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The
inevitability of taxes Taxes, like death, are one of the inevitabilities in life, especially for the salaried workers who currently bring in the bulk of tax revenue collections. Without lobby clout, they also have become easy prey for new tax measures. Similarly, taxes, like life, can be unfair. Amnesties have always been extended to habitual tax evaders in the past and lately – courtesy of an executive fiat – were again given as clemency for their sins. We are talking here of the currently debated hike in value added tax impositions (to 12 percent from 10 percent), and a recent Presidential executive order exempting from official audits and investigations taxpayers who will pay 25 percent above their most current income tax payments. Eight-Headed Taxman Both these measures, by the way, are collateral to the eight revenue-generating schemes that should raise government collections by at least P80 billion. The original target was for these measures to be legislated before the end of 2004, but the usual horse-trading and frenzied lobbying by affected vested interests distracted our lawmakers. In the meantime, continued pressure by international credit ratings agencies to trim down the budget deficit has kept the bureaucracy sitting on hot coals. This is not to say though that nothing has been done to address the problem. In fact, Congress was able to pass the additional excise tax on sin products, of course, watered down and more in favor of a select group of manufacturers as a result of intense lobbying that included a visit to the palace; and recently the Lateral Attrition Law, which should have covered all revenue collecting agencies but ultimately became limited in scope. VAT Leaks Since the projected revenues from the above described emasculated measures would fall short of the much needed additional income, the Arroyo administration is now pushing hard for the increase of the value-added tax rate from 10 percent to 12 percent that will raise government take by P35 billion annually. It is not surprising that those in the business sector are supporting the added two percentage points. All they have to do is pass on the additional tax to consumers. This was nonchalantly admitted, for instance, by top officials of Pilipinas Shell in a congressional hearing recently. Supporters also claim that passage of the VAT measures will give good signals to international financial institutions that the government is serious with its reform efforts and were even quoted as saying that VAT is an efficient, self-regulatory manner by which government can raise revenues. This may be true, but again, this depends on the efficiency of VAT collections. For one, the VAT leakage estimated at 57 percent of collections in 2002 has now increased to 70 percent, if we are to believe simulations made by Sen. Mar Roxas, who heads the Senate committee on trade. Using a P4-trillion GDP yardstick, he estimates that if half of GDP is subject to a 10-percent VAT, collections should amount to P200 billion. But since the collection rate is only at 30 percent, that means that the bulk – or P180 billion – has gone puff. The right thing to do here clearly is not to increase the current 10-percent VAT, but ensure that government does its job in capturing all those VAT collections. This includes rationalizing existing VAT exemptions, which presently includes professionals like lawyers, doctors and dentists. Even if the proposed package of VAT measures were implemented, as long as massive leakages continue, actual collections would be short. Again, corruption in the tax collection process is an issue here. Leniency To Tax Evaders Let’s go back to the recently issued administrative order that effectively grants tax amnesty. The voluntary tax amnesty order, which will be in effect for five years, has been deemed by the President as a way "to reduce corruption and administrative costs while enhancing voluntary compliance which lies at the foundation of any sound revenue program." In broad terms, the executive fiat offers no questions asked of companies that pay 25 percent more of their previous year’s payment. This is clearly a modified version of the tax amnesty bill that was opposed in Congress on moral ground. We maintain that tax amnesty, in whatever form, is unpopular and controversial because it favors, instead of punishes, tax evaders. In the case of the executive order, it could even encourage companies to engage in creative bookkeeping to manage their tax payments. There are also the big tax evaders that may have escaped paying the right amount of taxes last year, but for so long as they pay the extra 25 percent this year, will be absolved from any tax auditing. While the Finance Department says the impact of President Arroyo’s executive order is still being studied, we only know too well that previous governments’ experience did not really raise more revenues, while at the same time raising controversial social issues of disparity. Tax history has taught us that the Marcos administration, from 1972 to 1985, netted only P1.818 billion from a total of 10 amnesty packages, while the Aquino government earned merely P1.37 billion from five kinds of tax amnesties. Will We Ever Learn? Hike fare or revoke sweetheart deals? The government continues to provide substantial subsidies for the operations of the MRT3. With a financial crisis staring at its face, this government is not in a position to continue this subsidy, much less increase its level. What then is the remaining option for MRT3? Is it the inevitable fare increase? There are allegations that the deal between MRT3 and Metro Rail Transport Corp. (MRTC), a consortium of private investors, has so many sweeteners for the private group so much so that up to now the Arroyo government that is in financial distress as it keeps plowing subsidies to support the MRT3 operations. The question being raised now particularly by thousands of commuters is: Why not review first this apparent sweetheart deal with MRTC before implementing a fare increase? Any improvement, for instance, in the sharing of revenues from advertising and other peripheral revenue-earning activities will reduce the amount needed for a fare hike. At this point, the general public is facing the prospect of a number of additional cost burdens such as increases in electricity rates and prices of goods as new taxes are imposed. An increase in daily transportation cost may just be the last straw that will break the back of Juan dela Cruz and cause an unwanted social turmoil. Will MRT take the plunge and hike fares? Join us on the 9th of February 2005 on "Breaking Barriers" (IBC-TV13, 11 p.m. every Wednesday) as we feature Gen. Roberto Lastimoso (ret.), general manager of the MRT-3 and Assistant Secretary-Rail Sector of the Dept. of Transportation and Communication. Watch it. Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.
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