TAX DREAMS AND DISTRACTIONS

The Philippine Star
06/01/09

With less than a year to go for this administration, any attempt to try and convince Congress to pass new tax measures before the elections would be political suicide.

The finance department now risks being tagged as merely dreaming if it continues its attempts to win support for three tax measures – the sin tax reform, the rationalization of tax incentives and the simplified net income tax system or SNITS. The last two were proposed some years ago and are now just gathering dust in the archives of Congress.

The three have been estimated to have a potential of contributing at least P35 billion annually and could augment the faltering collections of the Bureaus of Internal Revenue and Customs although they likely won’t be enough to reverse the government’s budget deficit in the next couple of years.

In 2009 alone, the government expects its budget shortfall to reach P199.2 billion, a forecast that is regarded on the optimistic side by many economists. At least, this optimism is consistent with other projections of government in setting its targets, economic growth included.

The shortfall has already reached P111.8 billion in the first four months as government supposedly stepped up on spending even as collections continued its steady decline.

Headlong towards record deficit

At the rate things are going, the government is poised for a record budget deficit as recent estimates are putting a shortfall that could be higher than the P211 billion posted in 2002.

It is quite understandable why there’s an element of desperation among our finance officials.

Last week, the government announced a 0.4 percent growth in the first quarter from a year earlier, way below official and analysts’ estimates. The consensus was for a growth of around 2 percent. On quarter, the economy suffered its first contraction in 20 years.

Leading indicators, according to the National Statistical Coordination Board, are pointing to the possibility of a recession, technically defined as two quarters of negative growth.

Ever a politician, Ralph Recto, National Economic Development Authority Director countered with a statement saying that the possibility of a recession is unlikely, with inflation at its currently low levels, recent central bank rate cuts and increased government spending to buoy the economy.

For government to keep on with its spending, it should first have the income to support it. Without this, it would have to go into a borrowing binge, reminiscent of the debt-deficit cycle that marked the previous administrations.

Unreachable targets

The BIR and Customs have not just been missing targets but have also been collecting less this year. Fortunately for the two agencies, perceived as being the bedrock of corruption in government, they have every excuse in the world to justify their poor performances.

Economic growth that is nearly grinding to a halt leads to decreased consumer spending, that in turn yields lower revenue as companies make less profit.

Additionally, last year’s move to expand personal exemptions and the scheduled drop in corporate income tax rate to 30 percent from 35 percent effective this year already meant about P30 billion less in the BIR’s collections.

Customs too has the perfect excuse. Imports have been plunging since late last year and with lower volumes, coupled with cheaper costs of oil products, the tariff take continues to drop.

It also does not help when appointment of high officials in these revenue collecting agencies are being questioned and are being looked at as last minute pay-off of political debts by this administration.

Take for instance the appointment of Narciso Santiago, husband of Senator Miriam, as deputy commissioner at the BIR, in charge of the large taxpayers’ unit. Many in the Bureau are wondering what qualifications Narciso has to handle such a critical unit, other than being married to one of Arroyo’s staunchest defenders in the Senate.

In the same breath, it would be folly to think that Finance Secretary Margarito Teves would actually believe that the revenue bills his department had been pushing for would be miraculously passed by Congress at the remaining days of this administration.

Ugly head of politics

Sin tax reform is something that’s going to hit cigarette and liquor manufacturers, who would only be too willing to shell out a few hundred millions just to maintain status quo.

The finance department’s proposal is something that has merit because it seeks to simplify the current complex, tiered tax system on these so-called sin products. Studies also show that domestic taxes for sin products, particularly on cigarettes, are the one lowest not only in the region but worldwide. For a government in dire need of additional revenues, increasing taxes on products like cigarettes is a no-brainer.

Detractors, however, are saying that the move on sin taxes is just a ploy by its initiators to shake down this particular industry to cough up precious campaign funds. The timing, after all, is perfect.

This same group claims that the finance secretary, a former representative of Negros Oriental, harbors plans of going back to politics, either as congressman or senator. Could he be part of a group that’s out to bilk affected parties of any of these revenue measures? Or is he one of the few who have the nerve to disturb the status quo and reduce the privilege being enjoyed by local cigarette companies led by Fortune Tobacco?

Too many distractions

So with less than a year to go for this administration, let’s not expect miraculous achievements in resolving nagging issues such as tax reforms.

The cabal is already positioned in strategic locations. Politicians are bombarding us with their self-serving advertisements, while the rest of the country is being entertained by voyeur sex videos.

There are enough distractions nowadays to make sure that we don’t spend too much time on important matters. Conspiracy theorists, and there are many of them, think that maybe even the Hayden Kho episode is part of a sinister campaign to keep us all preoccupied.

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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.