ANYONE WHO engages in business knows of the giant that makes money out of every centavo that enters or exits any businessperson’s pocket. This giant takes a chunk out of gross sales, a cut out of expenses paid, and a bite out of salaries disbursed.
That giant is none other than the government.
The government makes an earning out of every trade in money, property, goods and services. It earns on the mere occurrence of an exchange of money for something else. (In fact, even when we give a substantial gift to someone—and receive nothing in return—the government takes a share out of the value of our generosity.)
Every time a person starts a business, the government gets on board as a compulsory beneficiary. Take as example an ordinary company—let’s call it XYZ—which sells manufactured goods. Every time XYZ receives or pays money, the transaction generates income for the government. The government’s earnings come in various names and sizes: a) 12-percent value-added tax (VAT) on gross sales; b) up to 30-percent tax on corporate income; c) 5- to 32-percent income tax on employees’ salaries; and d) 12-percent VAT on expenses (rent, supplies, utilities, etc.).
At the end of the year, the government’s total earnings resulting from XYZ’s business can be equivalent to more than 50 percent of the net income earned by the company. Hence, if XYZ nets an annual income of P1 million, the government stands to earn more than P500,000 from various kinds of taxes.
It is immaterial in fact if XYZ earns a net income or not. Even if XYZ suffers losses, the government still ends up with earnings because it still collects VAT on the company’s gross sales and expenses, and income tax on the salaries paid to its employees. (And for those who feel the utter absence of any government support in the conduct of their business, it is also argued that the government generates all these tax revenues even without contributing a single centavo of capital to the business.)
The government’s earnings do not stop with the purchases and payments of XYZ. These purchases and payments of the company trigger a chain reaction of purchases and payments by other companies or persons with which it deals. The government earns more tax revenues from this triggered chain of additional transactions.
Because of the backward linkage with the components/parts suppliers of XYZ’s manufactured products, the government further earns from these suppliers’ VAT payments on their expenses and from the payment of income tax on both their corporate earnings and the salaries of their employees. Because of the forward linkage with the retailers of XYZ’s manufactured products, the government earns from the VAT collections on retail sales and from the payment of income tax on both their corporate earnings and the salaries of their employees.
Even all the salaries paid by XYZ, suppliers and retailers generate additional earnings for the government because these salaries are spent by employees for rent, food, utilities and transportation, and such spending generates VAT collections for the government.
Then there are the collateral businesses that also benefit from the chain reaction of commercial activities such as advertisers, security agencies, freight forwarders, courier services, janitorial services, restaurants—the list goes on—all of which generate VAT earnings for the government.
This whole exercise reveals that the government is the single biggest beneficiary of any business that springs to life. Every single business has the capacity to trigger a chain reaction of multiple business transactions that yield repeated and multiple tax earnings for the government.
What this vantage point exposes is the big disconnect between the government’s passive—bordering on the obstructive—attitude toward business on one hand, and the government’s status as the biggest benefactor of any business that opens on the other hand.
In processing and approving business applications—and in supervising existing businesses—government agencies have a deeply embedded culture of acting as robots with the sole mechanical purpose of making sure that businesses go through hurdles and obstacles, which are known as requirements and regulations. There is a notorious lack of empathy and recognition that, as a virtual business partner, the government stands to reap the biggest financial rewards out of the opening of any business. And it reaps a bonanza of tax earnings without assuming any risk and without contributing any business capital.
The government blames tax evasion while the public faults corruption for the perpetual shortfall in government revenues. But what is not fully accounted for is the disastrous impact of a government culture that discourages business and forces it to operate underground, and drives taxpayers to avoid the government altogether.
There is a need to completely overhaul the ways and means of the government in its treatment of business owners, and taxpayers in general. A major change in mentality is needed from one that coldly enforces regulations to one that warmly provides proactive assistance in complying with these regulations. The people need to see and feel that the government is their business partner.
The government cannot merely reap the rewards and not perform the responsibilities of a virtual business partner. The money-gobbling giant must act with empathy and demonstrate attentive and caring assistance to the multitudes who tirelessly work to provide the government with abundant sustenance.
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