BIR promises reforms in tax audits
By: Atty. Euney Marie J. Mata-Perez on January 29, 2026
WE have been asking the Bureau of Internal Revenue (BIR) to implement a fair, transparent and risk-based audit program. Under existing regulations, the BIR supposedly adopts and implements a program which sets down the rules in prioritizing audits. But its implementation has not been apparent.
Thus, it was a welcome reprieve when the agency issued Revenue Memorandum Circular (RMC) 107-2025 suspending BIR audits effective Nov. 24, 2025. The suspension gave taxpayers a temporary break, and also gave the BIR an opportunity to review and realign its audit strategies and processes.
However, the audits will resume with the issuance of RMC 8-2026 on Jan. 27.
It was also a welcome development when the BIR, headed by Commissioner Charlito Mendoza, invited stakeholders of the BIR-PMSG (Private Multi-Sectoral Group) Technical Working Group to a meeting to present its plan to improve the audit selection process. We represented the Management Association of the Philippines at the meeting held on Jan. 21.
At the meeting, the BIR acknowledged there were gaps in pre-audit controls and in the conduct of audits and assessments, as well as in its institutional structures and IT systems.
Reforms
As part of its reforms, and as confirmed in the just-issued Revenue Memorandum Order 1-2026, the following will be implemented:
– The BIR shall issue a single electronic letter of authority (eLOA) for all internal revenue taxes per year, as a general rule. The exceptions would be one-time transactions, tax clearance requests, business registration cancellation and fraud. This framework is intended to avoid multiple and overlapping audits.
– Only the following shall be valid to authorize an audit: eLOA, mission orders and tax verification notices. Manual LOAs are no longer allowed.
– Existing eLOAs, such as LOAs for internal revenue taxes and value-added taxes (VAT), shall be consolidated, except when the taxpayer opts not to consolidate. The automatic consolidation shall be effective March 4, 2026.
– In this regard, the VAT Audit Section and the Large Taxpayers VAT Audit Unit will wind up and cease operations.
– Audit selection will be “risk-based” and “system-assisted,” thereby removing the discretion of officers for audit selection. In doing the selection, the BIR shall be guided by and adopt various risk indicators and shall come up with an anonymized list of taxpayers to be audited. Thereafter, the Commissioner of Internal Revenue shall personally approve the list. The criteria or risk factors to be used by the BIR shall include quantitative risk indicators, cross-return and third-party mismatches, behavioral and trend signals, mandatory triggers and structural or industry risk flags.
– The BIR shall adopt a zero-tolerance policy on erring BIR officers, and shall perform strict oversight over the entire assessment process and all its stages. It shall strengthen documentary requirements, and enhance its monitoring and reporting mechanisms.
It is a welcome development for the BIR to adopt the aforesaid proposed reforms. However, we also requested the BIR to review the audit procedures conducted by BIR examiners. We raised many issues which taxpayers encountered in the course of the audit and in defending assessments issued against them.
Thus, the next step should also be for the BIR to review and update its audit manual, which sets out the procedures and guidelines to be followed by the BIR examiners in the conduct of audits.
While admittedly, the Commissioner of Internal Revenue has the power to examine and audit the books of taxpayers, assessments should also be done in a fair and transparent manner, based on facts, and not based on assumptions and presumptions. Since assessments are presumed to be valid, taxpayers will always have the burden of proving their position. In so doing, taxpayers incur costs. These costs all factor in the unease or ease of doing business in the country.
In any case, we are grateful that the current BIR administration, headed by Commissioner Mendoza, is very open to our suggestions and comments. We look forward to collaborating with them further on initiatives which will make tax collection efficient, effective and fair.
Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer and has been ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal and is the Chair of the Tax Committee of the Management Association of the Philippines. She acknowledges the contribution of Atty. Mary Grace S. Tejada in this article. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.
The article was published at the More to Follow Column at The Manila Times on January 29, 2026. Please see this link.