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A tax revolution

/ 12:10 AM April 16, 2015

“Dare to go where no man has gone before.”

That’s leadership, and President Benigno Aquino III has shown it in putting honesty at the forefront of his administration. Several very influential (and hence, previously untouchable) people have been prosecuted. But progress has been slow. Of the 327 cases (with an estimated tax liability of P65 billion) filed against tax evaders, 283 are still pending with the Department of Justice, five have been dismissed with finality, and only 39 (a mere 12 percent of all cases) currently pending with the courts—which will take forever.

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In the attempt to align the tax effort to GDP goals, the internal revenue commissioner has been ruthless in closing gaps in tax payments. But there is need for the tax evaders caught to be more ruthlessly prosecuted, and for a cooperative court to convict them. It’s a little bit of a “Catch 22.” If income taxes are less, the temptation to evade them is lessened, particularly if the risk of being caught is increased—and, particularly, if the penalty if caught is more draconian. The intent is to make tax evasion a predicate crime.

Outside of this, the President has found it difficult to break the stultifying bureaucracy in which this country is mired—and achieve results.

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The DAP (Disbursement Acceleration Program), though, was one, and frankly I applaud him and Budget Secretary Butch Abad for introducing it; it got things moving. That it was unconstitutional was an interpretation of a Supreme Court too focused (as I’ve said often) on legality, not social good. The DAP was good for society, and money wasn’t being stolen as in the case of the PDAF (Priority Development Assistance Fund), which deserved to go.

The peace agreement on the Bangsamoro very definitely could be where no man has gone before, if it can be completed. But he deserves credit for getting it as far as it went. Mamasapano was an unexpected derailment. Now he must get the peace process back on track from a much weakened position. He’ll need all his persuasive powers to convince Congress and, inevitably, the Supreme Court, that it’s a good deal. But it has to be better recognized that it’s only a first step; there are other Moro groups that must be brought into the fold, too.

In 13 months the President will step down. He’ll want to be able to leave with a strong level of achievement, a legacy of change. The GDP numbers look good, the country is in excellent financial shape, and there’s a level of confidence not seen since Fidel V. Ramos left. But there’s been little improvement in the lives of the poor. The conditional cash transfers have been a big help, but they are not a solution. They are only a life jacket until a job is created. Jobs haven’t been created, and millions of Filipinos have yet to be lifted out of dire poverty (see my April 2 column, “Primum nil nocere”). And anyway, the CCT was launched by Gloria Arroyo. Mr. Aquino just greatly expanded it.

So, what can he do? Here I’m talking, not about improvements, but about radical change, “going where no man has gone before.”

Finance Secretary Cesar Purisima has suggested something I fully support, and I hope the President will, too. It can’t be achieved in his limited time, but it can be well started. And that’s radical tax reform.

Well, how would you like to not pay any income tax?

Secretary Purisima is suggesting just that, but not for everyone, only for those that most need not to. Anyone earning less than, say, P1 million per year (a final number is yet to be decided as this could be a bit high), will no longer pay income tax. And small businesses will be exempt, too. Corporate income tax will be reduced to 25 percent in a series of steps, with particular “safeguard” tax ratios acting as switches before lowering. Lower income taxes will draw more foreign investment, which means more jobs and more tax revenues.

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Will anyone object to such an eminently sensible thing to do? I hardly think so. But there must be something to replace the revenues lost. And that should be an increase in the value-added tax from 12 percent to 14 percent. Here, of course, there will be objection, as far too many are against a cost increase in anything regardless of whether it’s a good and necessary thing or not. It’s a much more sensible thing: You pay when you spend, not when you earn. And remove the too-many exemptions; keep them only on all fresh food, education and health, which, after all, are where the poor spend all their money. Senior citizens, who’ve paid their dues, will also remain exempt.

Tax on oil products can also be raised. It’s a proven thing that we can afford it. We were paying P35.20 per liter for diesel just four months ago, and doing okay. We’re only paying P28.7/liter now. That’s a drop of P6.5/liter, a percentage of which can reasonably become an excise tax—a tax that will be determined by oil prices. All these will be done in stages as the government can afford it.

Another dramatic reform is to give the Bureaus of Internal Revenue and of Customs autonomy from the Salary Standardization Law so employees can be given salaries commensurate to their abilities, and hired and fired related to their abilities. There will be no security of tenure. Current employees will be given the option to retire with a generous payout, or join the new BIR and BOC on the condition that continued employment will be dependent on performance. Fail and you’re fired, no appeal or recourse.

These are bold concepts that can be started. They need Congress’ approval, and that will be hard when it comes to increasing VAT and oil taxes, but they are an essential part of the whole equation.

Starting all these is going where no man has gone before. That’s a legacy to leave behind.

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TAGS: Bangsamoro, Benigno Aquino III, Cesar Purisima, Disbursement Acceleration Program, GDP, Mamasapano, Priority Development Assistance Fund, taxes
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