Taxes are what we pay for civilized society

The tax system of a country is a good measure of the scale of its development. To a large extent, the form of government determines the kind of tax system that a nation-state creates and adapts. In earlier times, “a tax is owed because a government orders it to be paid. Nothing else is required.”

This still holds true. As one eminent tax historian wrote, “the essence of a tax is the taking of money or property or services, by the government, without paying for it. Basically, it is a forced contribution of a citizen to provide fuel to continue the operation of the government. Who are taxed, what are taxed, how tax is paid and collected, what are the rates and base of tax, and how it is spent, define the quality of the tax system of each country, and mirror its state of condition.”

The performance of revenue agencies has always been measured in terms of tax effort ratio. Simply put, it compares the actual tax collection to the potential tax that could be collected, given the current socioeconomic conditions as well as the level of development of its institutions.

The recent and numerous tax reforms that the government has initiated and accomplished are good in terms of making our country more competitive in the region. The lowering of tax rates both for individuals and corporations is admirable. Likewise, the reduction of the estate tax and donor’s tax and equalizing both with the capital gains tax is a realistic and creative approach in addressing the common practice of under declaration.

The greater concern of any state is its capacity to collect taxes. For the longest time, the state has always looked at tax administration from its point of view. Tax collection is viewed from the top and center. Little attention has been given to the point of view of the periphery, particularly the taxpayers. Largely ignored is how services are rendered to them with speed and convenience like the processing of payment of estate, donor, and capital gains tax on real properties, and where tax clearances are needed to effect transfer of titles.

The much greater challenge our government faces moving forward is to demonstrate that taxes are properly and judiciously spent for the good of the people and the development of the country. The government must not only look at its role of helping people but must also have the perspective of the people. This requires a total change of mindset among our civic leaders. All past governments have their share in many scandalous government expenditures. Our government has FAILED MISERABLY because not enough taxes were spent to uplift the lives of the majority of our people.

In contrast, let us look at the experience of welfare states where taxes are close to 50 percent of income or even higher. Their tax capacity is much better not only because they have effective measures of tax compliance and enforcement, but also because taxpayers feel the presence of government in their lives. They look at their government in a positive way—a partner that plays a significant role in their lives from birth to death. Their basic needs like education, health, water, and power are taken care of or are made affordable to ordinary citizens.

At this point in our history, the credibility of our government is under serious attack. The trust level is low. What is more worrisome is how people look at our national and local leaders in an opaque way despite records of personal scandals and lies. Radically improving the tax capacity of the government is a herculean task when our current and aspiring leaders cannot prove that they are paying their taxes correctly and honestly. Governments will fail if its leaders have no credibility. Honesty and integrity among civic leaders are the bedrock of a government by the people, for the people, and of the people.

Taxes are what we pay for a civilized society, as US Justice Oliver Wendell Holmes once said. But how we tax and spend determines, to a great extent, whether we are progressive or poor, free or enslaved, and, most importantly, good or evil, as tax lawyer and historian Charles Adams once wrote.

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René G. Bañez is a former commissioner of the Bureau of Internal Revenue and senior lecturer at the Ateneo de Manila School of Law.