P-NOY NOT WORRIED ABOUT FISCAL POSITION?
The Philippine Star
03/11/11

The Legislative-Executive Development Advisory Council (LEDAC) recently held its first meeting eight months after P-Noy took over the stewardship of government.

A review of the items taken up during the meeting showed that the Reproductive Health (RH) bill was not on the list; nor was the Freedom of Information (FOI) bill. Worse, no revenue enhancing measures were in the priority list.

And many thought that this government needed all the revenues it could get to fulfill one of P-Noy’s campaign promises, i.e., to wage war on poverty.

Rep. Hermilando I. Mandanas, chairman of the House Ways and Means Committee, took up the cudgels for the need of legislative initiative and action to enhance government revenue raising capability. “I am surprised and a bit frustrated that not one revenue enhancing measure is included in the priority bills submitted to Congress,” remarked Rep. Mandanas.

Fiscal deficit, a nagging problem

Fiscal deficit in 2010 reached P314.4 billion as expenditures continued to outpace government revenue collections. Deficit for the year represents 3.7 percent of GDP. The target for 2011 is set at P290 billion or 3.2 percent of GDP.

Managing the level of fiscal deficit is a continuing challenge of past and current administrations. In previous years, proceeds from the sale of various government assets somehow alleviated the pressure on deficits. But most of the prime government assets are gone and at this time, nothing substantial is on the block for immediate disposal.

Mandanas’ revenue-enhancing bills

Rep. Mandanas has filed two bills aimed at increasing the level of government revenue collections. One of his measures, HB3059, seeks to amend certain sections of the National Internal Revenue Code (RA8424) as they affect the alcohol and tobacco industry.

The explanatory note to HB3059 noted that “there had been significant and material changes in the economic and social conditions in the Philippines since October 1, 1996 when Congress approved the basis of taxation of alcohol and tobacco products, introducing multi-tiered tax rate classification, specifying the excise tax rates and legislating periodic amendments.”

The Mandanas bill underscores the need for more equitable sharing of costs and benefits among the alcohol and tobacco industry stakeholders and the government.

This can be best achieved if the industry uses the current net retail prices of alcohol and tobacco as basis for classification of alcohol and tobacco products for excise tax rate purposes. The continued use of the net retail prices of 1996 as basis for classifying these products for excise tax purposes is no longer equitable.

Existing excise tax system deprives government revenues

As an example, available data presented during the House Ways and Means Committee hearings show that tobacco tax revenue during the five year period 2004 up to 2009 was relatively flat with P23 billion registered in 2004 and P24.2 billion in 2009.

The share of tobacco revenue as a percentage of total government tax take has been declining over the past years, from 3.8 percent in 2004 to 3.0 percent in 2009.

Compared to other countries in the region, the tobacco excise collection as a percentage of total government revenue (3.0 percent in 2009) is very low. Indonesia, for instance, gets 7 percent of government collections from tobacco excise tax while Sri Lanka and China realizes approximately 7 percent to 8 percent.

Use current net retail prices

Recognizing that the use of 1996 net retail prices for excise tax classification is no longer equitable and realistic, HB3059 is proposing the use of current net retail prices to serve as bases for classifying brands of alcohol and tobacco products for tax purposes.

According to Congressman Mandanas, the net retail prices used since October 1, 1996, or about 14 years ago, completely ignore current market realities. “Since October 1, 1996, the net retail prices of these alcohol and tobacco products have increased, and in some products, by at least 100 percent, yet these products are still taxed based on a 14-year-old net retail price classification,” added Mandanas.

Mandanas clarified that his bill, HB3059, will not provide an increase in specific tax rates. The proposed measure will effectively reclassify the alcohol and tobacco products based on their current net retail prices.

Without increasing the tax rates, the use of current net retail prices for tobacco as basis for excise tax payments will generate additional tobacco excise revenue estimated at P70 billion to P80 billion annually. It will also remove the “14 year old” arbitrary protection given to the brands listed in Appendix D (RA8424) and will make the local tobacco industry more market oriented with level playing field for fair competition.

VAST to replace VAT of sales

HB3850 is another bill filed by Rep. Mandanas to increase government revenues. The bill proposes the imposition of a value simplified tax (VAST) in lieu of the value added tax (VAT).

The bill provides for the reduction of VAT rate of 12 percent to a straight 6 percent tax under the VAST, thereby reducing the direct tax burden of the taxpayer. It will also remove the VAT “Input Tax Credit System” which is the source of leakages and fraud with the use of fake or re-cycled receipts, repeated tax credit claims or the understatement of sales.

Rep. Mandanas is confident that his proposed bill will reduce graft and corruption with the removal of the “Input Tax Credit System” and more importantly will increase the collection of government by approximately P50 billion.

Revenue enhancement needs P-Noy’s push

Although the above and other revenue enhancing bills were not in the priority list tabled in the recent LEDAC meeting, Rep.Mandanas said that the House Ways and Means Committee will continue its deliberation and will aim for approval of these bills before Congress adjourns its first regular session on June 9, 2011. “Of course, a push from P-Noy and his finance team would help,” remarked Mandanas.

He strongly feels that the government needs all the additional revenues it can generate in order to pursue its poverty alleviation programs and stop the deterioration of some basic public welfare and services funded by government.

Does P-Noy and his finance team feel the same? Is P-Noy concerned about the government’s fiscal position?

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net