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mGovernment Case Study No.2

SMS and Receipt-Reporting for Tax Purposes in the Philippines

Case Study Author

Emmanuel C. Lallana (lallana@pfgc.ph)

Application Background

Tax collection has always been a problem in the Philippines. Leakage is high: by one estimate close to a third of tax due is not collected by government. Of particular concern to tax collectors are the self-employed professionals who do not have fixed incomes. The Bureau of Internal Revenue (BIR) has a difficult time determining if the declared incomes of these professionals are correct. While it is generally assumed that people regularly under-declare their income for tax purposes, sending tax examiners to go over the income tax returns of these high net worth individuals might simply create opportunities for corruption.

The BIR believes that if more citizens demand receipts for goods and services rendered, they would have a more solid basis for determining taxes due from professionals. The traditional solution is to undertake a "demand a receipt" campaign, which has been done. The BIR also decided that winning a million pesos (approx US$20,000) in a raffle might give citizens incentives to ask for receipts. So they launched a raffle where citizens send the receipts they've collected for a chance to win the million pesos. To a certain extend the raffle was a success. People were sending in receipts by the thousands but the BIR did not have enough people to go through the receipts for data mining purposes. This led them to Bayan I-Txt ang Resibo : an SMS-based raffle to replace the traditional raffle.

Application Operation

To join the BIR's SMS-based raffle, citizens send their name and address, the Tax Information Number (TIN) of the professional/business/commercial establishment from which they have purchased goods or services, the receipt number, and the cost of purchase (one raffle entry is given for every 100 pesos-worth of purchase) to their cellular service provider. Each text message to the BIR costs the sender P2.50 (US$0.05).

In its first five-month run (June-Oct 2003) Bayan I-Txt ang Resibo paid out P5m (US$100,000) in total to five winners of five national draws. In November 2003, the BIR decided to change the format of raffle. Henceforth there would be weekly draws in the country's 16 administrative regions where the winner will get P25,000 (US$500), then a grand (national) draw where the winner gets P1m.

Application Impact

The BIR reports that 168,694 individuals registered for the SMS-based raffle from June to October 2003. But as a single registrant can send multiple entries there were a total of 2,775,902 entries for the said five-month period. The total amount of goods and services accounted for by receipts sent is P15.577bn (more than US$300m).

But what if the service provider did not issue a receipt? Bayan I-Txt ang Resibo also provides taxpayers an opportunity to report stores/service providers who do not issue official receipts. In the same five-month period, the public reported to the BIR a total of 16,533 establishments/businesses/professionals who were not issuing official receipts.

In joining the raffle, citizens are not only helping the BIR in its tax compliance drive but they are also providing the BIR with other valuable information. For instance, the BIR have caught establishments issuing non-BIR registered (hence fake) receipts because of the SMS raffle. They have also caught businesses not registered with the BIR or whose Tax Information Number (TIN) is fake. Because the TIN is supplied by the texter and they get multiple receipts from specific service providers, the BIR can also make reasonable estimates of the yearly income of these service providers.

An important enabler of this m-government system is the fact that BIR did not have to spend any of its own money developing the infrastructure for its SMS-based raffle. Bayan I-Txt ang Resibo was developed in partnership with cellular service providers and application service providers (ASPs) on a fee-sharing arrangement. Of the P2.50 paid by the citizen every time they send a text entry, 70% goes to the cellular service provider and 30% goes to the ASP that provides the servers and other equipment that runs the raffle. While BIR is currently providing the prize money for the raffle, it is expected that the prize money would eventually come from the 30% share of the ASP.

Future Plans

The BIR is not yet completely satisfied with its SMS-based raffle. Its target is to get 10% of cell phone owners (or 1.6 million participants) to join the raffle. It attributes its low participation rate to lack of advertising; specifically the lack of funds to advertise on television (which is deemed as the most powerful media in the country). The BIR plans to talk with the Philippine Charity Sweepstakes Office, which runs a televised weekly Lotto draw, to include the Bayan I-Txt ang Resibo draw in its show.

Case Details

Case Editor : Richard Heeks.
Author Data Sources/Role : Interviews and Documents; No Direct Role.
Outcome : No Independent Evaluation.
Region : South-East Asia. Start Date : 2003. Submission Date : February 2004.

Last updated on 19 October, 2008.
Please contact richard.heeks@manchester.ac.uk with comments and suggestions.