By Karen Lema
MANILA (Reuters) - The Philippines' chief tax collector is constantly thinking about targets. Sometimes she picks up an assault rifle and hits them.
In July 2010, newly-elected President Benigno Aquino made Kim Henares commissioner of the Bureau of Internal Revenue (BIR) because he wanted a tough tax sheriff - and he got one who's taking aim at the country's legion of tax cheats.
Aquino gave Henares presidential guards, but the tax lawyer and accountant said "I should know how to shoot their guns, just in case".
The president, a gun enthusiast, gave her lessons at shooting ranges. The 52-year-old Henares, who packs a pistol, now can wield an M-16 and SG552 Commando.
Her no-nonsense approach appears to be helping pull in more tax, which is pivotal to meeting a government goal - getting rating agencies to award the Philippines investment-grade status.
Historically, tax collection has sometimes been a "let's make a deal" game between taxpayers and bribable officials.
Henares, BIR's deputy commissioner from 2003 to 2005, has been chasing evaders and crooked bureaucrats to clean up collection and the image of the bureau, perceived to be one of the country's most corrupt institutions.
She is also trying to make tax-paying synonymous with patriotism. The chief, who amended BIR's vision statement to call it a partner in nation-building, makes sure her staff attend weekly flag-raising ceremonies. She often wears a T-shirt sporting BIR's 2012 slogan: "I love Philippines. I pay taxes."
Her approach isn't just touchy-feely.
"We are changing ourselves from being primarily a customer service institution to a law enforcement institution," said Henares. "We were collecting taxes at the pace the taxpayer dictates."
Now, the bureau - which collects nearly 70 percent of all government revenue - is taking the initiative, and it wants taxpayers to be afraid of ignoring laws. "If you look at the psyche of the Filipino, if you do not put fear in them they will not obey," Henares said.
She does scare people, according to Budget Secretary Florencio Abad. "They fear her, rightfully," he said.
Headway is being made in plugging leakages. In January-October, BIR collected 858.6 billion pesos ($21 billion), nearly 14 percent more than a year earlier and 28 percent above the same period of 2010. In 2011, when the economy grew only 3.9 percent, total collections rose 12.3 percent from the previous year.
Progress is still needed. In 2011, the Philippines had a tax revenue-to-GDP ratio of 12.3 percent, well below Malaysia's 15.3 percent and Thailand's 16 percent, according to the Asian Development Bank. But last year, the Philippines was ahead of Indonesia's 11.8 percent, which has won investment-grade ratings from two agencies.
CLOSE TO INVESTMENT-GRADE RATING
Aquino aims to get tax revenue to at least 15 percent of GDP by the end of his term in 2016. Helped by Henares's efforts with legislators, he is nearing approval of a "sin" tax bill that should lift cigarette and alcohol tax revenue by 40 billion pesos the first year.
Fitch, Standard & Poor's and Moody's Investors Service have all raised their Philippines ratings to one notch below investment grade, thanks to the government's improving finances.
"The tax ratio has been improving and that indicates they are getting somewhere to an extent," said Philip McNicholas, Fitch's Hong Kong-based director of Asia Pacific sovereign ratings.
"It is clearly a positive for the rating, but that's got to be sustained," he said.
To McNicholas, what's needed is a "structural uplift... you've got to change people's perceptions, change people's minds on these things, and get them to participate."
RUN AFTER TAX EVADERS
After taking the helm, Henares revived a BIR campaign to catch cheats and promised no let-up.
She quickly filed her first case, against a pawnshop chain owner who bought a Lamborghini for 26 million pesos during a year in which he and his wife allegedly did not pay tax. The case is pending in a tax-appeal court, with the accused out on bail.
The cases that Henares files at the Department of Justice can lead to arrests, but only a court can convict. To date, only five tax cheats have been convicted.
While Henares may have to wait years to get her first criminal conviction, she has filed 135 evasion cases so far. They include a 120 million peso suit against an impeached Supreme Court chief justice and a 5.5 billion peso claim against a billionaire businessman.
"I take pride in all the cases we file, they are fully backed by data and evidence," said Henares.
The tax chief said she isn't discouraged by how slow the legal process can be. For alleged cheats, "we can always attach their property, we can foreclose on them, and we can garnish their bank account," Henares said. "Don't push us to that point."
The bureau is playing some hard-ball. Recently, it temporarily shut a hardware store in Davao which was accused of under-declaring sales by more than 30 percent.
Henares, who is married to a businessman, has an annual salary of only $17,000. Aquino gets paid about $20,000.
Abad, who was Aquino's campaign manager, said Henares long has had a reputation for being straight and firm.
"She is not very sociable, which actually is good because of the kind of work she does," Abad said. As she is incorruptible, people "don't even attempt to induce her with whatever form of inducement," he added.
In the office, Henares tries to make every minute count. She photocopied a newspaper article on places to get the tastiest roast pig in Metro Manila, not for eating-out tips but because she saw them as potential tax targets.
"I asked my people if they are registered and if they are issuing receipts," she said.
($1 = 40.87 Philippine pesos)
(Editing by Richard Borsuk)