BIR launches tax fraud audit on flood control contractors

The Bureau of Internal Revenue (BIR) is launching an investigation into contractors involved in irregular flood control projects, Commissioner Romeo Lumagui Jr. said Tuesday.

Lumagui said he directed all BIR offices to conduct a parallel audit of these contractors’ tax returns and payments. The initiative is part of a broader effort to support the President’s investigation, he said.

“The BIR will undertake a parallel investigation of contractors implicated in irregular flood control projects,” Lumagui said in a statement.

“Should any contractor be found to have underpaid or evaded taxes, the BIR will not issue an updated tax clearance. The contractor will be disqualified from participating in future government procurements, and the final settlement of their existing government contracts will be suspended,” he said.

Lumagui said the directive aligns with Revenue Regulation No. 17-2024, which requires government contractors to secure an updated tax clearance from the BIR before the final settlement of any government contract.

The clearance certifies that the contractor has no outstanding tax liabilities and has duly filed and paid all applicable taxes. The updated clearance is separate from the initial tax clearance required during the bidding process.

Failure to present the updated tax clearance will result in the suspension of the final settlement of the government contract and the imposition of a tax lien on the contract amount.

These enforcement mechanisms are intended to safeguard public funds from contractors who fail to comply with their tax obligations, the BIR said.

Section 235 of the National Internal Revenue Code (NIRC) authorizes the BIR to conduct multiple audits within the same taxable year in cases of fraud or irregularities.

“The BIR will make sure all contractors in the country are paying the right taxes,” Lumagui said.

“They are earning from projects funded by taxes from millions of Filipinos and businesses—it is unacceptable if they do not pay the right taxes,” he said.

He also addressed reports of so-called “ghost projects”—flood control projects that were fully paid for and reported as completed but were never actually constructed.

“If the BIR, through certification or endorsement from the appropriate government agencies, confirms that a flood control project is a ghost project, we will disallow all related cost and expense claims,” Lumagui said.

“No project means no deductible expense. A tax deficiency assessment will be issued accordingly,” he said.