Modified gross taxation may work better

For the guys who congregate at the Edsa Plaza coffee shop every Tuesday and call themselves the Tuesday Club, Porting Aguas is the voice of experience on tax matters. The retired veteran of the Bureau of Internal Revenue had served various postings as a taxman, including stints abroad collecting taxes from Pinoys overseas.

A week ago, we were talking about the PCIJ expose on the extravagant corruption of some BIR officers. Porting, a veteran of almost 40 years, could only sigh and express the view that maybe it is the system. This is why he said, he believes in a modified gross taxation scheme that limits discretion on the part of revenue examiners, and thus, limits opportunities for corrupt compromises.

I have always thought the same way, at least as it applies to individual taxpayers like professionals and other non-wage earners. There was a time when one could just deduct 40 percent from gross revenues and you don’t have to present detailed accounting known as itemized deductions. No questions, no deals, no opportunities for corruption.

But in the eminent wisdom of so-called tax experts and former Sen. Johnny Ponce Enrile who was then chairman of the Senate Ways and Means Committee, they took away that modified gross tax scheme. Instead, you may opt for a 10 percent deduction (which I have taken) that is really unreasonably low. I expressed my views to Johnny during one of those mornings at the 356 Club some years ago and I argued that we need this scheme to limit the personal interface between taxpayer and tax collector and avoid corruption.

Johnny was adamant. The government must collect more, he said, and the modified gross system does not generate as much. He also said that we must learn to trust our revenue officers to perform their duties honestly. I couldn’t believe that this otherwise cynical politician, whose weather beaten face betrays years of experience in this country’s bureaucracy, could say something so naive.

I doubt that the itemized deduction scheme actually generates more revenues for the government. But it favors big shots like Johnny who can afford creative accountants and whose political stature makes them immune to the usual harassment by revenue examiners. Tell me… who would dare examine Johnny Ponce Enrile’s tax return and ask him to pay more.

Ask any small businessman. No matter how honest their bookkeeping might be, an examiner will always find fault. This is something Porting Aguas confirmed to us last Tuesday. Disallowing expenses is totally discretionary on the part of the examiner. No matter how much it might be against your conscience to contribute to corruption at the BIR, if you are a businessman who wants to remain in business, you will have to compromise.

One such businessman told me that so much of his legitimate expenses were disallowed to the point that he ended up with something in the vicinity of P2 million in tax deficiency in a bad year when he netted less than a million. Guess what happened. The man had to compromise. He eventually agreed to pay the examiner about half a million and was told that less than P50,000 will go to government and the rest will be divided by the boys.

No wonder they end up with those palaces exposed by the PCIJ. The kind of sharing between government and the boys also disprove the assertion of former Senator Enrile that the present itemized deduction scheme collects more than the modified gross scheme.

Last week, we wrote about what we read from the Internet about Russia’s tax reforms. The combination of a flat tax (compared to our multiple bracket) and the modified gross scheme that does away with itemized accounting of expenses is starting to work wonders.

I imagine we have more in common with the tax situation in Russia than we do with the United States owing to our similar level of economic underdevelopment. It would be worth our while to send Willy Parayno and some of his experts to study the Russian system. No amount of televised tax mapping and other peripheral reforms will work unless we simplify our tax system, making it easy to comply and reduce the discretion allowed our examiners.

Too bad we can’t do anything significant until after the elections next year.

Loren and the deficit

Sen. Loren Legarda graduated cum laude (or was it magna) from the UP College of Mass Communication, the same school I almost dropped out from in my senior year. If Mr. Marcos didn’t close down ABS-CBN in 1972 rendering me jobless giving me time on my hands, I would have gone through life without a college degree. This is why I am confused why Loren, an honor graduate, doesn’t get it. She isn’t your run-of-the-mill celebrity-politician.

I am talking about government borrowings, notably from foreign sources, which Loren blame for the inadequate funds left over for "more important things." She wrote me a letter in response to my column that reacted to her press release. I am really amazed that she simply doesn’t get it.

"Just think, Boo," she wrote."If we don’t have to pay this amount of more than P200 billion to our creditors from out of our national budget, we would have that much more funds to build our infrastructure, schools and hospitals… If we don’t borrow for budgetary purposes, we save payment on interest that in 2002 amounted to 95 percent of our budgetary deficit for the year."

As if we have a choice! As if Lito Camacho has a choice! Sen. Tessie Oreta said the same thing, blaming Lito for being quick to borrow. It is not true nor is it fair to say, as Senator Oreta says, that the deficit problem is an indication that Camacho is responsible for this "high-risk borrowing spree strategy, which has widened the budget gap and trapped resources needed fight poverty and reinvigorate the economy."

The truth is, Loren and Tessie and not Lito who are to blame for the debt situation. It is Congress that passed the budget and various appropriation bills. Lito’s job is merely to make sure they are funded, from tax collections and borrowings. Congress widened the budget gap, not Lito Camacho.

Not paying our debts, as Loren suggests, is not an option. We will be cut off from the international financial market and we will be worse off. And how can we pay our debts unless authorized by the national budget? In other words, Congress has authorized the money we borrowed and continue to borrow, when they passed the budget.

I share all of Loren’s fears about the dangers of this habitual borrowing on our part. We do have to live within our means. This is why Congress must urgently pass a debt cap law. This will force both Congress and the Executive branch to cut costs to what we can afford. Because Lito is able to produce the funds somehow to cover the budget, our politicians think there is no crisis at hand. A cap would force them to give up their perks and their pork. It would also stop a President from inducing an artificial reduction in power rates thus forcing more heavy borrowings for Napocor.

The debt cap worked to induce a sense of reality in many states in the United States. It could work the same way here. Loren should use her power and influence as the Senate Majority Leader to support this measure. We, the taxpayers should be 100 percent behind her.

The unfair sex

Here’s Dr. Ernie E.

A woman walks into her boss’s office with this complaint: "All the other women in the office are suing you for sexual harassment. Since you haven’t sexually harassed me, I’m suing you for discrimination."

Boo Chanco’s e-mail address is [email protected]