Taxes at the home stretch

Next week the bicameral committee of the two chambers of Congress will hammer out the first package of a new tax regime.

The principal purpose is to reduce personal income taxes for all but the top tier of wage earners, and no one is going to object to a tax reduction. The problem is where to apply higher taxes to cover the resultant loss in revenues (an estimated P141 billion). And the loss must be covered — in fact, preferably much more. This administration has to make up for the dereliction of duty of previous administrations in not building the infrastructure we need. There’s much argument as no one will willingly agree to tax increases anywhere. Yet they must happen. After some two or three decades of woeful underspending on infrastructure, rapid catch-up must occur. If we are to get the poor out of poverty and provide lots of jobs, we must have efficient infrastructure. And that costs money.

The Department of Finance would like P157 billion. The House version would give P134 billion, and the Senate version, as currently structured, would generate only P60 billion. Maybe the DOF can’t get it all, but it should get the bulk. I share Congress’ desire not to burden the poor, but from the research I’ve seen, I don’t think the DOF version does. Maybe a little in some limited areas, but the greater gains for all Filipinos offset that. I think we’d all be willing to spend a bit more on a few select areas to be able to live in a better world where we can actually get around. So I hope Congress will give us a bill that will generate as close to P157 billion as possible.

I’ve discussed what is needed and why earlier, but let me dwell again on one of the more controversial ones: a higher excise tax on oil products. The DOF wants an extra P6/liter excise tax. It should be given that, and here’s why:

1) About 10 years ago, before the global financial crisis, we were paying P60/liter for gasoline and P50/liter for diesel. And we lived with it; we managed. The amount of P6 added to current prices would result in gasoline and diesel prices of P54/liter and P42/liter. We’ve proved that an additional P6 is affordable.

2) We sit idling for hours in the world’s most horrendous traffic. I can’t find any study on the cost, but I’ll bet that if we had more roads, bridges, etc. and traffic flowed, the reduction in fuel consumption by not having long periods of idling would result in our overall monthly bill being no more than it is today, possibly less. Now I know that doesn’t apply in rural areas: There I admit people will pay more—but still no more than in the past.

Another highly contentious area is soft drinks. Here a P10/liter tax on soft drinks was proposed. This makes no sense, as my column of Sept. 28 explained. It would tax liquid, not sugar, yet it’s the sugar on which justification for the tax is proposed—for health reasons, where the health benefits have not been sufficiently proven.

But let’s go along with it and agree to a “sugar tax.” Here, two things. Where it applies to liquids, the tax should be on sugar content. All products today list that, or if they don’t, the Food and Drug Administration can determine it. For powders it should also be on sugar content, but some shouldn’t be taxed at all. On 3-in-1 coffee sachets it shouldn’t, because as I said before, these coffee sachets are present in about 90 percent of Filipino households, according to a number of market research studies. The amount of sugar in the average (200 mL) cup is 131 calories—a mere 5-7 percent of the recommended 2,000-2,500 calories to be taken daily. There’s no good justification to tax such a popular, daily demanded product. If you do, the poor won’t be able to enjoy one of the very few pleasures they have.

As for milk products, these are an essential health drink for children and the small amount of sugar will do little harm, if any. As it now stands, both chambers of Congress agree that soft drinks and milk products should be exempt. Let’s hope there’s no change of mind in the bicam. I can see no reason why there should be.

Finally, I question the continued exemption of cooperatives by the House. I agree that many of them do a great job, but I think they can afford 12 percent for the greater need today to fix our infrastructure. Stick with the DOF version.

E-mail: [email protected]. Read my previous columns: www.wallacebusinessforum.com.