 2.58 10.01 46.41 0.78 1.81 0.00 0.00 0.003. Incremental Computer Staff 40.0 0.0 40.0 1.91 1.54 0.00 1.54 5.01 0.02 0.08 0.23 0.23 0.38 0.46

d) Technical Assiet. * Admin. 3.0 64.0 67.0 3.11 0.12 2.46 2.58 5.02 95.52 0.23 0.59 1.19 0.38 0.181. TA for Project Iplement. 0.0 32.8 32.8 1.52 0.00 1.26 1.26 5.02 100.01 0.20 0.32 0.32 0.32 0.112. Project Adminiatration 3.0 5.2 8.2 0.4Z 0.12 0.20 0.32 5.02 63.41 0.03 0.08 0.08 0.06 0.063. Institutional Studies 0.0 26.0 26.0 1.2Z 0.00 1.00 1.00 5.02 100.01 0.00 0.20 0.80 0.00 0.00

a) Taxes And Duties 21 124.5 0.0 124.5 5.81 4.79 0.00 4.79 O.O 0.02 0.68 1.61 1.31 0.65 0.32

BUREAU INTERNAL RIVEIUE 466.9 961.8 1428.6 66.71 17.96 36.99 54.95 4.2Z 67.32 6.62 14.44 13.98 10.97 7.17

a) Hardware A Software 68.7 846.5 915.2 42.86 2.64 32.56 35.20 5.01 92.52 4.58 9.40 8.73 7.34 4.331. Computer Hardware 0.0 338.0 338.0 15.81 0.00 13.00 13.00 5.02 100.02 1.95 3.90 3.90 1.95 1.302. Tax Software 0.0 243.9 243.9 11.41 0.00 9.38 9.36 5.01 100.02 1.41 2.81 2.81 2.35 0.003. Database A CAJS software 0.0 38.7 38.7 1.62 0.00 1.49 1.49 5.02 100.02 0.22 1.27 0.00 0.00 0.004. Hardware Maintmmenes 0.0 106.6 106.6 5.02 0.00 4.10 4.10 5.02 100.02 0.00 0.41 0.61 1.23 1.235. Facilities Menagement 0.0 43.2 43.2 2.02 0.00 1.66 1.66 5.02 100.02 0.25 0.33 0.42 0.42 0.256. Cmictions 0.0 14.0 14.0 0.72 0.00 0.54 0.54 5.02 100.02 0.00 0.05 0.11 0.14 0.167. Upgrade Texpayer Aseli.Uni 0.6 0.0 0.8 0.02 0.03 0.00 0.03 5.02 0.02 0.00 0.00 0.01 0.01 0.01S. Computer Servico Contract 67.9 0.0 67.9 3.21 2.61 0.00 2.61 5.02 O.O 0.39 0.26 0.39 0.76 0.789. C04uter * System Training 0.0 62.1 62.1 2.92 0.00 2.39 2.39 5.02 100.O 0.36 0.36 0.46 0.46 0.60

b) Other Project Cost 136.0 51.3 167.3 8.72 5.23 1.97 7.20 5.92 27.42 0.67 1.67 1.50 1.29 1.361. Auxiliary Equipmet 0.0 34.9 34.9 1.62 0.00 1.34 1.34 5.02 100.02 0.00 0.40 0.81 0.13 0.002. Site Preparation 16.0 16.4 32.4 1.51 0.62 0.63 1.25 10.O 50.62 0.44 0.61 0.00 0.00 0.003. Incremental Computer Staff 120.0 0.0 120.0 5.61 4.62 0.00 4.62 5.02 O.O 0.23 0.46 0.69 1.15 1.36

c) Technical Assist. * Admin. 5.0 64.0 69.0 3.21 0.19 2.46 2.65 5.02 92.72 0.17 0.64 1.11 0.41 0.321. TA for Project Managemnt 0.0 36.0 38.0 1.86 0.00 1.46 1.46 5.02 100.O 0.15 0.29 0.37 0.37 0.292. DII Project Adwinistration 5.0 0.0 5.0 0.21 0.19 0.00 0.19 5.02 0.02 0.02 0.05 0.05 0.05 0.033. Institutional Studies 0.0 26.0 26.0 1.21 0.00 1.00 1.00 5.02 100.02 0.00 0.30 0.70 0.00 0.00

d) Taxes And Duties 21 257.2 0.0 257.2 12.02 9.89 0.00 9.69 0.02 O.O 1.21 2.73 2.64 1.92 1.13------------------------------------------------------------------- __--------__----------------------------------------------------

Total Bs"o Cost 31 723.1 1417.6 2140.7 100.O 27.81 54.52 82.33 66.22 10.57 23.54 21.04 14.90 9.30Physical Continganeieo 19.7 76.3 96.0 4.52 0.76 2.94 3.69 4.51 79.52 0.51 1.15 0.90 0.62 0.39Price Contingencies 150.2 405.5 555.7 26.02 0.80 5.54 6.34 87.3Z 0.06 0.66 1.70 1.72 1.40------------------------------------------------------------------- __--------__----------------------------------------------------

Total Cost 11 892.9 1699.5 2792.4 130.42 29.37 63.00 92.37 66.22 11.14 25.55 23.64 17.24 11.09

11 Due to rounding, it may appear that totals do not add.2] Includes VAT and custom taes equivalent to US$15 million.3] The basic costs is in 1/1993 prices

- 61 -

Annex 7 - Page 2

Philippines


TABLE 2 - Total Project Cost With Contingencies in Each Category (Mflion US$) ii

--- illIion Pesos --- Z Of --- M4illion US$ --- I -- Million US$---wORK Total Foreign

Local Foreign Total Cost Local Foreign Total 1993 1994 1995 1996 1997 1998

BUREAU OF CUSTCGU 312.05 609.7 921.7 33.01 10.36 20.29 30.65 66.21 4.18 9.92 7.96 4.54 2.54 1.52

a) Hardware System 65.8 360.5 426.3 15.31 2.17 11.90 14.07 84.6% 1.75 3.75 3.38 2.68 1.42 1.091. Computer Hardware 0.0 133.7 133.7 4.65 0.00 4.42 4.42 100.05 0.61 1.28 1.33 0.46 0.00 0.742. Database software 0.0 27.4 27.4 1.01 0.00 0.94 0.94 100.05 0.14 0.80 0.00 0.00 0.00 0.003. Hardware Maintenance 0.0 50.6 50.8 1.81 0.00 1.61 1.61 100.01 0.00 0.15 0.23 0.40 0.49 0.344. Facilities Management 0.0 83.2 83.2 3.01 0.00 2.77 2.77 100.0Z 0.39 0.80 0.70 0.58 0.30 0.005. Commuicationa 0.0 3.3 3.3 0.15 0.00 0.11 0.11 100.05 0.02 0.04 0.06 0.00 0.00 0.006. Upgrade Taxpayer Assis.Uni 6.1 9.6 15.7 0.65 0.20 0.32 0.52 61.05 0.07 0.15 0.16 0.11 0.03 0.007. Computer Service Contract 59.7 0.0 59.7 2.11 1.97 0.00 1.97 0.05 0.28 0.28 0.49 0.61 0.31 0.009. Computer & System Training 0.0 52.4 52.4 1.91 0.00 1.72 1.72 100.05 0.24 0.25 0.43 0.53 0.28 0.00

b) ASYCUIDA Software System 0.0 65.0 65.0 2.31 0.00 2.19 2.19 100.05 0.40 0.69 0.80 0.29 0.02 0.001. Iupleanntation 0.0 36.6 36.6 1.31 0.00 1.23 1.23 100.05 0.23 0.36 0.38 0.26 0.00 0.002. Additional featurea/iaprav 0.0 23.4 23.4 0.85 0.00 0.80 0.80 100.05 0.15 0.28 0.37 0.00 0.00 0.003. Training-Software & system 0.0 5.0 5.0 0.2Z 0.00 0.17 0.17 100.05 0.02 0.05 0.06 0.03 0.02 0.00

a) Other Project Cost 96.5 98.9 195.4 7.05 3.21 3.38 6.58 51.35 1.12 3.25 1.07 0.43 0.53 0.181. Auxiliary Equipuent 0.4 59.0 59.4 2.15 0.01 1.99 2.01 99.3Z 0.19 0.99 0.82 0.00 0.00 0.002. Site Preparation 43.0 39.9 82.9 3.0Z 1.49 1.38 2.87 48.15 0.85 2.02 0.00 0.00 0.00 0.003. Incremental Computer Staff 53.1 0.0 53.1 1.9Z 1.70 0.00 1.70 0.05 0.08 0.24 0.25 0.43 0.53 0.18

d) Technical Assist, A Admin. 3.8 85.3 89.0 3.25 0.12 2.83 2.95 95.85 0.25 0.66 1.38 0.45 0.2.2 0.001. TA for Project Implement. 0.0 43.6 43.6 1.65 0.00 1.45 1.45 100.05 0.22 0.35 0.36 0.38 0.14 0.002. Project Administration 3.8 7.1 10.9 0.45 0.12 0.23 0.36 65.25 0.03 0.09 0.09 0.07 0.08 0.003. Institutional Studies 0.0 34.6 1.25 0.00 1.15 1.15 100.05 0.00 0.22 0.92 0.00 0.00 0.00

a) Taxes And Duties 21 145.9 0.0 145.9 5.25 4.86 0.00 4.86 0.05 0.66 1.57 1.33 0.69 0.35 0.25

BUREAU INTKERAL REVENUE 580.9 1289.6 1870.7 67.05 19.01 42.71 61.72 2.14 6.96 15.63 15.68 12.70 8.56 2.18

a) Hardware & Software 88.7 1136.2 1224.9 43.91 2.89 37.60 40.49 92.91 4.89 10.43 10.05 8.74 5.32 1.061. Computer Hardware 0.0 446.8 446.8 16.05 0.00 14.89 14.89 100.01 2.09 4.34 4.51 2.34 1.62 0.002. Tax Software 0.0 319.9 319.9 11.51 0.00 10.70 10.70 100.05 1.51 3.13 3.25 2.81 0.00 0.003. Database & CASE software 0.0 48.0 48.0 1.75 0.00 1.65 1.65 100.05 0.24 1.41 0.00 0.00 0.00 0.004. Hardware Maintenance 0.0 156.7 156.7 5.65 0.00 4.97 4.97 100.01 0.00 0.46 0.71 1.48 1.53 0.80S. Facilities Management 0.0 58.3 58.3 2.15 0.00 1.92 1.92 100.05 0.27 0.37 0.48 0.50 0.31 0.006. Communications 0.0 20.6 20.6 0.75 0.00 0.65 0.65 100.05 0.00 0.06 0.12 0.16 0.20 0.107. Upgrade Taxpayer Assis.Uni 1.0 0.0 1.0 0.05 0.03 0.00 0.03 0.05 0.00 0.00 0.01 0.01 0.01 0.00S. Computer Service Contract 87.7 0.0 87.7 3.15 2.66 0.00 2.66 0.01 0.40 0.27 0.42 0.87 0.90 0.009. Computer A System Training 0.0 86.0 66.0 3.15 0.00 2.81 2.81 100.05 0.38 0.40 0.55 0.57 0.74 0.15

b) Other Project Cost 180.5 67.2 247.7 8.95 5.81 2.26 8.08 28.01 0.72 1.83 1.67 1.44 1.59 0.831. Auxiliary Equipment 0.0 46.4 46.4 1.71 0.00 1.54 1.54 100.01 0.00 0.45 0.93 0.16 0.00 0.002. Site Preparation 19.0 20.8 39.9 1.45 0.66 0.72 1.39 52.25 0.48 0.91 0.00 0.00 0.00 0.003. Incremental Computer Staff 161.4 0.0 161.4 5.85 5.15 0.00 5.15 0.05 0.24 0.47 0.74 1.28 1.59 0.83

c) Technical Assist. & Admin. 6.3 86.3 92.6 3.35 0.21 2.85 3.05 93.25 0.18 0.71 1.28 0.49 0.40 0.001. TA for Project Implement. 0.0 52.0 52.0 1.95 0.00 1.70 1.70 100.01 0.16 0.32 0.42 0.44 0.36 0.002. DIR Project Adwinistration 6.3 0.0 6.3 0.25 0.21 0.00 0.21 0.05 0.02 0.05 0.05 0.05 0.03 0.003. Institutional Studies 0.0 34.3 34.3 1.2Z 0.00 1.14 1.14 100.01 0.00 0.33 0.81 0.00 0.00 0.00

d) Taxes And Duties 21 305.4 0.0 305.4 10.9Z 10.10 0.00 10.10 0.01 1.18 2.67 2.68 2.03 1.24 0.30

Total Cost 31 892.9 1899.5 2792.4 100.0Z 29.37 63.00 92.37 68.2Z 11.14 25.55 23.64 17.24 11.09 3.70

- 62 -

Annex 7 - Page 3

Philippines


Table 3 - Project Cost and Contingencies by Categories

--- million US$ -- X Hillion PesoswoAYS BaCo Phys. Price Total Foroign 1993 1994 1995 1996 1997 1998

Coat Cont. Cont. Cost____________________________________________________________________________________________________________

BUREAU OF CUSTOMS 27.39 1.38 1.89 30.65 66.2Z 115.0 291.8 241.3 141.6 81.5 50.4------------------------------------------------------------------- __--------

a) Hardware System 12.29 0.61 1.17 14.07 84.62 48.1 110.4 102.5 83.8 45.5 36.01. Computer Hardwaro 3.83 0.19 0.40 4.42 100.0S 16.9 37.6 40.2 14.3 0.0 24.62. Databaso softwaro 0.85 0.04 0.05 0.94 100.01 3.8 23.6 0.0 0.0 0.0 0.03. Hardwaro Maintenanco 1.32 0.07 0.22 1.61 100.01 0.0 4.3 6.9 12.4 15.9 11.34. Facilitioe Management 2.41 0.12 0.24 2.77 100.02 10.7 23.7 21.1 18.1 9.7 0.05. Commications 0.10 0.01 0.01 0.11 100.01 0.4 1.1 1.8 0.0 0.0 0.06. Upgrado Taxpayer Assis.Uni 0.47 0.02 0.03 0.52 61.01 2.0 4.5 4.8 3.4 0.9 0.07. Computer Service Contract 1.82 0.09 0.05 1.97 0.02 7.7 8.3 14.7 18.9 10.1 0.09. Computer & System Training 1.48 0.07 0.17 1.72 100.01 6.5 7.3 13.0 16.7 8.9 0.0

b) ASYCUDA Software System 1.91 0.13 0.16 2.19 100.01 11.0 20.2 24.3 8.9 0.6 0.01. Implementation 1.09 0.05 0.09 1.23 100.0X 6.4 10.7 11.4 8.1 0.0 0.02. Additional features/improv 0.68 0.07 0.05 0.80 100.01 4.2 8.1 11.2 0.0 0.0 0.03. Training-Software & system 0.15 0.01 0.01 0.17 100.02 0.4 1.4 1.8 0.8 0.6 0.0

c) Otber Project Cost 5.83 0.51 0.25 6.58 51.31 30.8 95.6 32.5 13.3 17.1 6.11. Auxiliary Equipment 1.70 0.17 0.13 2.01 99.31 5.3 29.2 25.0 0.0 0.0 0.02. Site Preparation 2.58 0.26 0.03 2.87 48.11 23.4 59.5 0.0 0.0 0.0 0.03. Incremental Computer Staff 1.54 0.08 0.09 1.70 0.01 2.2 7.0 7.5 13.3 17.1 6.1

d) Technical Assist. & Admin. 2.58 0.13 0.25 2.95 95.81 6.8 19.4 41.7 14.1 7.0 0.01. TA for Project Implement. 1.26 0.06 0.13 1.45 100.01 5.9 10.3 11.0 11.8 4.5 0.02. Project Administration 0.32 0.02 0.03 0.36 65.21 0.9 2.5 2.7 2.3 2.5 0.03. Institutional Studies 1.00 0.05 0.10 1.15 100.01 0.0 6.5 28.0 0.0 0.0 0.0

*) Taxes And Duties 21 4.79 0.00 0.07 4.86 O.O 18.3 46.2 40.2 21.5 11.3 8.4

BUREAU INTERNAL REVENUE 54.95 2.32 4.45 61.72 2.14 191.47 460.15 475.34 396.49 275.06 72.18---------------------------------------------------------------- __-----------

a) Hardware & Softwaro 35.20 1.76 3.53 40.49 92.9Z 134.5 307.0 304.6 272.9 171.1 35.01. Computer Hardware 13.00 0.65 1.24 14.89 100.01 57.4 127.6 136.6 73.1 52.1 0.02. Tax Software 9.38 0.47 0.85 10.70 100.01 41.4 92.1 98.5 87.9 0.0 0.03. Database & CASE software 1.49 0.07 0.08 1.65 100.01 6.6 41.4 0.0 0.0 0.0 0.04. Hardware Maintenance 4.10 0.21 0.67 4.97 100.01 0.0 13.4 21.5 46.1 49.3 26.45. Facilitios Managoemnt 1.66 0.08 0.18 1.92 100.01 7.3 10.9 14.5 15.5 10.0 0.06. Commimications 0.54 0.03 0.09 0.65 100.01 0.0 1.8 3.8 5.1 6.5 3.57. Upgrado Taxpayer Assis.Uni 0.03 0.00 0.00 0.03 0.01 0.1 0.1 0.2 0.3 0.2 0.08. Computor Servico Contract 2.61 0.13 0.12 2.86 0.01 11.1 7.9 12.7 27.1 29.0 0.09. Computer & System Training 2.39 0.12 0.30 2.81 100.01 10.5 11.7 16.7 17.9 23.9 5.1

b) Other Project Cost 7.20 0.42 0.45 8.08 28.0S 19.7 53.8 50.6 44.9 51.3 27.41. Auxiliary Equipmnt 1.34 0.07 0.13 1.54 100.01 0.0 13.2 28.2 5.0 0.0 0.02. Site Proparation 1.25 0.12 0.02 1.39 52.21 13.2 26.7 0.0 0.0 0.0 0.03. Incremental Computor Staff 4.62 0.23 0.30 5.15 0.01 6.5 13.9 22.4 39.9 51.3 27.4

a) Technical Assist. & Admin. 2.65 0.13 0.27 3.05 93.21 4.8 20.8 38.8 15.3 12.8 0.01. TA for Project Implement. 1.46 0.07 0.17 1.70 100.01 4.3 9.6 12.8 13.7 11.7 0.02. BIR Project Administration 0.19 0.01 0.00 0.21 O.O 0.5 1.5 1.6 1.7 1.1 0.03. Institutional Studies 1.00 0.05 0.09 1.14 100.01 0.0 9.8 24.5 0.0 0.0 0.0

d) Taxes And Duties 9.89 0.00 0.21 10.10 0.01 32.5 78.5 81.3 63.3 40.0 9.8Total----Cost---82.33----0.00---10.04----92.37---68.21----306.5----752.0---716.6----538.1----356.6---122.---

Total Cost 82.33 0.00 10.04 92.37 68.2S 306.5 752.0 716.6 538.1 356.6 122.6


Philippines


Non-Computer Equipment and Services

1. Complementary equipment supporting efficient tax collection and strengthening taxadministration is also included in the proposed project. This equipment is particularly critical toprovide adequate communication between tax collection offices, and to inform and train the staffand the taxpayers. The equipment would be particularly critical for the successful implementationof the substantial changes in regulations, procedures, forms, organizational systems and workingrequirements for the tax administration staff.

Bureau of Internal Revenue

2. The key equipment that has been prioritized for BIR is shown in Table 1 and isexplained below.

3. Information and Training EquipmenL The changes in systems, policies andprocedures require the conduct of seminars and conferences to inform, educate Dromptlv. (a) theBureau's personnel; (b) the taxpaying public, and (c) other entities directly and indirectlyaffected by the changes.

4. To provide adequate and effective training and ensure understanding of the newsystems and procedures, BIR would use the following equipment: (i) an audio visual van withVHS camera, video projector and video screens; (ii) overhead projectors and sound systems; (iii)the expertise of production consultants will be needed to prepare and coordinate tax educationcampaigns and materials, including videos and training films; (iv) posters and streamers. BIRaudio visual equipment includes only 20 overhead projectors and 102 microphones, which areinsufficient for the disperse and large number of activities and changes required simultaneously.

4. Tax education and campaigns would be enhanced by establishing Video EducationCounters in the National Office (NO) and Regional Office/s. Videos on new taxprocedures/systems would be shown to educate staff and taxpayers.

5. Printing Requirements. BIR requires huge volumes of printing materials, not only toprovide the required forms to million of taxpayers, but to document all tax measures for morethan five thousand employees directly involved in tax assessment and collection. Updated andrevised information has to be distributed quickly to the staff and the taxpayers. This includes 77different tax returns and a total of 412 forms (many of these forms would have to be replaced orrevised once the computerization system is in place). Other documents requiring printing anddissemination are the new tax laws and their implementing regulations, new procedures,circulares, orders, organizational changes, BIR rulings, Tax Court and Supreme Court decisionsand other news items in the Bureau through Revenue Memorandum Order Administrative Orders,Revenue Rulings, Revenue Travel Administrative Order, Revenue Special Order, Revenue AuditMemorandum Order, Revenue Memorandum Circular, and the Unnumbered Memorandum.

- 64 -

Annex 8 - Page 2

6. Communication EquipmenL Modem office communication equipment is needed forBIR effectiveness and to transmit data, reports and memoranda between its offices and otheragencies. The proposed facsimile machines would be distributed to selected class A-1 and ARevenue District Offices.

7. Transportation. Taxpayers can now file their returns and pay their taxes at anybank branch of their choice (induding some 80 different branches). These returns with thebank reports have to be collected daily by the RDOs. BIR does not have adequate vehicles forthis purpose. As shown below, the total number of vehicles in use is 139, which is one perhundred employees. Moreover, 77% of the utility vehicles and 60% of the cars are more than10 years old, suffering substantial problems with maintenance, reliability and high fuel costs.Ten of the proposed 30 utility vehicles are to be allocated to the NO and the other 20 to theRDOs. These vehicles would also be used by the roving teams who are monitoring theimplementation of the new tax systems. In the ROs and RDOs these vehicles shall be used inthe daily collection of all bank reports and provide technical support to the RDOs.

BIR's Number of Vehicles

Year Acquired Utility Vehicles Cars Total Total(Jeeps, trucks, (Mainly Laser and Older

station wagons, pick- Toyota Corona)ups) _ _ _ _ _ _ _ _ _ _

1961-1970 6 6 3%

1971-1975 4 6 10 7%

1976-1980 6 31 37 32%

1981-1985 65 88 153 90%

1986-1990 23 0 23 100%

Total 104 125 229

Percentage 45% 55%

8. Other Equipment and Materials. These include air conditioning units to beinstalled in the offices of selected RDOs to be computerized, computer research materials andvideos and software training materials which would provide a core technical library for thereconstituted CISS, allowing self-training and improvement for the computer staff, electronicdiagnosis and maintenance equipment, and repair tools to serve as technical aids in themaintenance of the computer hardware.

Bureau of Customs

9. The BOC component of the Tax Computerization Project supports a strengthenedinternal administrative capability for the Bureau. This requires more efficient systems andprocedures reducing paperwork and boosting employee productivity.

- 65 -

Annex 8 - Page 3

10. A parallel effort to this computerization is the Bureau's new emphasis on tradefacilitation. This is a positively oriented strategy to promote trade and exports, in directcontrast with the previous regulatory approach which primarily stressed revenue generation andcollection enforcement. This trade facilitation not only will increase international trade andexports, which are critical for the economic development of the country, but would then resultin an increase in the taxes resulting from increased revenues and employment, and highercorporate profits.

11. Building Facilities. Existing BOC buildings are totally inappropriate for proper taxadministration even to provide minimum facilities to the taxpayers. There is an urgent need tomodernize BOC's offices, which are presently in varying stages of decay, obsolescence ordisrepair. This indudes antiquated office facilities never intended for tax administrationpurposes, dilapidated furniture and partitions, unpainted buildings, leaking roofs, no storagecabinet for large volumes of paperwork and dysfunctional office layouts.

12. A minimum rehabilitation of BOC's physical facilities will translate into betterworking conditions, improved security, increased staff morale, a better public image andenhanced service to the taxpayers. The rehabilitation will also provide the required space, andthe electrical and telecommunication wiring requirements needed for the computerization.

13. Power Generation Backup. The prolonged brownouts in Metro Manila requirepower generating back-up for BOC. Otherwise BOC functions are paralyzed, resulting insubstantial delays for the examination of merchandises, the processing of manifests, thecollection of revenues and adding security risks for imported equipment. Currently, BOC hasonly one small generator serving the requirements of only a few offices at the Office of theCommissioner.

14. Air Conditioning. Most of the air conditioning units of BOC are old, dilapidatedand inefficient and should have been replaced long time ago. In the very hot and humidconditions of the Philippines, air conditioning equipment is crucial for the proper functioning ofcomputer equipment. The choice air conditioning equipment depends on the physicalcharacteristics of each office.

15. Maintenance Equipment and Tools. There is also a critical need to provide BOCwith a strong internal capability to maintain equipment and physical facilities (includingcomputer equipment). Useful equipment is set aside or discarded for lack of maintenance andrepair capabilities.

16. Communications The BOC has a crucial need for equipment improvingcommunications within the organization, as well as with the public. A key area here is in itstelephone facilities, where modem PABXs are planned to be installed at each of the MetroManila offices, and linked together into a private BOC-wide telephone network. This networkwill also be used for data and fax transmission purposes. Facsimile machines are also requiredfor the prompt transmittal of document requiring immediate action. This also reducesmessenger problems, given continuous traffic jams in all areas of Metro Manila, butparticularly near the port.

17. Detection, Testing and Monitoring Equipment There is an urgent need to improvesecurity of stored goods and to install equipment that would be a deterrent to smuggling,collusion and other unlawful acts. This would be achieved by installing surveillance cameras,infrared equipment and one-way mirrors to supervise security aspect concerning the inspection,

- 66 -

Annex 8 - Page 4

movement and storage of goods. These facilities would also serve for intelligence gathering,where concrete evidence is necessary for prosecution.

18. Laboratoy Equipment Most of the inspection of materials and goods is based onvisual inspection. However, basic laboratory equipment is needed to evaluate and identify manysubstances and products and properly assess their duties/taxes. Given BOC's inadequatefacilities and the high cost of external laboratories, no testing is usually carried out. Thelaboratory equipment will provide BOC with the basic capability to perform independentanalysis of materials for duties and customs control purposes.

19. Weighing Scales. The assessed value of most imported items depends on theirweight. This requires weighing scales to identify fraudulent declarations and hidden orundeclared items. High capacity scales (2.5 tons) are needed for weighing large or bulkyshipments. Precision scales (200 grams) are necessary for weighing of jewelry, gems, stones,or other small articles. BOC owns only one large scale at the NALAL

20. Money counters are also very important in ensuring quick and accurate countingof currencies and coins held by BOC cashiers and tellers. These are needed at the Metro Manilaports and in the Office of the Commissioner.

21. Document Control Equipment One key control measure in the processing ofimport declarations is the perforation of the set of importation documents with a uniquecontrol number, safeguarding against the introduction of spurious documents. However,because of the limited number of perforating machines available, this step is a major bottleneck.Additional equipment is needed to provide alternate or parallel processing paths. Similarly,there is also a need to provide additional stamp and metering machines (required for mostdocuments) and validating machines to alleviate the document buildup at the processingstations requiring their use.

22. Office Equipment Basic office equipment is needed for BOC staff, includingcalculators, photocopying machines and typewriters. BOC staff often has to use their personalcalculators for official purposes, and critical photocopies cannot be produced within manybuildings. This requires complex and bureaucratic processes for petty cash requests,reimbursements and replenishment to pay for external photocopies. Office typewriters arescarce, old and rundown, requiring major repair or outright replacement.

23. Microfilming Equipment The BOC is virtually a paper factory, with thousands ofdeclarations and related documents filed every year, creating piles everywhere and causingstorage and retrieval problems, and fire hazards. Microfilming these critical documents will notonly save space, but will also simplify the document retrieval process, and allow themaintenance of a duplicate off-site copy of the files for backup purposes. BOC does not have amicrofilming system now, and would be greatly benefit from this capability.

24. Printing. While BOC uses the services of the Bureau of Printing for large printing,there is a need for an internal capability for printing short, urgent or specialized documents.This is important for information dissemination, and for trade facilitation and to prepare thenew form required by the BOC reform program.

25. Information and Trainig. The two-pronged approach of computerization andtrade facilitation requires the cooperation and support of all concerned. Moreover, to properlyimplement the procedural reforms and new computerized systems, massive investments in stafftraining should be done. Substantial resources also need to be channeled into an extensive

- 67 -Annex 8 - Page S

educational campaign to communicate the benefits and effects of these new procedures to thebusiness community.

26. At present, BOC has no capacity or equipment to provide such training andinformation requirements, which would be critical for the project success. This requirescontracting specialized expertise to develop the initial training and communication programs,the purchase of audio visual equipment, and the production of leaflets, brochures and manuals.

27. Besides the audiovisual equipment for information dissemination and training, anelectronic whiteboard is considered important for modem training and to be able to providecopies of the drawings in the whiteboard to the participants in the meeting.

28. Security. To effectively carry out the BOC reform programs there is a need toenforce a physical separation of the BOC processing personnel and the transacting public. Thisincludes a video display system to inform the brokers and importers of the status of theirdocuments in process in each port in Metro Manila.

29. For security and intelligence work, radio transceivers are essential in bringimmediate communications to enforcement personnel. They also provide convenientcommunications in mobile locations as weil as areas not covered by telephone lines. They areindispensable in mounting successful operations against criminal elements, in the deployment offorces, in intelligence gathering, and in relaying urgent messages to field units. At present,BOC does not have this capability. Existing radio units used by BOC staff are either personallyowned or borrowed from other government offices.

30. In addition, there is a need to enhance BOC's security capability within the customzone, especially during night time and during the rainy season by the provision of a jeep.

31. During its operations, the BOC handles a great deal of original and confidentialdocuments, magnetic media such as diskettes and tapes, and apprehends valuables such asjewelry and precious stones which need safekeeping. This requires the procurement of safes andvaults, which are grossly inadequate even for present operations.

32. Transportation. The transportation of key documents and small items is beingcarried out by messengers using public transportation, which is slow, covers only some routesand locations and results in increased security problems. Motorcycles would be purchased toallow quicker and more efficient transportation.

33. Service vehicles and transport vans are included to provide minimum mobility toBOC staff, particularly for the control of many and disperse warehouses. As BOC becomes moreclient oriented, each of its service units needs a utility vehicle for staff transportation. Transportvans (for training and meetings) will be allocated to a central unit, for sharing among all units.

34. In the area of seized cargoes, forklifts are essential for the transport and stackingof these goods in security warehouses. This eliminates security problems experienced usingprivate-hired forklift operators and limited service hours. BOC also needs its own hauler trucksto handle the transfer of cargo from the port zones to security warehouses. Lack of this basicequipment is preventing the immediate transport of seized cargo to security warehouses. As aresult, goods are sometimes subjected to theft and pilferage.

- 68 -

Annex 8 - Page 8

Philippines


Table 1 - BIR's Non-Computer Requirements

No. Eist- REQUIREMENTS Unit Cost Totaling Units USS Cost(if any) Quantity Deployment US$ 000

A. Information/Training:

1. Audio Visual Van with Video NA 1 NO 33,214 33.2projector and peripherals lot

2. Video Projector and Peripherals NA 22 VProjector NO/RO 1,786 39.3Screens And Peripherals 22 VScreens

3. Overhead Projector 20 25 NO/RO/RDO 536 13.4

4. Sound System (Microphones, 102 25 NO/ROIRDO 1,786 44.6Amplifiers, Mixer, Cassette Microphones setsRecorders And Speakers)

5. Upgrade Of Taxpayers Assist. Unit NO/RO/RDO 732,143 732.1Subtotal 862.7

B. Printing and Communication ,

6. Mimeograph & Printing Eq. 43 30 RDO 1,607 48.27. Printing Equipment And Offset 1 NO 500,000 500.08. Facsimile Machine 11 30 RDO 1,429 42.9

Subtotal 591.1D. Transportation

9. Utility Vehicle 104 20 NO/RDO 10,000 200.0

E. Other Equipment

10. Air conditioning Unit 175 30 RDO 893 26.811. Technical Library Materials NA Several NO/RO 10,714 10.712. Maintenance Equipment NA Several All 71,429 71.4

Subtotal 108.9

Total 1.762.7

NO = National Office; RO = Regional Offices and RDO = Revenue District Offices

- 69 -

Anne= 8 Page 6

Philippines


Table 2 - BOC's Non-Computer Requirements

Quantity Unit Cost | TotalDescription MICP NAIA POM OFF. Total US$ 000 USS 000

A. Building1) Building Rehab. 1 1 1 4 7 185.19 1,33332) Generator 1 1 1 1 4 74.07 296.3

3) Air Conditionera) Window Type 35 30 40 88 193 0.74 143.0b) Package Type 1 1 1 1 4 4.07 16.3c) W/Dehumidifiers 1 2037 20A

4) Mainten. Tools 1 37.04 37.0Subtotal 1,8463

B. Communications1) Telephone (PABX set) 1 1 1 1 4 29.63 118.52) Fax 1 1 1 1 4 1.48 5.9

Subtotal 124AC. Detection/Testing/Monitorim g

1) Remote circuit camera 1 1 1 1 4 74.07 29632) Laboratory Apparatus 1 1 37037 370A3) Jewelry weighing scale 2 2 0.04 0.14) Money Counter 1 2 3 0.74 2.2

Subtotal 669.0D. Document Processing EqWup

1) Perforating Machine 6 6 6 18 5.56 100.02) Metering Machine 1 1 130 133) Stamp Machine 1 1 1 3 2.04 6.14) Validating Machine 2 6 4 12 0.74 8.95) Calculator 10 10 10 10 40 0.07 3.06) Typewriter

a) Electric 10 10 10 10 40 0.74 29.6b) Manual 10 10 10 10 40 0.19 74

7) Printing/binding equipment 1 1 222.22 222.2_ Subtotal 378.5

- 70 -

Armex 8 - Page 7

Philippines


Table 2 - BOC's Non-Computer Requirements (Continue)

Quantity Unit Cost TotalDescription MICP NAIA POM OFF. Total USS 000 USS 000

E. Information/Dissemination1) Electronic copyboard 2 2 11.11 22.2

Subtotal 22.2F. Security Requirements

1) Video Display System 1 1 1 3 2.78 8.32) Radio Transceiver

a) Base 1 1 1 1 4 2.78 11.1b) Handheld 10 10 10 30 60 0.19 11.1

3) Patroljeep 4 4 11.11 44.44) Safe/Vault 2 2 2 5 11 0.74 8.1

Subtotal 74.8G. Transportation

1) Motorcycle 2 8 1.85 14.82) Service Vehicle 2 2 2 2 8 12.96 103.73) Transport Van 1 1 1 2 5 24.07 120.44) Hauler Truck 1 1 55.56 55.6

Subtotal 294.4

TOTAL 3,40971

Foreign Equipment 2,076.4Local Component (Site preparation, building rehabilitation) 1_3333


Philippines

Tax Computerization Office

Staffing Computer And Information Systems Service (CISS)

Total Staff by Location No. PersonnelExpenses

Mill.PesosNational Office 111 5.61Rel!ional/District 303 11.62

Total 4141 17.22

Staffiln at the National Offic

No. Position!litle Salary Yeary Total SalaryGrade Salary Pesos/Year

1 Director Im 27 166,980 166,9801 Director n 26 151,800 1l1,8001 Executive Assistant U 17 62,412 62,4121 Clerk II 6 29,676 29,6761 Driver I 3 25,872 25,8721 Messenger 2 24,876 24,8766 461,616

Systems And Programming Division1 Information Technology Officer III 24 121,620 121,6202 Clerk IH 6 29,676 59,3521 Messenger 2 24,876 24,8761 Information Technology Officer U 22 99.000 99,0001 Information Technology Officer U 22 99,000 99,0002 Computer Programmer m 18 68,040 136,0801 EDP Systems Analyst II 16 57,432 57,4321 Computer Prozrammer HI 18 68,040 68,040

10 665,400Central Operations Division

1 Information Technology Officer Ell 24 121,620 121,6201 Clerk III 6 29,676 29,6761 Messenger 2 24,876 24,876

13 Utility Worker I 1 24,000 312,000

Machine Operations Section1 Information Technology Officer I 19 74,388 74,3883 Computer Operator IV 14 49,092 147,2763 Computer File Librarian m! 12 42,480 127,440

Data Control Section1 Information Technology Officer I 19 74,388 74,3882 Data Controller IV 13 45,600 91,200

12 Data Controller HI 11 39,708 476,4965 Data Controller U 8 33,024 165,120

Data Entry Section1 Information Technology Officer I 19 74,388 74,388

16 Data Entry Machine Operator U! 11 39,708 635,32860_ _ _ __ __i 2.34.196

- 72 -

Philippines Annex 9 - Page 2


Staffing Computer and Information Systems Service (CISS)

Staffing at the National Office (Continue)

No. Position/Title Slary Yoarly Total SalaryGrade Salary Pesos/Year

EDP Maintenance Services Division1 Information Technology Officer Im 24 121,620 121,6203 Clerk III 6 29,676 89,0281 Messenger 2 24,876 24,876

Hardware Support Section1 Information Technology Officer II 22 99,000 99,000

Systems Support Section1 Information Technology Officer II 22 99,000 99,0002 Information Systems Analyst III 19 74.388 148,7762 Information Systems Analyst n 16 57,432 114,8641 Information Systems Analyst I 12 42,480 42,480

Help Desk Section1 Information Systems Analyst II 16 57,432 57,432

Logistics And Maintenance Section1 Engineer III 19 74,388 74,3881 Supply Officer I 10 37,224 37,2241 Property Custodian 8 33.024 33,024

Training Section1 Human Resource Mgt. Officer II 15 53,016 53,016

17 994,728Technical Operations Division

1 Information Technology Officer III 24 121,620 121,6202 aerk III 6 29,676 59,3521 Messenger 2 24,876 24,876

Technical Support Section1 Information Technology Officer II 22 99,000 99,0001 Information Systems Analyst III 19 74,388 74,3883 Information Systems Analyst II 16 57,432 172,296

Communications Support Section1 Communications Dev't. Officer II 15 53,016 53,016

Data Bam Management Section2 Information Systems Analyst Im 19 74,388 148,7762 Information Systems Analyst U 16 57,432 114,864

Quality Asurance Section2 Information Systems Analyst m 19 74,388 148,7762 Information Systems Analyst n 16 57.432 114.84

18_ 1131828L 111 ITOTAL S,60_7,76

- 73 -Annex 10 - Page 1

Phblipies


TniDg Proams

1. The project would include training for 3. The information technology trainingBIR and BOC staff both in technical, computer- incorporated in the project, and to be given by therelated skills and in the new tax and Customs supplier, includes:administration procedures being introduced inconjunction with the new computer system. The o project management, system analysis, etc.project would also finance external assistance todraw up a five-year training program to meet the o hardware and system software operations,various needs of BIR and BOC staff. The training remote diagnostics, file back-up, networkprograms included in the project complement on- configuration and management, etc.going internal training by both Bureaus and are inaddition to other business training provided other o application software modalities andexternal agencies or donors (see para. 4 below). operations, programming logic and structure,

maintenance, and enhancement techniques.Traning of Tecncl Staff

o database management, data modelling and2. The project will include substantial dictionaries, etc.training to enable BIR and BOC technical staff totake over the operations of the new computer o computer-based auditing techniques.systems from the supplier in three to five years. Atotal of about 11000 BIR and BOC staff will require o generic and hardware-specific courses intraining in basic electronic data processing (EDP) system design, programming, data entry, etc.disciplines (see tables 1 & 2); of this number,approximately 2000 BIR and 650 technical staff will o familiarization of user staff with computerbe trained by the supplier. This training will terminals and microcomputers.comprise both academic and on-the-job training,with emphasis on the latter to facilitate BIR staff 4. Tables 1 and 2 show the number andparticipating in, and gradually assuming functions of BIR staff to be trained by the supplier.responsibility for, computer administration and Additional business and core professional trainingoperations at all levels, software maintenance and are also provided within the eisting locally fundedenhancements, and communication network training programs for both Bureaus. Details ofmanagement. The supplier will also train locally funded training are found in Table 3 and 4.additional trainers who will in turn train regular To complement project financed and locallyBIR and BOC data entry, user, and teminal financed training shown in tables I to 4, otheroperator staff at various locations throughout the business and technical training is planed to becountry. The project proposes to attach up to 52 provided by other donors and external agencies,BIR and 31 BOC staff to the supplie's system induding:development and programming teams fortechnology transfer and hands-on training. O BIR advisory and technical assistance under

a German Technical Assistance program(GTZ) for the management of change and for

-74

Annex 10 - Page 2

career planning and development. 5. An estimated 2000 BIR staff and 650Agreement for a GTZ grant of DM 1.8 BOC staff would be trained in hardware andmillion is expected to be reached between systems operations, network management, andBIR and GTZ early in 1993. support desk functions; the supplier would be

required to use a large number of these staff too BOC: CCC/ASEAN cooperative program to be complement his own technical staff carrying out

providing training in Customs Techniques these activities during the contract period. Thisoffered by JICA in Japan, Customs requirement would facilitate an early assumption ofInternational Executive Management system operations by BIR and BOC staff, allow theProgram offered by Australia, and port supplier to quote lower training costs, and minimizeclearance, GATT valuation, intelligence/law the number of consultants needed to support theenforcement, ship rummaging, etc. offered Project Office staff. The supplier will also beunder the ASEAN/UNDP 5th Cycle Program. required to provide a detailed training plan in hisIn addition to the above, the Societe Project Inception Report, including the courseGenerale de Surveillance (SGS) is committed contents, durations, location, language, and theto provide BOC staff 36 Courses under the minimum educational qualifications of theCISS Globalization Contract. participants. The language stipulation will apply

primarily to the highly technical courses, whilemost of the training for user/system interface staffwill be conducted in English.

Table 1 - BIRs Staff to be trained by the Supplier

Type Target Number of Location T|DuratonProject Management Senior staff 12 NO 3 weeks

Systems Analysis (including CISS systems analysts 35 NO 6 weeksCASE and structuredmethodologies)

Programming (3rd and 4th CISS Programmers 150 NO 6 weeksgeneration languages)

Computer Operations NO/RDO/RO computer 1000 RDO/NO 3 weeksoperators

Technical Support (hardware, System programmers 50 NO 3 monthscommunications, operating and database (various)systems, etc.) administrators,

hardware engineers

User Support Users of NCS 500 NO/RDO 3 weeks

Computer Audit Auditors and assessors 120 (BIR has NO 2 week2800

assessment

_ ____ ___ s t____

- 75 -Annex 10 - Page 3

Table 2 - BOCs Staff to be trined by the Supplier

Type Target Numbe of Locatio Duration

Users Training on Customs Managers, supervisors 286 OCOM, 3 weeksComputerized Applications and terminal operators Ports per type of

application

Technical Training on Systems administrators, 95 OCOM, 3 weeksCustoms Computerized data base Ports per type ofApplications administrators, systems application

analysts, programmers,facility operations staff,business systemstrainers, informationcenter specialists

Executive Computer OCOM and Port 25 OCOM 2 daysAwareness Management

Office Automation Managers, analysts and 200 OCOM, 1 week per(spreadsheet, word clerical staff Ports type ofprocessing, text retrieval) application

Project Management Senior staff 8 OCOM 3 weeks(including team leadership) _

Systems Analysis (including BOC Systems analysts 10 OCOM 6 weeksCASE and structuredmethodologies)

Programming (3rd and 4th BOC Programmers 50 OCOM 6 weeksgeneration languages) per type of

language

Computer Operations Computer operators 700 OCOM 3 weeks

Technical Support (hardware, System programmers 50 NO 3 monthscommunications, operating and database (various)systems, etc.) administrators,

hardware engineers

- 76 -

Annex 10 - Page 4

Table 3 - BOC Internal Tralig Prgram

TARGET DTE TARGETCOURSE TrrLE OOUR8SE DE8CRPTK)N VENUE PARTK PANT8

1. indukdon Swemw General funcoon nd 3 day wy nd of 40 pe session. Newfor now mnpioyee activities of related first and sooond recruits for each

goverment nd priva e emesr o each year semetrInstitutionlL

2. BasicAdmlnl- In-depth leoturse on 40 hour Sept of "oh 40 per session.tration Coure a dminIstrative year. Adinistative StM o

proocdures and tho Centri Office andpr0_s. the meJor Coleotion

Districte

3 Basic Poice Iintelligence and 120 hou each May, 40 per session. SpecialCourse enformet functons of Jun, July Agnbt I & ii int-lige

VW Bureau. Officers, Special

4. Basoh Aessmnt Rules, reguions and 120 hours May, June Dooument Prooors,Coure processing of Customs July each yer Examiners, Custom

entrs, with emphasis Biuminw Appraisers,o n v a I u a t i o n, Other Aseesmentclassificatlon and po-ul computation of dutiand taxe.

5. sicPort Mu", reaon & sohMur Aprii,Aug. & Security Guards,Operai-on Course proodure of entrc Dec. of eoaoh yer Customs Inspoetors,

& owarnoe of vessels, Entranoo Clearancoalforaik cargo handing, Offirdipositions, sc.

6 semnaron Processing of 30 hours Jan., May & Security GuardsCusms warehousing entries, Set of each yea assigned to CWe, Sr.Wahousg monftoringloontrol of 8 t o r e k a * p * r,Operat cargoes, iquidation of Wwrhousman.

rev matedril entries, sc.

7. Basis Basi coure to upgrde 120 hours Feb., June &adinvestgation knowedge & skie of Oct. of each year spei in o; 30course investigators, per class

- 77 - Annex 10 - Page 5

Table 4 - BIR Internal Training Prgrams

TARGET DATE TARGETCOURSE TTL COURSE DESCRIPTiON VENUE PARTICIPANTS

1. Induction Semin Geneal functiono nd S day evsry nd cf 40 per seelon. Nowfor now empiyse activities of reloted first and second recruit for each

govemrnet and privale semeser of eoh year semeerInstitutionr.

2. Basic Admini- In-dopth lectures on 40 hour Sept d each 40 per session.trdlon Couros a d m I n I s t r a t i v yer. Administradi St of

procedures and the Central Ofc andprocse. th major Coilction

DistrIcte

3. Baic Polico IntelIigence and 120 hours each May. 40 pe session. SpeciCourse enforcement functons of June, July Agent I & II Intelligence

the Bureau. Officors, Spocial

4. Basic Ansessmnt Rulis, reguidon and 120 hours May, June & Dooument Proosors,Course prosing of Customs July each yer Examiners, Custom

entries, wih emphasis Examiner, Appraisrs,o n v a l u a t I o n, Other Assessmentclassification and personnelcomputation of dutieand taxe.

5. Basi Port Rules, roguldaion & 80 hours Apdil, Aug. & Security Guards,Opradions Course prooedure of entrance Dc. of each yew Customs Inspectors,

& clearae of veeseis, Entrance Clearanceaircraft, cago handling, O111cerdispsitio, etb.

6. Seminaron Processing of 80 hours Jan., May & Security Guardscustoms warehousing entries, Sept of each year aigned to CBWs, Sr.Warehousing monitoring/control of 8 t o r * k s a p * r,Opeatons cargoes, liquidation of WarehoLsemen.

raw matrial entries, etc.

7. Baic Basic oours to upgrade 120 hours Feb., June & Designsted/ppohntsdInvestgation knowledge & skills of Oct of each yar special Investigators; S0Coure Invstigator p colass

Table 4

BIR TRAINING PROGRAM(INTERNAL)

DESCRIPTION TARGET PARTICIPANTS LOCATION DURATIONPer Participant

A. PROFESSIONAL/TECHNICAL DEVELOPMENT PROGRAMS

1. BASIC COURSE FOR REVENUE OFFICERS

1.1 Assessment (all taxes except excise tax) 400 Rev. Enf. Officers BIR NO 300 hrs

1.2 Excise Tax 300 Inspectors BIR NO 50 hrs

2. SPECIAL SEMINARS ON VALUE-ADDED TAX 450 VAT Officers BIR NO & ROs 24 hrs

3. SEMINAR ON PENAL SANCTIONS UNDER NIRC 200 Legal Officers, Researchers BIR NO 8 hrs

4. TRAINING COURSE ON AMENDMENTS ON SPECIFIC 36 Division Chiefs SIR NO & ROs 16 hrsPROVISIONS OF THE TAX CODE 19 Reg.'l Directors

97 RDO's

5. TRAINING COURSE ON AUDIT PROCEDURES BY UNE 25 Top Revenue Enforcement SIR NO 40 hrs X

OF INDUSTRY Officers

6. BASIC COURSE FOR COLLECTION OFFICERS/SEIZURE 8 hrsAGENTS 100 Seizure Agents DIR NO

7. SEMINAR ON TAX FRAUD ADMINISTRATION 24 hrs200 Revenue Enforcement Officers DIR NO

8. INTERNATIONAL TAXATION 40 hrs100 Rev. Enf. Officers & Legal BIR NO

9. SEMINAR ON WITHHOLDING TAXES Officers

9.1 Year-end adjustment for Government Agencies/ 8 hrsPrivate Corporations 2,000/Month W/holding Agents DIR NO & ROs

9.2 Update on Withholding Taxes 16 hrs500 Rev. Collectors and BIR NO & ROs1,000 W/holding Agents

I B. BASIC MANAGEMENT DEVELOPMENT COURSE

ADVANCED MANAGEMENT COURSES

1. REVENUE STATISTICIAN- Multiviriate Techniques 5 OLS 40 hrs

2. REVENUE MANAGEMENT ANALYST 5 OLS 40 hrs- Govemment Organization- Revenue procedures

3. REVENUE PLANNING OFFICERS 5 OLS 40 hrs- Govemment Economics

4. REV. ACCOUNTANTS, BUDGET OFFICERS & FISCAL 10 BIR NO 8 hrsOPERATIONS BRANCH OFFICERS (Accountants, Budget Officers, Fiscal- Financial accounting specifically on COA Regulations Operation Officers, Acountable Forms

Officers)5. REVENUE TRAINING OFFICERS 5

- Latest training techniques (Training Officers, Rev. Researchers)BIR NO & OLS 40 hrs

6. SUPERVISORY DEVELOPMENT COURSES 20- Office Management BIR NO & OLS 40 hrs- Team Work

7. CLERICAUSECRETARIAL DEV.T COURSE 250 BIR NO 40 hrs- Training/Retraining

8. ORIENTATION SEMINAR 250 BIR NO & RO 40 hrs- New entrants

C. MIDDLE MANAGEMENT DEVELOPMENT PROGRAM

1. Management Executive Programs 50 BIR NO & OLS 40 hrs2. Carcer Development Program 50 BIR NO 24 hrs3. Public Administration 50 SIR NO & OLS 24 hrs

*SIR NO - SIR National Office; BIR RO BIR Regional Office; OLS - Other local service

- 80 -

Philippines Annex 11

Tax Comput uzatio Project

Estmated Schedule of Lan Diburement

USS Million

Bank's Year and Disbursements Cumulative Disbursement ProfileFiscal Semester Disburse-Year Ending BOC BIR Total ment Country Project

1993 30-Jun-93 0.0 0.0 0.0 0.0 0.0% 0.0%

1994 31-Dec-93 2.3 4.7 7.0 7.0 3.0% 11.1%

30-Jun-94 0.6 1.3 1.9 8.9 6.0% 14.1%

1995 31-Dec-94 2.4 5.1 7.5 16.4 14.0% 26.0%

30-Jun-95 2.0 4.3 6.3 22.7 22.0% 36.0%

1996 31-Dec-95 2.9 6.0 8.9 31.6 34.0% 50.2%

02-Jul-96 2.8 5.9 8.7 40.3 46.0% 64.0%

1997 30-Dec-96 2.6 5.6 8.2 48.5 58.0% 77.0%

02-Jul-97 2.7 5.5 8.2 56.7 70.0% 90.0%

1998 30-Dec-97 1.6 3.4 5.0 61.7 82.0% 97.9%

30-Jun-98 0.4 0.9 13 63.0 90.0% 100.0%

Disbursement Prof I le

I~tY I-

De-m Dec-4 Dec. Dc- Dec.7

O de.ry s.'I ist 0 rJect' S F@UU

Figure 1

- 81 -

Aanx 12 - Pag I

PhiHppines


Financial Rate of Return(minion Peto)

Table 1 - Incremental Project Coats and Revenues

Year - -Pd oe t - - - - Hardware 0 ; M Materials S*!!l!s lInrrnelal Staff Tota Izes!itras

DOC DIR Total DOC BIR DOC SIR BOC BIR BOC SIR Total1993 89.9 148.9 238.8 _ 89.9 14S.9 23a81994 206.0 322.1 52.1 206.0 322.1 528.11995 158.2 311.8 470.1 158.2 311.8 470.11996 90.3 248.7 339.0 90.3 248.7 339.01997 49.7 165.9 215.7 16.1 53.7 13.2 21.9 10.3 34.7 89.3 276.1 365.41998 32.2 107.3 26.3 43.8 20.6 69.3 79.1 220.4 299.4Im 32.2 107.3 26.3 43.8 20.6 69.3 79.1 220.4 299.42000 _ 32.2 107.3 26.3 43.8 20.6 69.3 79.1 220.4 299.42001 32.2 107.3 26.3 43. 20.6 69.3 79.1 220.4 299.4

(B) Estimated additional taxes that could be collected.BaU.os Peo.

Corporate Individual Deposits Excite VAT Otber Total Custom TottlIncome Income & Otber BIR Duties

Taxes Collet"d in 1992 33.56 24.45 14.U8 26.86 21.44 17.62 138.81 70.00 208.8

Estimated Tax EvasionUNDP Report (1991)

Total Tax Evasio (Lo Estimate) B. Pesos 1.70 16.00 - - - - - - 13.0 - - - - - - - - - 30.70Taxes Cobected in 1985 B. Pesos 8.44 5.60 3.62 13.48 3.00 10.60 44.74% Evasion 17% 74% 40.7%

Speaker Jose C. de Veaci (19i2)Short-Term Collectable Tax Evasio B. Ptets 5.80 10.10 ----- ----- 16.6 - - - - --- --- 3250Additional Percentap Collectable 23.4*

Maassa (1988)Total Tax Evason B. Pesos 2.97 5.42 3.27 6.94 - - - -6.4 - - - - - 25.00Taxes Collected in 1985 B. Pesos 8.44 5.60 3.62 13.48 3.00 10.60 44.74% Evaion 26% 49% 35.8%

Estimates sed for the Appraisal MilLin PersonsTotal Employees (NSO-1991) 22.80

Number Tax Piers if 30% were tlaxb 6.84Number Tax Piners in 1991 2.75 60% < - - - Estimated non-filersEstimated Tax Evasion B. Peos 13.4 36.4 3.0 5.4 8.6 2.6 69.4 10.5 79.9% Estimated Evasion/Coletioe 40% 50% 20% 20% 40% 15% 50% 15% 38%

Billio Peso. * of GDPTotal GDP ih 1992 - BDioe Prsos 1338.5

TaxCoUectioo in 1992-Biion Pesot 208.8 15.6*EstimatedTaxEvasion 79.9% of Tax Evasion Assumed to be collected by the Project 60.0%Tax Evasion to be CoUected 48.0 4.0%Impreoved Tax Colletion Target-B. Peso 256.8 19.0%

- 82 -

h pAs x 12 - Page 2

Philippines


Table 2 Financial Rate of Return(Bilion Pesoc)

Estimated GDP Tax Tax Total Resents Achleved Three Years Delay Benefits AchievedEffort Effort Projea Gradually Years 2-10 In Project Beaefits Gradually Years 2-5

Year Real GDP Without With the Expenses Incremental Net Incremental Net Incremental NetGrowth 1992 Project Project Billion Collection Beneflt Collection Benefit Collection Benefit

Prices Pesos Bill.P Rill.P Bill.P BilP Wll.P BiIl.P1993 5.6% 1413.5 15.53% 15.53% 0.24 0.0 -0.2 0.0 -0.2 -0.21994 6.0% 1498.3 15.61% 15.95% 0.53 5.1 4.6 0.0 -0.5 7.6 7.11995 7.0% 1603.1 15.69% 16.29% 0.47 9.6 9.2 0.0 -0.5 25.9 25.51996 7.0% 1715.4 15.76% 16.63% 0.34 14.8 14.4 0.0 -0.3 41.0 40.61997 7.0% 1835.4 15.77% 17.30% 0.37 28.1 27.8 21.9 21.5 59.2 58.91998 7.0% 1963.9 15.78% 17.64% 0.30 36.6 36.3 33.3 33.0 63.2 62.91999 7.0% 2101.4 15.79% 17.98% 0.30 46.1 45.8 42.6 42.3 67.5 67.22000 7.0% 2248.5 15.80% 18.66% 0.30 64.4 64.1 60.6 60.3 72.0 71.72001 7.0% 2405.9 15.80% 19.00% 0.30 76.9 76.6 76.9 76.6 76.9 76.6

Disconst Rate Present Values - Bifion Pesos

10.0% 2.1 146.0 143.9 115.1 113.0 227.1 225.112.0% 1.9 129.4 127.5 100.7 98.8 203.6 201.714.0% 1.8 115.1 113.3 88.4 86.6 183.1 181.316.0% 1.7 102.7 101.0 77.8 76.2 165.2 163.520.0% 1.5 82.5 81.1 60.8 59.4 135.5 134.1

Disconst Rate Benefit Cost Ratio (Times)

10.0% 71.0 56.0 110.512.0% 67.8 52.8 106.714.0% 64.8 49.8 103.016.0% 61.9 46.9 99.520.0% 56.5 41.7 92.9

Pinancial Rate of Return 257% 203% 300%

- 83 -

Annex 12 - Page 3

Philippines


Table 3 - Assumptions for the Project's Financial Rate of Return

1. All costs are in begining 1993 prices.

2. All incremental costs during the first five years are included in the project cosLTaxes and duties are exduded.

3. The exchange rate for mid-1993 is estimated at P27.5 per US dollar

4. The project average useful life is estimated at 7 year. Since differentproject components will be completed and in operation between the second andfifth years, the project useful life is assumed to be commpleted in year 2001. Itshould be noted that once non-filers are identiSed and taxes are collected,it is likely they will be collected thereafter.

5. Operation and Maintenance Expenses

BOC BIROperational Expenses 1] Local USS Local USS

Pesos Mil. Milion Pesos M? I. MilionOperation and Maintenance 7.40 0.90 24.80 3.00Materials & Supplies 20.00 0.23 30.00 O.S0Incremental Staff 20.60 0.00 6930 0.00

1] These expenses are already included in the project cost during the five-year implementation period.

- 84 -Annex 13 - Page 1

PHILIPPINES


Project Implementation and Supervision

Terms of Reference

Background

1. The Department of Finance (DOF) has initiated a major institutional improvementprogram to increase its efficiency, modernize the tax administration system and meet theGovernmenes need for additional revenues. This reform will culminate with the establishmentof a new computer system (NCS), which will allow processing aU taxes collected by the Bureauof Internal Revenue (BIR) and the Bureau of Customs (BOC). This will improve tax collection,provide accurate checking of results and provide on-line information on all tax-related data andimproved customer information and services. After the NCS enters into operation, BIR and BOCwill operate a comprehensive, decentralized database for all their respective taxes.

2. The NCS indudes all elements required to establish a modem system for taxcoilection, processing and related services for business, income and VAT taxes in all provinces inthe Philippines for the BIR and for the four main entry points for the BOC. It will have thefollowing components: (a) hardware for the tax administration to process and audit all majortaxes (attached is a description of the minimum configuration to be supplied); and (b)administrative, financial and management information systems.

3. The NCS is being procured under two single turn-key contracts (one each for BIRand BOC), which include hardware, software, communications, initial operation, long-termmaintenance and computer-training programs. Although the NCS vendor will initially operatethe system, NCS operations will be gradually transferred to BIR/BOC over the next three to fiveyears. Concurrent with implementation of the NCS, large-scale training programs will beundertaken by both the vendor and BIR/BOC in computer- and tax-related matters.

4. Consultant support has been included in the project for two closely related items,for which separate terms of reference are being issued: the Organization of BIR/BOC after thetax computerization; and project Implementation Support for BIR/BOC (under these terms ofreference).

Supervision of Project Implementation

5. The NCS will be implemented in phases, which include the provision of hardwareand dissemination of BIR software from the central to the district level and to four differentlocations for BOC. BIR/BOC will require assistance from a team of experts to monitor projectimplementation, verify the vendor's compliance with specifications for hardware and software,and provide assistance in all technical matters related to the NCS, in particular to:

- 85 -Annex 13 - Page 2

(a) provide advice to the BIR/BOC Project Manager on technical, operational andimplementation issues;

(b) work closely with BIR/BOCs Project Office staff to ensure a coordinated andeffective project implementation effort;

(c) review and approve all technical, system and procedural documentation, and allspecifications and outputs delivered by the supplier,

(d) monitor the progress of the vendor as weli as BIR/BOC in implementing the NCS,evaluate its implementation, and advise on expediting implementation;

(e) provide expert advice for the review and approval of the supplier's projectinception, organizational and staffing plans;

(f) advise on changes in the project scope, replacement of staff and/or equipment andbuilding facilities, changes in the project schedule that may be needed, and initiatechange orders;

(g) recommend to the Project Director penalties for the supplier's delays orunacceptable outputs and performance;

(h) provide liaison and coordination with the supplier,

(i) participate in Steering Committee meetings to review project implementation andpropose revisions or changes in policies, technical specifications or schedules;

ji) organize the acceptance and support tests for determining compliance withspecifications for hardware, software and communication systems, and thefunctionality of the overall system;

Ok) check invoices presented by the supplier and recommend payments based onsuccessful operation for the contractually stipulated periods;

Cl) approve recommendations to put the system modules into production mode;

(m) monitor the efficacy of system implementation and the supplier's operation of theNCS;

(n) monitor the incorporation of BIR/BOC's data processing staff into the operationand management of the NCS, and the smooth transition from the supplier to -heBIR/BOC; and

(o) provide periodic reports to the Project Director to monitor and recommendexpediting actions.

- 86 -Annex 13 - Page 3

Qualifications of the Implementation Specialists

6. The consultants should have at least ten years of experience in data processing,and be able to supply references to confirm that they have successfully implemented two majorautomation programs in large public sector institutions. Knowledge of taxation modalities andsystems, telecommunication networking, distributed processing, and implementation ofautomated processes is a pre-requisite to ensure that the implementation management advicegiven to the BIRVBOC is appropriately focused and relevant to the project. The consultantsshould also be able to demonstrate prior experience of managing and monitoring the efforts ofcontractors supplying, installing and operating goods and services under a turn-keymanagement contract, and in providing the client organization sound advice to expedite theproject and resolve contractual issues.

7. Although the study will be contracted under a single contract, separate proposalsshould be presented for the costs associated with the BIR and BOC organization study.

- 87 -Annex 14 - Page 1

PHILIPPINES


Organlzation Study

Terms of Reference

Background

1. The Department of Finance (DOF) has initiated a major institutional improvementprogram to increase its efficiency, modemnize the tax administration system and meet theGovemmentes need for additional revenues. This reform will culminate with the establishmentof a new computer system (NCS), which will allow processing all taxes collected by the Bureauof Internal Revenue (BIR) and the Bureau of Customs (BOC). This will improve tax collection,provide accurate checking of results and provide on-line information on all tax-related data andenhanced customer information and services. After the NCS enters into operation, BIR andBOC will operate a comprehensive, decentralized database for all their respective taxes.

2. The NCS includes all elements required to establish a modern system for taxcoUection, processing and related services for business, income and VAT taxe in all provinces inPhilippines for the BIR and for the four main entry points for the BOC. It will have thefollowing components: (a) hardware for the tax administration to process and audit all majortxes (attached is a description of the minimum configuration to be supplied); and (b)administrative, financial and management information systems.

3. The NCS is being procured under two single turn-key contracts (one each for BIRand BOC), which include hardware, software, communications, initial operation, long-termmaintenance and computer-training programs. Although the NCS vendor will initially operatethe system, NCS operations will be gradually transferred to BIR/BOC over the next three to fiveyears. Concurrent with implementation of the NCS, large-scale training programs will beundertaken by both the vendor and BIR/BOC in computer- and tax-related matters.

4. Consultant support has been included in the project for two closely related items,for which separate terms of reference are being issued: the Organization of BIR/BOC after thetax computerization (these terms of reference) and project implementation support forBIR/BOC.

Review of the BIR/BOC Organization

5. The start of NCS operations by end-1994 will call for major changes in theprocedures and systems now used by BIR/BOC. The NCS will affect not only the way in whichtax data are collected, processed and audited, but also the relationships, authority andresponsibilities of the Central, Regional, Area and District Offices. As a result of the NCS, someexisting functions will disappear and new activities and functions will be created at all levels ofthe organization. The relationship, management and communications between head and localoffices will be radically different. The reliance on electronic data processing, the large number

- 88 -

Annex 14 - Page 2

of computer specialists required, and the need to provide adequate remuneration to computerspecialists will also be important. Judging from the experience of other countries, it may benecessary to create a separate Deputy Director or for the electronic data processing (EDP) unitsin order to clarify functions and responsibilities and strengthen the EDP administration.

6. The consultant engaged under these terms of reference should review andcomment on the advantages and disadvantages of the organiational structures andmanagement of tax collection and EDP in comparable countries, and review and comment onalternative organizational structures suitable for BIR/BOC

7. The consultant should work dosely with BIR/BOCs central and local divisions andstaff, and review with the NCS vendor the operational implications of the proposed system onthe staff, their functions and the structure of BIR/BOC.

8. The study will analyze and propose recommendations for BIR/BOCsorganizational requirements at the central and local levels to allow for the succesful operationof the NCS. The specific areas for analysis and recommendations are as follows:

(a) BIR/BOC existng organzation structure and changes in the organzation required tomanage the NCS and improve its overall operations and effectiveness;

(b) staff requirements for the various BIR/BOC divisions, the staff needed at each level, andchanges in job descriptions, skill levels, and job grading resulting from introduction ofthe NCS;

(c) the operational data flows and procedural framework necessary to effectively operatethe NCS;

5d) the organization and management of EDP activities, functions and tax databases,including the relationships, authority and responsibilities at the central, regional,provincial and district levels (if any);

(e) the relationship between the local level EDP and the local office management;

(f) the need to establish a separate management group for EDP, its relationship with localEDP processing offices, and their structure and staffing,

(g) the advantages and disadvantages of establishing a separate core division for VATexpertise, or other similar specialized functions; and

(h) the measures (including higher grades, provision of bonuses, training programs, andmonetary and non-monetary incentives) that should be adopted by BIR/BOC to engageand retain qualified EDP staff.

9. The consultant should provide an Initial Report within two months of hisappointment, describing the main organizational issues, critically reviewing the alternativeorganizations used by other countries, and the basic issues and decisions that may be requiredat this stage of the study. A Final Report, including BIR/BOCs comments on the Inital Report,wil be issued within six months of the consultant's appointment.

- 89 -

Annex 14 - Page 3

Desired Qualifications of the Consultant

10. The experts in the team should have at least a master's degree in businessadministration or similar discipline. The consultant should be able to demonstrate priorexperience with at least two organizational studies in the public or private sector, and providerecommendations and adequate references to confirm the success of such studies. Theconsultant should also have extensive experience in taxation systems, adequate exposure to dataprocessing principles, and be well versed in reviewing organizational structures, evaluatingoperational effectiveness, discovering procedural and decision-making botdenecks to be able torecommended improvements in the BIR/BOC.

11. Although the study will be contracted under a single contract, separated proposalsshould be presented for the cost associated with BIR and BOC organization study.

- 90 -

Annex 15 - Page 1

PHILIPPINES


BOC's Project Schedule

Activty Duration Scheduled Start Scheduled__________j____ Finish

Implementation Phase 260W 11/15/93 11/6/98Project Management Services 260w 11/15/93 11/6/98Project Moblization 13w 11/15/93 2/11/94TrWning Savices 247w 2/14/94 11/6/98Tmnsitional Facfities Management 208w Z/14/94 2/6/98Support and Maintenance 2472 Z/14/94 11/6/98

OSS Site Preparation 4w 12/20/93 1/14/9405 Installation 13w 1/17/94 4/15/94OSS WAN Intallaton 13w 1/17/94 4/15/94OSS Ready for Servc Ow 4/15/94 4/15/94

Initial Systems (Asycuda Implementation Team 4w 11/15/93 12/10/93Support)

OCOM Site Preparation 13w 1V/2093 3/18/94OCOM LN (Computer Center) 4w 2/21/94 3/18/94OCOM System Development Server Instalation 8w Z/21/94 4/15/94OCOM SDS Ready for Service Ow 4/15/94 4/15/94OCOM LAN (Businmss Offices) 13w 4/4/94 7/1/94OCOM Main Application Server 13w 4/4/94 7/1/94OCOM MAS Ready for Service Ow 7/1/94 7/1/94

BOC WAN Setup 13w 4/4/94 7/1/94

Manila Trial Port (Port #1) Site Preparation 13w 5/Z/94 7/29/94Manila Trial Port (Port #1 Instlation 13w 7/4/94 9/30/94Manila Trial Port (Port #1) Ready for Service Ow 10/1/94 10/1/94

Manila Port #2 Site Preparation 13w 10/31/94 1/27/95Manila Port #2 Installation 13w 1/2/95 3/31/95Manila Port #2 Ready for Servc Ow 3/31/95 3/31/95

Manila Port #3 Site Preparation 13w 1/30/95 1/27/95Manila Port #3 Instalation 13w 4/3/95 3/31/95Manila Port #3 Ready for Sevice Ow 6/30/95 3/31/95

Batangas Site Preparation 13w 1/30/95 1/27/95Batagas Instalation 13w 4/3/95 6/30/95Batagas Ready for Sevice Ow 6/30/95 6/30/95

Cebu Site Preparation 13w 1/30/95 1/27/95Cebu Instalation 13w 4/3/95 6/30/95Cebu Ready for Service Ow 6/30/95 6/30/95

Mactan Site Preparation 13w 1/30/95 1/27/95Mactan Instalation 13w 4/3/95 6/30/95Mactan Ready for Service Ow 6/30/95 6/30/95

FTI Site Preparation 13w 1/30/95 1/27/95FT histalation 13w 4/3/95 6/30/95FTI Ready for Service Ow 6/30/95 6/30/95

- 91 -

Annex 15 - Page 2

PHILIPPINES


BIR's Project Schedule

Activity Duration Scheduled Start ScheduledFinish|

BIR Tax Computerization Project 261w 11/16/93 11/16/98

Project Mobilation and Planing 13w 1V16/93 Z/14/94

Project Management 261w 11/16/93 1V16/98Senior Project amanagement 261w 11/16/93 11/16/98Sub Projects Management 150w 11/16/93 9/30/96

Traming 220w 4/16/94 7/3/98Technical Taining Sessions 220w 4/16/94 7/3/98Busins Trining Sessions 220w 4/16/94 7/3/98Trining Equipment Instalation 4w 4/16/94 5/13/94Tnig Equipment Maintenance 208w 5/14/94 5/8/98Trani Course Development 156w 4/16/94 4/11/97

Deiverable 2- NO Hardware 1st Phase 13w 1/16/94 4/15/94Deiverable 3- Manila RO Hardware + VATIS 13w 3/16/94 6/14/94Deliverable 4 - Makati E&W HW + VATIS 4w Z/15/94 3/14/94Deliv. 5 - SRS for RDO and NO ITS 35w Z/15/94 10/17/94

Deliverable 7 - 9 more VATIS sites 39w 11/15/94 8/14/95Deliverable 8 - RDO ITS Built 52w 9/15/94 9/13/95Deliverable 9 - RDO ITS at 2 pilot sites 13w 9/15/95 9/8/95Deliv. 10 - Manila Support Center Setup 8w 7/15/95

FM the Manila RSC 26w 12/14/95 6/12/96FM the RDOs 104w 12/14/95 12/10/97FM the National Office 104w 5/15/96 5/12/98

Deliv. 12 - National Offie HW 2nd Phase 13w 11/15/95 2/13/96Deiv 13 - NO rS SW Built 39w 5/15/95 2/9/96Deliv. 14- NO ITS instaled on Central Server 13w 2/15/96 5/15/96Deliv. 15- NO backup sptem instaled in 4w 1/15/96 2/9/96Manila 0w 5/15/96 5/15/96Deliv. 16 - Both ITS Systems Accepted 21w 6/15/96 11/8/96Delv. 17&18 more ROs. RDOs and ITS 4w 5/15/96 6/11/96Deiv. 19 Upgrade HW on VATIS sites 13w 6/15/96 9/13/96Deiv. 20- ns replaces VATIS at VATIS sites 17w 10/15/95 2/9/96Deliv. 21 - Intenal Admin System SRS Sw 2/15/96 4/10/96completedDeliv. 22- Other 3 support centen setup

Deliv. 24&2S RDO rs + HW in 6 more stes 26w 11/15/96 5/15/97Deiv 26- RO maging Systes 26w 11/15/96 5/15/97Deliv. 27 - NO Text Retieva System 26w 5/15/96 11/12/97Deliv. 29- Intenal Admin Systm HW in NO 4w 5/15/97 12/12/97Deliv. 30 - Intenal Admin Systems SW Built 52w 12/15/96 1/10/97

2/15/96 2/12/97

Deliv. 31 & 32 other RDOs/ROS installed + ITS 35w 11/15/97 7/17/98Deliv. 34-FinalAcceptance +Final Report 17w 7/1S/98 11/10/98

End of Project Ow 11/15/98 11/15/98

Philippine Tax Computerization Project - Schedule of Tasks1993 | 1994 1 1996 | 1996 1 1997 1 1998 1

ID Name Duradon 04|0102030Q4Q1|021Q030Q4|010Q20Q30Q4 2Ql|Q2|Q30Q4 0Q1 021030Q4 0QlIQ2103040 021 BIR Tax Computerization Project 261w

2

3 Project Mobilization and Plannin 13w

4

S Project Management 261 w

6 Senior Project Management 261 w

7 Sub Projects Management 1 Sow

9 Training 220w

10 Technical Training Sessions 220w

11 Business Training Sessions 220w

12 Training Equipmnent Installation 4w

13 Training Equipment Maintenanc 208w

14 Training Course Development 156w

15

16 Dliverble 2- NO Hardware 1s 13w

17 Deivertble 3- Ma RO Hard 13w

18 Dlivsrabe 4 - Mkati E&W H 4w

19 Daliv. 5- SRS for RDO and NoI 35w

20

21 Deliverable 7 - 9 more VATIS sit 39w

22 Deliverable 8 - RDO ITS Built 52w

23 Deliverable 9 - RDO ITS at 2 pil 13w - I24 Deliv. 10 - Manila Support Cent Bw IS

25

Critical W1/ M///1111/////// Progress Summary INoncritical Milestone * Rolled Up K>

Philippine Tax Computerization Project - Schedule of Tasks

1993 1 t994 1995 1996 1997 1 998

ID Name Duration 04 01 02 103 04 01 02 0304 01 02 03 04 01 02 03 04 01 02 03 04 01 0 2Q03 0401 0226 FM the Manila RSC 26w

27 FM the RDOs 104w

28 FM the National Office 104w

29

30 Deliv. 12 - National Office HW 2 13w

31 Deliv 13 - NO ITS SW Built 39w

32 Deliv.14 - NO ITS installed on C 13w

33 Deliv. 15 - NO backup system in 4w

34 Deliv 16 - Both ITS Svstems Ac Ow

35 Deliv. 17&18 more ROse RDOs 21 w

36 Deliv. 19 Ugrade HW on VATIS 4w

37 Deliv. 20 - ITS replaces VATIS 13w [

38 Deliv. 21 - Internal Admin Syste 17w ,//

39 Del,v 22 - Other 3 support cente 8w LO

40

41 Deliv. 24 & 25 RDO ITS + HW 26w

42 Deliv 26 - RO Imaging Systems 26w

43 Deliv. 27 - NO Text Retrieval Sy 26w7

44 Deliv. 29 - Internal Admin Syste 4 w

45 Deliv. 30 - Internal Admin Syste 52w

46

47 Deliv. 31 & 32 other RDOs/RO 35w x /B/ i"

48 Deliv. 34 - Final Acceptance + 17w

49

so End of Project Ow *

Critical 1.ig./ i///. Progress Summary

Noncritical _ _ Milestone P olled Up toq

- 94 - Annex 16 - Page I

PHILIPPINES


Documents on Project Fle

1. Bureau of Customs. Invitation for Bids Version 1.0. BOC and Crown Agents March 1993.

2. Bureau of Internal Revenue. Invitation for Bids Version 1.0. BIR and Crown Agents March1993.

3. Approved and proposed legislation for BIR and BOC (large taxpayers units, VATammendements, withholding tax, special criminal tax court, amending the tariff and customcode).

4. Bureau of Customs - Strategic Directions 1993 (Mission Statement)

5. Bureau of Internal Revenue - Strategic Directions 1993 (Mission Statement).

6. BOC Response to the IMF Tax Recommendations October 1991

7. BOC Information System Plan

8. BIR Information System Plan

Chart I - Orpgniwtiou Of The Burau Of Intermal Revenue

COMMISSIONER

by_ Offi T.QimI a l

|DEPUTY L Manpmentk A DEPUTY Maama |OOUMIUSSIONIER|H|Technicali Staff C OMMIlSSIONER| Tesbial Staff

ABSSEMMINT AND LLBCTION GROUP LEoAL AND ADMINI TIV u rOUP

E sw E t 1F1 Adncal mimttion Pi Eco

REGIONAL DIRICIDR qzA ASSIST. REGIONAL

DIRCIDIR

| Unit l_______ ______ _______ __ _ 2 9BRANCRW

Fuocal Colcin Ausrt Lgl Amntaie SpeciarpatksoAEii3atf Ive.

REV. DISIRICT OFF.A ASSIST. REVENUEDISTICT OFFCE

Dlmleoumlcl~~~~~~~~ Amxboel

UNlS UG1u

VAT Amuten Colcto 3 iumrlo Witholin

Chart 2 - Organization of the Bureau of Customs

COMMISSIONER OF CUSTOM

INTERNAL ADMINISTRATIONMOI N GGROUP

(Depuy omissioner)

_Management an M

Technical Staff

CUSTOMS REVENUE COLLECTION IMPORTS AND PORTSOPERATIONS INTELWGENCE AND ENFORCEMENT

|EI SONITORING GROUP COORDINATING GROUP GROUP

| (Deputy Ce missioner) (Deputy Cc mmissioner)_ (Deputy Co missioner)

Management and = _ FManagement and|dagmii

|Technical Staff ||Technical Staff ||Technical Staff|

FINANCI COLLECTIO | IMPORTSANID cPORTS OPERIAnO S |INTEWDGENCE ENFORCEMENTX

ER SERVICE SERVICx ASSESSMENT SERVI SERVICE &~~~~~~~~~~~~~~~~~~~~~~~~ INVESTIGATION & SECUR1TY

SERVICE SERVICETHIRTEEN (13) COLLECTION DlSTRIC S

IBRD 24362

114 ' 1444 PHILIPPINES

ACLAWFr0 OF 11IMPR JECFY GEOGRHIALRPGIONS TAX COMPUTERIZATION PROJECT

I SLOCOS Vl WENVIYAS 0* BUREAU OF INTERNAL RENUE(WR) OFFICE

CORDtLLER ADMINSRATl9E 0UlREALU OF CUSTOMS(SOC) OFFICE00RDILLERA ADMINISTRAWE REGIONJCAR1 vCEN~T1ALVI101YAS

__REOON OULNOARIESCAGAYAN VALEY viii ERSTIIl 1ISAYS

- INTERNATIONAL SOINDARIES

1aTRAL LZON ix '-NMNViA

NWTIONAL CAITAL PGION (NCI x NETHBE MND)ANAO

1, SOLTHERN TAOaLOG xl SOU5HN MNNAR 0N0 A

(CordiIi. I 8L KILOMI!TERI 0 100 200 300sO tL xii CEN11ALMIINDANO 1 __ __ _ __I__ __ __ _

RR t J) 9 ' ~MILES O tO 100 150 200

t¢o~~~~~~~~~~~~~~~6 r,7 ^i

16-~ ~ ~ ~~~~~~~~~~~

RR R IIiA 11| LUZON

FSnwsrnondo0

NtATIONtAL OEFtCE

(Aton h.,NsCR) _CltC)P ;f, (Msnilo.NCR~~ low

1 Office of the /- O. )Commi-sion,,eNr)A - CATANDUAI4S

2 part of Manila / 7

'-S o

3 Manila International _Contain-r Port .a . p

4 Nimoy Aquino t IVr6ofBatnga 0BanInternotiornal Ai,,port I

S Sub-port of FTn MJNDORO r|7-F n lFoodTminl Inc.)

Villi12

Vi..~~~~~~~~~~~~~~~~S

in. W*rld -. , / S _ r- . 3

Jo, ~ ~ , .t / Vl se.t. of r od s m_ o . fCotf CEU . 9PAAW.A,t I S A Yt A S ;N d l

sw ,.Zh 4:t ft:, Ro/, NE 4R1

ri.o.asi of Th. WW fdb/.kGovp.76 osd\I M-Sn/ --

rm^; do^aotimptrxI^w la C*bu Internatlona > >> oar ,f w.od -of Wor a.nX

P.d~~~~~~~~~~~~~~_ pi Wai 1- a

wdw _d ortd [< ~~~~~~~~~~~~~~~~~Caun AQtioo dd.t .ort.)vubour_ M!NJ .S! / 1 \g'a l°

. rd / L ddor-et

C.k H Y I NA 1;/i; DA 9

Ir -t ('t'/ r r rCo yuao, )oOr,,

SQ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ e

t~~~~~~~~~~~~~~~~o T3 , *o& /0 Z'w;ur dof CoaatSu

PHILIPPINtES/ ,

SEtt .JRNEI 5ULU Celebes SeaJ

NONGEIA

___ __ __ __ _Z.__ __ __ ___ 1 A.ly

tN lleR 1 991t