It can be win-win
Last week I said I’d discuss the tax issue some more. A promise is a promise, so here goes.
I believe a crucial aspect of any tax change shouldn’t result in the government getting less. Oh, I know we can question how what we give is spent, but fixing that is a whole new subject of wishful thinking—something that perhaps the next president can look into.
So, no nebulous ideas like “We better catch the tax cheats” or “More people will pay if taxes are lower” or “More investors will flock in.” All those might indeed occur, but no prudent manager, and Finance Secretary Cesar Purisima is that, would make policy changes on a promise.
Last week I suggested fuel marking. It would work and it’s painless. But what else? Well, there’s one that would certainly cover the revenue loss: Raise the VAT (value-added tax) from 12 percent to 14 percent. Now before you scream, think. What would you choose—money confiscated from you before you even see it, or money taken as you spend it? I’d rather be taxed as I spend. The poor can be protected, as they mostly are now, by excluding fresh food and lifeline usage of power and water and other essentials from the VAT.
The only problem with this is not that it makes the VAT the highest in Asia, which would be quite OK if our income taxes were the lowest. But even with the suggested reductions, they still wouldn’t be. And anyway, there’s absolutely no way politicians are going to raise the VAT scant months before the elections. Sen. Ralph Recto found that out when he courageously, and correctly, supported the Reformed VAT (RVAT) Law in 2004—and lost the subsequent election. Fortunately he’s back, and I hope you’ll vote for him in May. We need people like him who can go beyond populism. I’ll be voting for him in my first-ever vote.
Anyway, the VAT is out for now. So what else? An increase in the excise tax on oil products makes eminent sense. The tax would have to be tied to world oil prices by some formula that brings it to zero when oil prices hit a particular level. And have a time limit, say five years, before expiring, thereby forcing the government to find alternative and better sources by then, such as catching the big tax cheats and the lousy court system actually acting and putting them in jail.
About 500 tax cheats or smugglers have been caught in the past five years, with not a single tax evader yet jailed. So with a court system like this, the administration needs to be creative (“sneaky” would be a better word). The government could sit on the release of imports to those people; delay the release of operating permits; use the Bureau of Internal Revenue’s “Name and Shame” campaign to take out a full-page ad on just that one person; and close the road in front of their factory or mall or whatever for “major repairs.” In other words, do a Duterte. Stay legal, but bend the rules.
Around 19 percent of the cigarette market in the Philippines was taken over by illegal trade last year, resulting in a P22.5-billion loss in revenue to government coffers, according to Oxford Economics. The figure is a 44-percent increase from P15.6 billion in lost revenues in 2013.
Taxing sodas is not the way to go, as has been proposed in Congress. It’s true it could raise P10.5 billion but (a huge but) it sets a very dangerous precedent. It uses political judgment to decide what to tax. Sodas aren’t good for you, but neither are candies and cakes (even those from the Makati mayor) and, I’d argue, one of my pet peeves: fast food. Burgers, french fries and sundaes are definitely bad for you. Are we going to have a supertax on these? Even white rice should be taxed to discourage its use. You can just imagine the reaction to that. And in countries where it has been tried, it has failed to have any significant impact on people’s health. So, no to a soda tax.
The government has some P6 billion in assets it could sell; it just needs to remove informal settlers on some properties (which needs nothing more than political will), or resolve titles where contested.
Congress’ passage of the proposed Tax Incentives Management and Transparency Act and the Rationalization of Fiscal Incentives Act would result in roughly P30 billion in additional revenues for the government.
The tax effort, or tax revenues, as a share of gross domestic product is 13.6 percent. In comparable countries in Asia, it’s 16 percent in Malaysia, 15.3 percent in Thailand, and 13.8 percent in Singapore. If the 1.7-percentage-point difference with Thailand is matched, that would equate to additional P215 billion. So the BIR should look into how to catch those losses. And that means going after the big cheats, not hitting the honest guys.
Or, finally, put real effort into getting back all the money that the Marcoses stole. It’s estimated by the Presidential Commission on Good Government to be some $10 billion (P460 billion), yet only P168 billion has been recovered from Swiss bank accounts, sale of ill-gotten properties, etc.
Bongbong Marcos could win the vice presidency by promising to return this money if he wins to fund lower taxes for all of us. But he would have to put the money in escrow as promises by politicians mean nothing. What a winning campaign strategy that would be.
The government can get the revenues, the people can pay lower taxes. It’s win-win for everyone.
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E-mail: [email protected]. Read my previous columns: www.wallacebusinessforum.com.
