When tax audits become extortion: Why the Philippines must fix the LoA system now

ON NOV. 17, during the Senate plenary deliberations on the proposed 2026 national budget, Senate Deputy Majority Leader JV Ejercito sounded the alarm over the alleged "weaponization" of Letters of Authority (LoA) by the Bureau of Internal Revenue (BIR), saying the issuance of LoAs is now being used as a tool for corruption.

- By Joey Brillantes

In theory, a Letter of Authority from the BIR is simply a document empowering an examiner to check a taxpayer's books. In practice, it has become one of the most feared instruments in Philippine business - especially among small and honest entrepreneurs who lack the lawyers, accountants, and political insulation of large corporations.

For many SMEs, the LoA is not an audit notice. It's an implicit threat. The moment it arrives, day-to-day operations freeze. Employees panic. Owners brace for weeks or months of visits, requests, "re-requests," and shifting requirements that often feel less like a compliance process and more like a slow tightening of a vise. The LoA has evolved into a culture of intimidation, where even those who try their best to comply are treated as if they are already guilty.

This isn't how a modern tax system should work. It's time we admit - publicly and without defensiveness - that our system normalizes behaviors and incentives that enable abuse.

To understand what's possible, I looked at the Singapore system and spoke to tax law expert Edward G. Gialogo of Gialogo and Associates.

TAX SCRUTINY IN SINGAPORE

The closest counterpart to the LoA in Singapore is the IRAS Audit Notification, but the similarities end with the label. Gialogo said the Singapore model is built on:

1. Risk-Based, Data-Driven Selection. Businesses are chosen for review through analytics, not "tips," not anonymous leads, and not arbitrary regional directives. When the Inland Revenue Authority of Singapore (IRAS) flags a taxpayer, it's because specific data patterns were detected - not because an examiner chose a target.

2. Transparent Scope and Timeline. An audit notification clearly states: what specific issues are being reviewed; what documents are needed; and how long the process will take. There are no endless follow-ups for "additional documents."

3. No On-Site Intimidation.