MANILA — The Bureau of Internal Revenue (BIR) presented a revamped, system-driven tax audit framework to the Senate as lawmakers examined allegations that letters of authority (LOAs) had been misused or “weaponized” in past enforcement actions.

BIR Commissioner Charlito Mendoza said the agency has shifted to a digital, criteria-based audit regime under Revenue Memorandum Order (RMO) 1-2026, significantly limiting human discretion in the selection and issuance of LOAs.

“Ngayon po (Now), under the new rules, the taxpayers to be audited will have to be chosen by the system,” Mendoza said.

He explained that audit targets are now identified electronically based on embedded risk indicators, after which examiners and supervisors are assigned anonymously. Only after approval by top management are cases de-anonymized and forwarded for the issuance of LOAs.

“Dalawa na lang po generally ang makakapirma sa LOA (In general, only two officials are now authorized to sign LOAs),” Mendoza added, referring to regional directors or the Large Taxpayers Service, with fraud cases coursed through national investigation units.

Mendoza noted that about 45,000 previously issued LOAs remained active when the BIR suspended audit and field operations last year, but these are now consolidated into a single electronic LOA per taxpayer per taxable year, unless a taxpayer requests otherwise.

Committee chair Senate President Pro Tempore Panfilo Lacson said system-driven and anonymized selection appears to reduce opportunities for manipulation, likening the process to a coded system where neither auditors nor supervisors know in advance who they will examine.

Pressed on possible loopholes, Mendoza said the reforms were shaped by stakeholder consultations, including recommendations from the private sector through the BIR Partnership with the Multisectoral Group, but stressed that consistent implementation remains the challenge.

“As much as possible, we did our best to come up with a policy that will measure up to what the public hopes to expect from us, which is transparency and predictability, and fairness,” he said.

Additional safeguards include:

• Clearer definitions of audit authority
• Single-Instance Audit Framework limiting audits to one LOA per taxpayer per year
• Standardized audit checklists
• Stricter documentation requirements
• Prohibition of examinations beyond authorized tax years or tax types
• Dissolution of special audit task forces, including the VAT Audit Section and the Large Taxpayers VAT Audit Unit, returning audit functions to regular BIR offices
• Institutionalization of the Revalida or “Audit-the-Auditor” system to review audit work quality, timeliness, and propriety

Senator Erwin Tulfo questioned whether the reforms ensure accountability, citing data showing that only a small fraction of LOA-related complaints previously reached prosecutors.

Mendoza said the new rules provide for administrative, civil, and criminal liability for erring personnel and confirmed that internal cases are already underway.

“As of now po, meron kami 30 employees that are undergoing investigation (As of now, we have 30 employees undergoing investigation),” he said, adding that 25 already face formal charges.

He also confirmed ongoing personnel reshuffling in revenue district offices to protect complainants and prevent retaliation.

“Ongoing po ito (This is ongoing),” Mendoza said, adding that dismissal from service remains an option where evidence warrants. “Kung ang ebidensya ay magpapatunay na talagang may malaking kasalanan na nagawa… ididismiss po natin sila (If the evidence shows that a serious offense was committed, we will dismiss them from the service).”

Mendoza said audit reforms form part of the BIR’s DARES agenda, covering:

• Digital and Data Transformation
• Audit Reform and Accountability
• Revenue Collection and Base Protection
• Employee Empowerment and Welfare Promotion
• Service Excellence and Stakeholder Engagement

“With these reforms… the BIR audit system is being strengthened. Standards are clear, and accountability is enforced,” Mendoza said.

(PNA)