I really do believe that most Filipino officials are straight and most are incredibly sincere about building a better culture within Government and thereby building a better future for their people. However, there is also no shortage of corrupt or at least opportunistic officials in every government department. If the word spreads that you or your organisation is up for making cash payments, then you will be inundated with officials swarming like flies looking to get their share.
This is why reputation is EVERYTHING in the Philippines. And this is why it is really vital that all Australian businesses take the same hard line approach to these issues. For the sake of all Australians doing business in the Philippines, it is vital that each one of us takes a very hard line against this stuff and presents a very difficult and tough target for corrupt officials.
Right now I am focussed on trying to crack open a new Australian player who I know is playing fast and loose. I am not sure they are corrupt, but I do know they are highly vulnerable. What they are doing is paying their staff one figure and officially declaring a much lower salary to the local tax office – effectively giving their staff a ‘tax shield’ so as to enable them to avoid tax.
There are four things they are missing:
Under Filipino tax law the company is responsible for making good any such shortfalls on behalf of the employee, so if the whole thing unravels it is them who will cop it not the employee.
When any member of staff leaves them and joins another firm, they have to present their 2316 certificate to their new employer. This details their salary and tax information. This means if you are doing something dodgy then every time an employee leaves your employment for another company, probably a company in the same industry as you, that company receives documentary proof of your dealings.
Each employer in the Philippines is responsible for doing the end-of-year tax reconciliation for each employee – kind of like an in-house H&R Block service. This means that if you are dodgy and the new employer is straight, then the straight employer is going to have to suffer some pain sorting out the mess plus make various reports to the tax office. You don’t want your competitors experiencing pain due to your behaviour just at the exact time they are preparing reports to the Tax Office.
The fines for this kind of thing are HUGE. And this is where it all unravels. Once the Tax Office figures out that they have a foreign company operating here who is playing fast and loose, then they go after them as hard as they possibly can. And why shouldn’t they? Foreigners are only ever guests here and nobody wants a guest who doesn’t respect the furniture – even if they themselves don’t.
And here is the big problem. Once you get caught playing fast and lose you leave yourself open to corrupt claims by officials.
Let me go back to my story about the traffic officer. I had two choices; pay some cash through the window or pay the fine. And remember how much work was involved in paying something as simple as a traffic fine. Think about how much more work is involved in paying a large and very complex fine around a failure in business compliance?
Now, think about how much pain you are going to be in if, due to your reputation, you have attracted the wrong kind of official to your case – and that official is by their nature highly motivated to do everything they can to keep you in pain? After all, why would they want you to resolve your difficulties? What is their motivation?
What are you going to do? Threaten a lawyer? Who are you going to go after, the tax office or the official? Either one will go well for you. Not.
Maybe try to go to the industry association? Why would the industry association help someone who has played fast and loose and thereby muddied the waters for everyone else?
Meanwhile are you going to go to the pub and moan to other Australian business people about how hard done by you have been? They are only going to be upset that you have made a big dent in the reputation of all of us.