The Senate Blue Ribbon Committee on Thursday, 11 December, launched a sweeping investigation into what lawmakers described as a “systemic and deeply rooted” money-making scheme inside the Bureau of Internal Revenue (BIR) involving the alleged misuse of Letters of Authority (LOAs) and Mission Orders (MOs).

The inquiry follows mounting complaints from business owners—from small neighborhood enterprises to multinational corporations—who claim they were subjected to harassment, intimidation, and extortion under the guise of tax audits.

At the hearing, Senator Erwin Tulfo, who first exposed the alleged scheme in a privilege speech last month, condemned the practice, saying the tools designed to ensure lawful tax collection have instead been twisted into instruments of fear.

“For years, small and big businesses have raised serious concerns. Many claimed they were subjected not to fair tax assessment but to pressure, intimidation, and questionable demands in exchange for withdrawal or softening of tax investigations,” Tulfo said.

“Kahit mga international companies, hindi ninyo pinatawad,” he added. “Hindi ito dapat gamitin na sandata ng pananakot o instrumento ng corruption.”

According to Tulfo, whistleblowers allege that some BIR personnel remit only about 25 percent of collected taxes to government coffers, with the rest pocketed in exchange for favorable or halted tax audits.

“If these complaints were true, then we’re looking into systemic abuse that harms not only individual taxpayers but also the nation’s business climate and international reputation,” Tulfo warned.

“Kapag nawalan ng tiwala ang negosyo — local man or foreign — nawawala ang trabaho at kita para sa ating mga kababayan.”

Present during the hearing were Finance Secretary Frederick Go, BIR Commissioner Charlito Mendoza, former commissioner Romeo Lumagui Jr., and former BIR chief Kim Jacinto-Henares.

The controversy has already prompted the BIR to suspend all field audits and the issuance of new LOAs and MOs pending internal review. Malacañang earlier announced it would conduct its own parallel investigation.

Meanwhile, Senate Blue Ribbon Committee chairperson Sen. Panfilo Lacson pressed Henares to explain how LOAs should function when properly used.

“Give us a walk-through of the process,” Lacson said. “When a taxpayer is targeted for audit, how does it begin and how does it end? Is there a limit to the number of LOAs that may be issued to a particular individual or entity?”

In response, Henares underscored that the LOA is a crucial enforcement mechanism, noting that it helps capture revenue from delinquent taxpayers who do not comply voluntarily.

Based on BIR data, she said, 98 percent of tax revenues come from voluntary filings, while only 2 percent come from assessments triggered by LOAs and MOs.

She revealed that during her term, she implemented strict controls, including an audit plan limiting examiners to auditing a taxpayer for only two consecutive years, and required close monitoring of LOA issuances to prevent abuse.

Henares also cited a study showing the government loses over P1 trillion annually to tax evasion and related schemes—revenue gaps that LOAs were meant to help address.

What an LOA is — and isn’t

A Letter of Authority is a formal legal document empowering designated BIR officials to inspect a taxpayer’s books, records, and documents for a specific period. Without an LOA, any audit or examination by a BIR officer is illegal.

But based on numerous complaints, senators say LOAs are being exploited—sometimes issued excessively, repeatedly, or used to coerce businesses into paying “settlement fees” rather than undergo lengthy audits.

Various business groups have warned that the alleged racket has deterred investments and eroded trust in the fairness of the Philippine tax system.

Earlier in the hearing, Tulfo stressed that some companies reported being threatened with multiple LOAs unless they agreed to under-the-table payments. Others claimed investigations were initiated without proper basis, allegedly to pressure them into giving “grease money.”

“If these allegations are true, then we are looking at systemic abuse that harms not only individual taxpayers but also the nation’s business climate and international reputation,” the senator lamented.