Taxes up in smoke

Under the new format of the Inquirer we are restricted to about 700 words. So this is a much abbreviated version of what I wrote. The full version can be accessed at www.wallacebusinessforum.com.

Finance Secretary Sonny Dominguez has come up with a very desirable plan to reduce the taxes we pay. But he needs funds to implement it. Let me remind you (and him) of our suggestions as Congress begins its discussions:

Higher tax on oil products which, with the lower cost of oil, we can afford=P170 billion.

Universal marking of oil products to stop smuggling=P30-40 billion.

Stopping the sale of illicit cigarettes=P13 billion.

Eliminating smuggling of all sorts of products=P200 billion.

P5 tax on each kilogram of sugar that enters the market, instead of singling out just one product that uses sugar=P68 billion.

More efficient tax collection, raising tax effort to the 17 percent achieved during the Ramos administration from the 14.2 percent in 2015=P370 billion.

Removal of some VAT exemptions, and better collection=at least P10 billion.

Completing of 500 tax evasion and smuggling cases that have not progressed in court=P95 billion.

Recovery of Marcos ill-gotten wealth=P290 billion.

The last four would depend on the will and the ability to do it; the first five can be done easily. The Department of Finance calculates it’ll need an estimated P170 billion to cover the loss of revenues from income tax reduction. So these five can more than cover the foregone revenues. We can implement the reductions now, not over time as proposed.

Today let me address two: the sale of illicit cigarettes and oil marking.

The sin tax law of 2012 has been a great success, with revenues more than doubling. Last year sin taxes on tobacco contributed P100 billion to government revenues. Some 85 percent of it went to the health system. PhilHealth now has more money than it can use. Mind you, those revenues are at risk with President Duterte’s proposed upcoming ban on smoking in public places.

Untaxed cigarettes have increased and now account for 10-15 percent of all sales. This equates to a loss to the government of some P13 billion, which it can ill afford. The worst of it is that the bulk of the illicit cigarettes is produced locally.

The Aquino administration tried to stop it by introducing a sophisticated tax stamp with a number of features including a QR readable code. But fake stamps have been produced, and the local producer of these fakes is becoming ever more skilled.

What the new leadership at the Bureau of Internal Revenue should do is, as I have suggested, stop the smuggling of gas and diesel. It should work with a credible third party, such as SGS, to do the search and investigation for fakes in the market. Being from the private sector, the SGS will be driven to do it.

As for oil marking, one of my clients has this clever nanotechnology that can put microscopic amounts of an  environment-friendly marker in gas and diesel that are undetectable yet tell instantly with a tester in the gas or diesel if the product is legitimate or smuggled. The cost is small, the benefit large—to the government and the legitimate oil companies. Both government revenues and company sales increase as smuggling is stopped. And consumers are assured of a quality product.

It was tried once before in a pilot model in Subic, with modest success. The problem was enforcement, and the Bureau of Customs just wasn’t very good at it. The solution is to outsource it to the private sector, which has the will to do it. The administration should look into it: It means P30-40 billion in its coffers.

Tax reform does not have to mean hitting honest taxpayers over and over again, as the last BIR chief did. It means focusing more on plugging the leaks I’ve identified here. The payback could be huge and more than cover the cost of the tax reforms.

There are just too many who have been cheating on a large scale for years, with impunity. It’s time they were stopped. It’s time we honest guys paid less.

Email: [email protected]. Read my previous columns: www.wallacebusinessforum.com