It is not as if this is the first time we are told that a great number of professionals (e.g., lawyers, accountants, doctors), and the rest of their self-employed, “own-account” brethren, don’t seem to be paying their fair share of taxes. One certainly remembers that P-Noy made a point of it in his State of the Nation Address. It’s been written about at any time these past 20 years, including by yours truly, who also brought it out in any number of speeches in front of professional organizations.
So why has such offense been taken? What’s with the onion-skinned reaction on the part of the Philippine Medical Association? Are the accountants and the lawyers (the lawyers have not as yet been featured, and if the ad campaign of the Bureau of Internal Revenue and Department of Finance does not include them soon, there will be hell to pay) going to say that they, too, are being unfairly treated?
Only consider: Of the 1.7 million professionals registered with the Professional Regulation Commission, less than a quarter—about 400,000—are registered taxpayers. That leaves 1.3 million who are not paying taxes. Surely it is not a leap of logic to conclude that these will include doctors, lawyers, and accountants, among others?
Then there are the studies of the DOF showing that (and I brought this out 12 years ago, courtesy of Nene Guevara) that for every P10 collected from a fixed-income earner, P1 is collected from a professional. That’s how bad it is. Surely doctors, lawyers, and accountants are also involved here.
In other words, there is enough empirical evidence to justify the ad campaign. There is nothing in the ad campaign that says, or even implies, that all doctors are tax cheats. The ad shows one doctor whose income is more than P1 million paying P7.4 thousand in income taxes, riding on the back of a teacher whose income is P852 thousand paying P221 thousand in income taxes. Then there is a message: “When you don’t pay your taxes, you’re a burden to those who do.” That is all.
From there, the PMA has proclaimed that the thrust of the ad is that the entire medical profession is a burden to the Filipino people. Excuse me? What I understood from the ad was that if a doctor earning P1 million pays only P7,000 in taxes, the doctor has to be a tax cheat. That doesn’t mean all doctors are tax cheats. But it does mean that other doctors who pay similar amounts on their income are tax cheats. That is incontrovertible. Why should anyone take offense at that conclusion?
The same thing can be said of the accountants (it was amusing that the PMA’s Dr. Leo Olarte seemed to hold the accountants to blame for any misdeclaration the doctors made). In the ad, the accountant earning P540 thousand paid P2.5 thousand in taxes, while the chef who earned P513 thousand paid P101 thousand in taxes. Notice that the ratio of tax collections from fixed-income earners (the chef, the teacher) to those of professionals is more than P10 to P1—it’s more like P30 or P50 to P1.
So let’s not make any more out of the ad than what it says: for taxpayers to pay the proper taxes. That the message was eye-catching is a plus. Come April 15, let’s do what is right for the country. Kim Henares should be cheered, not jeered. She’s a hard worker, and she needs all the help she can get.
A look at where the Philippines stands with respect to tax efforts and tax collection compared to 110 developing and developed countries tells us what kind of problems we face (Le, Moreno-Dodson, Byraktar, Tax Capacity and Tax Effort: Extended Cross-Country Analysis from 1994 to 2009).
The tax revenue to GDP ratios of high-income countries in 2009 was 29.3 percent; of middle-income countries (the Philippines is one), 19.3 percent; and of low-income countries, 13.6 percent.
If we group the countries by regions, the tax revenues as percentage of GDP in 2009 for East Asia and the Pacific (EAP, which includes the Philippines) was 14.8 percent.
How does the Philippines compare with these averages (19.30 percent for middle income, 14.80 percent for EAP)? Our average for the period 1994-2009 was 14.34 percent, or below both averages. Worse, in 2013, per Sonny Coloma, this ratio was only 13.6 percent. Nota bene: A 1-percent shortfall from the average is equivalent to roughly P100 billion.
But the study goes further. It ranks countries according to “Tax Effort Index”—the ratio of actual tax collections to predicted tax collections (based on their model which includes the effects not only of income but also of demography, trade openness, agriculture value added and governance quality). The Philippines ranks 64th with a tax effort index of 0.91, which means it is not collecting what it should be collecting. Highest tax effort index is 1.66, lowest is 0.16.
It also classifies the Philippines as a low-collection, low-effort country. A country is regarded as low-collection if its tax collection is lower than 18.31 percent of GDP and regarded as low-effort if its tax effort index is less than 1.
The study, though, offers some consolation to Kim Henares, as well as those who feel she is picking on them: It has found that in recent years, countries with better institutional quality (such as bureaucracy and less corruption) can collect higher taxes. In other words, the quality of governance has to be improved for higher tax revenues.