The Department of Finance has released a very well-thought-out presentation on major changes in taxation. I fully support change; it’s long overdue. Its primary goal should be: We pay the least tax, the government generates the greatest income. No, they are not at odds with each other. But it’s important that the DOF has this in its thoughts as it institutes changes.
The simplest contradiction “easily” attained is to catch the tax cheats so that some of the extra revenue can be applied against lower tax rates. Another is that if taxes are lower, it’s generally agreed that more people pay correctly. A third is to grow the economy faster and attract far higher levels of investment into income-generating activities that pay taxes. A fourth is to get evaders back into the fold by offering amnesty for past offenses (with some percentage payment). Then there are a slew of areas where new taxes can be generated.
The DOF began this list by suggesting a higher tax on oil products, principally gas and diesel. It is estimated that an excise tax increase on gas, diesel and other oil products could raise about P170 billion in the first year of implementation. In conjunction with that is an idea we raised during the last administration: to put a marker on gas and diesel to stop the sale of illicit products. Research has shown that this could raise P30-40 billion.
It’s the same thing with cigarettes, where an estimated P22 billion is still lost through the sale of illicit cigarettes. Efforts are being made to stop this, but they aren’t enough. Generally, smuggling of all sorts of products is losing the government an estimated P200 billion a year.
Inadequate tax collection can also be easily improved from the current too low tax effort (tax revenues as a percentage of gross domestic product) of 14.2 percent (for January-September 2015) to 17 percent—the highest tax effort rate achieved, under the Ramos administration. Doing this will raise an additional P372 billion.
Then there’s the P95 billion worth of over 500 tax evasion and smuggling cases that are just sitting in the courts.
Finally, there are the Marcoses, who, according to reliable reports, still hold some P290 billion of our money. If this is true, they could show their true nationalism by returning it.
Doubtless, there are other areas I’ve overlooked, so this could be a first task of Finance Secretary Carlos Dominguez: Appoint a task force to find new sources of revenue from what now exists.
Next is new taxes on products. The huge success of “sin” taxes on alcohol and cigarettes (excise tax collection from these sin products amounted to some P142 billion in 2015) shows what can be achieved. There was talk of a tax on soft drinks, and a bill was introduced. As I’ve said before, this is wrong. It singles out a single product, leaving the question of what will be next—an uncertainty business doesn’t need. But, more importantly, the health issue (which is what this is all about) isn’t soft drinks; it’s sugar. Candies, cakes—frankly, everything Filipinos consume—have sugar in it. So tax sugar; that’s what is causing the harm. The health of Filipinos would be much improved if they consumed less sugar. Last year, 3.6 metric tons of sugar entered the consumer market. Applying P5/kilogram would raise P68 billion. The DOF is proposing this, and Congress should agree. I’d legalize jueteng, and collect tax on it.
One of the most controversial sources is the tax exemptions granted to attract business. The DOF and the Department of Trade and Industry argued over that for years under President Benigno Aquino III, with no agreement. And it is difficult. Foreign business and exporters need an environment where they can compete equally with others. When power costs are higher, salaries are more, and logistics is expensive, some compensatory alternative is necessary.
The simplest is a tax break. It’s necessary, and it’s just a matter of careful, independent research. One incentive is no value-added tax, which on exporters is an obvious exemption. That should be retained; the DOF agrees, and agrees it should be paid immediately. It should add paying what the Aquino administration didn’t but had promised to. That was a sovereign commitment.
Something I would not tax at all is inheritance of the family home. Not the 6 percent proposed, but zero. Why impose a heartless payment on a family suffering loss, and even putting at risk ownership of the house (many wouldn’t have the 6 percent and have to sell)? Home ownership is not by the husband or wife, or whoever else, but by the family. As long as the family retains the house, there should be no tax.
The DOF wants the bank secrecy laws relaxed, and there are $81 million reasons why this should be done. If adequate controls are maintained, honest taxpayers have nothing to fear.
So what we have out of all this is some P1 trillion that could be raised. But let’s be realistic. The Marcoses won’t pay, so that’s P290 billion lost unless the courts can force them to. But as it hasn’t happened in 30 years, I wouldn’t hold my breath. Let’s assume on the rest a very conservative 50 percent.
That would give the DOF some P360 billion to apply against our personal and corporate taxes. On corporate, the intent must be not just to match the average in Asean but to be the lowest, at least over time. The average is 23 percent, while the lowest, in Singapore, is 17 percent. On personal, Secretary Dominguez has come up with new tax rates that help the poorly paid and make good sense. We seem to be heading into a better tax environment, not just a promised one.
* * *
E-mail: wallace_likeitis@wbf.ph. Read my previous columns: www.wallacebusinessforum.com.