More on tax reform

It’s not an exaggeration to say that complete reform of the Philippine tax system is a “make or break” issue for the country. It’s one in my list of “epochal changes” that can transform the Philippines. The tax system is hopelessly outdated.

Tax is an underlying function of any working society, an essential for any government to function.

Reducing personal and corporate taxes is way overdue, and essential in giving workers a decent life and making the Philippines more competitive on the Asian and world stage.

These two measures will result in more jobs being generated, and the inequality gap being narrowed as taxes adjust to the level of income. More jobs mean fewer people in poverty.

It’s equally essential that the government be given a lot more money so the country can catch up with its neighbors after three decades of falling behind. And, with adequate infrastructure, we can all live less stress-filled days.

The five packages of tax reform pending in Congress need the legislature’s highest priority. They need senators and representatives to put aside, just for once, thoughts of reelection and parochial benefit.

The government must have a lot more money to get us out of the hole in which almost three decades of nonaction have left us. We need to build, build, build, as the government puts it, and that needs vast sums of money. Part of the funding can come from the private sector and the public-private partnership, part from foreign governments’ assistance, but much must still come from the government.

We want, 20 years from now, an economy that is efficiently run, where everything works smoothly, and where the infrastructure is in place for it to do so. The Department of Finance’s proposals seek to achieve that. Congress should fiddle with these proposals as little as possible. And where Congress does fiddle, it should not be at the expense of revenues, or of the greater good.

One of the things that makes my blood boil is watching rich matrons step out of their Mercedes, go into the market, and haggle over a few pesos they can easily afford, against small vendors for whom every peso counts for daily survival. So I applauded Finance Secretary Carlos Dominguez III when he took the small guys off the tax rolls. Why take a little from those who can’t afford a little? It’s a clever, simple system. It doesn’t have a cutoff point where below P250,000 you pay no tax, and above it you do, creating a possible area to cheat. No, EVERYONE pays no tax on the first P250,000. You’re either tax-free, or you go home with P20,000 more in your pocket if you’re taxable.

Would anyone like to object? Please, let me know. And with a vastly simpler tax roll to administer, the tax collectors have fewer people to collect from and can devote more time to ensuring that they all pay.

Tax collections can actually go up.

Pandering to emotions against facts may seem like a good idea, but it isn’t. Take just one issue — an excise tax on fuel. Emotion screams: Don’t do it. It hurts us now. Fact says if you do, society gains in the longer term, and surely we must think longer term if an economy is not to have hiccups (spikes of short-term gain) but achieve lasting improvement.

If we tax fuel P6 and pour it all into infrastructure, we can rush an underground train system throughout Greater Manila and get to work in minutes, not hours. We can build roads and bridges so cars do not idle for hours, consuming fuel, but travel swiftly to their destination. Your monthly fuel bill will go down despite higher per-liter cost. We need statesman-like thinking, not short-term populist pandering. Maybe P3 for the first year, P3 for the next; P2 could be an acceptable compromise, but nothing less.

It’s the same with coops. The 12-percent VAT does indeed cut their revenues, but not enough to severely restrict their activities. But if they are exempted, the government loses an estimated P30 billion. That could fund the free education Congress has decided upon, and the increase in pensions. The benefit to us all is far more than the small loss to a few.

Lawmakers should be basing all their thinking on how we can achieve an additional P150 billion in government revenues. If something is cut, something should replace it. Just cutting will undermine the planned system, and leave us still trailing Asia 20 years from now. And too many still mired in poverty.

E-mail: [email protected]. Read my previous columns: www.wallacebusinessforum.com.