Do it all together
I don’t understand the rationale behind amending taxes in two phases. The first phase addresses personal taxes and estate and donor taxes, and the second, corporate, property and other taxes (e.g., carbon tax, lottery and casino tax, etc.).
Instituting changes in a tax system is always controversial, argumentative, and too slow. Politicians are more than willing to reduce the taxes people pay, but unwilling to cover the cost. That can be a bruising fight, so why go through it in phases? Get it over and done with at once.
There will be vehement opposition to the increases essential to cover the cost of the tax reductions. I have no doubt that the Left, particularly, will argue for no increase on the silly argument that “we can reduce taxes because it’s good for the people, and the losses to government will be found somehow.” But that “somehow” has to be painful to someone, so why not the people who will benefit?
The Department of Finance is recommending that personal tax losses be covered by increasing the excise taxes on petroleum products, reducing coverage of VAT exemptions, and raising taxes on automobiles.
To compensate for the corporate tax reduction, the measures suggested are rationalizing fiscal incentives, raising taxes on sweetened drinks, further increases in “sin” product taxes, and other taxes.
These all total about P300 billion in yield for the personal tax reduction, and P120 billion for the corporate. Both will readily cover the P128 billion and P77 billion of expected losses if they all pass as requested. They won’t.
The biggest opposition will be on reducing the VAT exemptions, especially on senior citizens. But there will also be vehement opposition to a higher excise tax on gas and diesel. Rationalization of fiscal incentives got stymied in the last Congress as the DOF and the Department of Trade and Industry argued with each other. It may in the incumbent Congress, too.
We suggested (see my column “Taxes up in smoke,” 10/13/16) additional areas where revenues could be found. These include universal marking of oil products to stop smuggling (which could generate between P30 billion and 40 billion) and stopping the sale of illicit cigarettes (P13 billion). Eliminating smuggling of all sorts of products has the potential to raise P200 billion. A P5 tax on each kilogram of sugar that enters the market, instead of singling out just one product that uses sugar (cakes and candies are just as bad), equals P68 billion. More efficient tax collection, raising the tax effort to the 17 percent achieved during the Ramos administration, could produce P370 billion. Completing 500 tax evasion and smuggling cases that have not progressed in court (P95 billion) and the recovery of the Marcos ill-gotten wealth (believed to be around P290 billion) round up my suggestions. Now I know there’s no way the Marcoses will give back our money—as 30 years of history show us, and no one will force them to. So, you can’t expect that. But that still leaves P946 billion added to the pile. So, some accommodation to Congress opposition could be made if these are included.
There are other sources of revenues, but these can’t be quantified, only guessed at. And that is the additional investment in businesses that will occur with lower taxes and, hence, easier ability to make a profit. It will also remove one of the deterrents to foreign investment, by making the tax regime competitive with that of our neighbors. There will definitely be more revenues. It’s the same with the VAT: More money in people’s pockets results in more to spend, but how much can’t be determined. But we can’t follow the Left’s argument. So, we can’t take this into account. But it will happen.
Let’s get it over and done with at once. This is a government that promised a break from the past, of endless promise and little action. Let’s see that action now, not in phases. And in the first quarter for implementation by midyear. Time to stop pussy-footing around.
E-mail: firstname.lastname@example.org. Read my previous columns: www.wallacebusinessforum.com