Next administration must plug revenue leakages, improve collection - Paderanga

MANILA, Philippines - The next administration should plug revenue leakages and improve tax administration before thinking of new taxes as these may discourage investors, a former National Economic and Development Authority (NEDA) chief said.

“There are views that there are parts of the economy that were not taxed or were able to get away not paying taxes while others have a heavy burden. You might want to calibrate that a bit and when you finish with that, you can see what else should be done,” former socioeconomic planning secretary Cayetano Paderanga told The STAR.

“The problem with putting more taxes on those who are already paying high rates is you might actually be driving some businesses underground,” he added.

“Businesses may no longer come here or they may go to other countries. For those already here, they may decide that it is very difficult to do business here.”

Paderanga, now chairman of think-tank Institute for Development and Econometric Analysis, said the next president should simplify the tax system and review the stimulus packages implemented to lessen the impact of the global downturn.

“What they should do is plug the loopholes and determine the leakages. For one thing, part of the budget deficit is the stimulus programs. Now the question is are these necessary now that you have a slow recovery?” he said.

“Rules (on taxation) should be more transparent and simple so they are enforceable and easy to check. Addressing corruption is part of that. Once you simplify, you can identify the leakages.”

Paderanga said the new administration should also find out if there are misused spending programs and if there are taxes that remained uncollected.

“I think the first order of the day is find out what are the numbers and what numbers you can save by plugging the leak and then collecting what is not collected. Then you can find out if you have to do something more,” he said.

The former NEDA chief, however, said the new government should not totally discount the possibility of imposing new taxes if gains from administrative measures are not enough to offset the foregone revenues from leakages.

Sought for comment, Finance Assistant Secretary Teresa Habitan said it may be difficult to rely solely on administrative measures to cut the deficit given that Congress have passed a lot of revenue-eroding laws.

“Two years ago, that would have been a viable option. However, Congress has legislated laws which have resulted in a narrower tax base,” she said in a text message to The STAR.

Among the latest revenue-losing laws passed were the measure that lowers the tax on life insurance and that which exempted senior citizens from the 12 percent value-added tax.

The global slowdown, along with the need to hike spending to pump-prime the economy and the passage of various tax cuts, raised last year’s deficit to P298.5 billion last year, higher than the goal of P250 billion.