What is benchmarking? It is a process used to determine the performance level of tax payer in a given line of industry.

It may be revised every 2 years or when there is a change in vat rate. Why use benchmarking? 1. Assess the trend of revenue collection among all tax payers in a given industry. 2. Assess the compliance rate of companies. 3. Provides basis on the difference between actual collected revenue and revenue collection based on 100% compliance rate called Tax Gap.

Benchmarking Cycle or procedure by the BIR: 1. Gather Tax Data such as VAT returns, income tax returns, and attached FS. 2. Sort out tax returns into specific industry if necessary. Ex. Manufacturing, Trading, Restaurants, Hotels 3. Sample Industry population used for benchmarking standard: Metro Manila Regions: At least 20 tax payers per industry per district Other regions: at least 10 taxpayers per industry LTS: at least 5 tax payers per industry

4. Preparation of tax payers profile VAT returns with carry-over input VAT and those that carry input VAT due to purchase of capital goods shall be excluded. Computation of GPR, ITR, VAT Rate.

5. Arrangement of GPR Data from highest to lowest taking into consideration normal industry profit margin, VAT, income tax return compliance. 6. Determining Average Tax Rate Compliance. 7. Preparation of Hi-Low Point Analysis Profit Range Classification (at least 40% up, over 10%, less than 10%) At least 20% or more of the representative per industry.

Get the mean for GPR, ITR, VAT Rate

8. Evaluate the result and establish benchmark 9. Choose lower between Hi-low and Simple Average Method 10. Compute EVR: GPR x Current Rate

11.Revenue Loss Computation for Income Tax and Value Added Tax using gross profit range (over 40%, 36 to 40%, 31 to 35%, 21 to 30%, 11 to 20%, and below 10%) 12. 13. Notice to Tax Payer 01-001-09-001

14.Within 15 days from receipt of said notice the taxpayer must explain fully in writing its failure to measure up in compliance with set industry benchmark. Failure to satisfactorily establish its reasons, the taxpayer may be issued a Letter of Authority or be subject to other enforcement activities. 15. 16. 17. 18. 19. Evaluate Taxpayers Response/Reactions Analyze and Prepare Reports and Recommendation. Enforcement Actions Assess and Collect Deficiency Taxes Evaluate, Compare & Adjust the Final Benchmark Revise Benchmark

20. Monitor the activities and accomplishments on benchmarking. Prepare and submit the reports in soft copies 21.Periodically review the statistical method utilized to arrive at the benchmarks.