More taxes is too taxing

Do we really need new taxes? The answer is maybe yes, but more no. True there are sectors that could be slapped more or higher taxes. The obvious ones are the liquor and cigar manufacturers that have been taking advantage of weak legislation to deprive the government of much-needed revenues.

The proposed indexing of taxes on sin products to inflation should be seriously reviewed, hopefully with less lobby pressure. Or the telephone and telecommunication companies that are wallowing in profits.

There should be a limit to the amount of promotional expenses these telecoms are deducting from their taxable income. There must a way of assessing tax, say on drop calls and text games (disguised gambling?), without adding burden to the text-addicted public. Some taxes have to be applied more extensively like the 10 percent value-added tax.

It was only slapped on entertainers last year and a host of other sectors of business remain VAT-exempt to this day. Examples are doctors and lawyers who were originally part of the new VAT coverage this year but were again exempted by legislators, who by the way are mostly lawyers.

But to increase the excise tax on petroleum when current pump prices are at their all-time high is ridiculous. To raise the VAT rate to 12 or 14 percent from 10 percent is futility. But to abolish VAT and go back to the sales tax system is suicide.

Gross Negligence In Tax Collection

There is solid data to prove that the government is committing gross negligence in its efforts to collect taxes. In fact, it needs only to collect its existing impost to wipe out the deficit and perhaps even register some surplus. In VAT, for instance, the government is collecting only about 60 percent of the potential revenue of about P100 billion each year. Some economists claim the leakage is much worse.

If we are to believe Senator Franklin Drilon’s recent statements, the government is collecting only three percent of the 10 percent VAT. A study conducted by the National Tax Research Center for the finance department showed that between 1998 and 2002, the government was unable to collect P635 billion in potential revenues from taxes.

Each year, the government loses some P127 billion in potential earnings from uncollected income and value-added taxes. Of the estimated annual tax leak, P85.4 billion was due to income and P41.62 billion due to VAT.

The finance department continues to push for more tax measures and impost. Yet, ironically, a study it did in year 2000 showed that the tax leakage was more than P240 billion yearly on all sorts of impost including excise, documentary stamp, interest, withholding, fringe benefits, gross receipts, and insurance taxes. So why make new imposts when a significant amount due from existing imposts and tax measures is not being collected?

Tax Evasion Abounds

The NTRC surmised that the huge tax gap that would have been enough to wipe out the five-year deficit of P656 billion during the same period was caused by rampant cheating of income taxes and VAT especially among corporations and professionals.

Using Land Transportation Office car registration statistics, Rep. Herminio Teves says there are supposedly more than three million families who are taxable this year, but only 740,000 filed their individual income tax.

Worse, he adds, of the 400,000 corporations that registered with the Securities and Exchange Commission, only 39,000 filed income tax returns. From 1998 to 2002, the NTRC calculated that the potential yearly income tax take should have been P246.877 billion.

Instead, the BIR collected only an average of P161.55 billion annually. Tax avoidance is lowest among wage earners at only seven percent (P66 billion estimated collectible as against P61 billion collection) owing largely to their relative absence of opportunity to cheat, but biggest among professionals and individual businessmen at 69 percent (P39 billion versus P12 billion). Evasion among corporations is estimated at 38 percent (P142 billion vis-à-vis P88 billion).

Collections Not Enough To Service Debts

Countries set tax collection standards measured against gross domestic product. In the region, the ratio is around 14 to 20 percent. We were at 17 percent in 1996, but this had dropped to 12 percent last year. There are figures that even estimate this at nine percent.

The huge tax gap simply reflects the country’s urgent fiscal quandary. We are collecting just enough taxes to service public sector debt. There is nothing left to spend on the day-to-day operations of the bureaucracy.

Fix First The Collection Machinery

To think of new taxes is not the immediate and only solution to our financial crisis. It may not also be equitable especially if it would hit salaried workers and employees who are already paying their obligated share.

Which is why this administration should forget about imposing new taxes, even if it claims that it could collect an additional P80 billion. Why implement new taxes when the prevailing tax regime had not been optimized? The P38-billion additional revenue from a P2-hike in fuel taxes and another P30-billion from a 2-percentage point increase in VAT rate will remain just estimates if the basic problem is not solved.

We have to fix first the inefficient tax collection machinery that is bogged down by the bureaucratic and judicial maze when pursuing tax cheaters, and a collection machinery that is being corroded by corruption.

An Update Of GSIS Issues On TV

"Isyung Kalakalan at Iba Pa" on IBC-TV13 News (5 p.m., Monday to Friday) starts today with a discussion of issues being confronted by Government Service Insurance System as it implements plans to restore its financial equilibrium. Like the Social Security Services, its counterpart for the private sector, benefit payments have been outpacing membership contributions. Watch it.

‘Breaking Barriers’ With Dr. Augusto D. Litonjua

"Breaking Barriers" on IBC-TV13 (11 p.m. every Wednesday) will feature Dr. Augusto D. Litonjua, well-known endocrinologist and president of Diabetes Center Philippines (DCP), on Wednesday, 4th August 2004.

Worldwide, there are more than 177 million people with diabetes, and the number is expected to increase to about 300 million by year 2025, the World Health Organization (WHO) recently reported. In the Philippines, there are about 3 million Filipinos afflicted with diabetes. More alarming is the fact that probably an equal number are diabetic but remain undiagnosed.

How do you detect diabetes? Is diabetes, even at its early stage, already incurable? What are the complications attached to diabetes, most especially if proper medication is not applied? 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