DOF to plug tax leaks before new revenue measures are imposed

MANILA, Philippines - The Aquino administration will make sure tax leakages are plugged before new revenue measures are imposed.

Finance Secretary Cesar Purisima made the assurance as foregone revenues due to collection loopholes have reportedly reached an alarming P250 billion.

President Aquino has said he is open to raising excise taxes on sin products particularly cigarettes and alcohol.

“I support the stand of President Aquino to first fix the leakages before implementing new tax measures. We estimate that at least P250 billion is lost because of tax evasion,” Purisima told participants of the Philippine Mid-Year Economic Briefing yesterday in Makati City.

He said it’s the President’s marching orders that tax loopholes be addressed first before new revenue measures are introduced.

Purisima pointed out that a possible source of fresh revenues is the restructuring of the current excise tax regime on sin products.

“The current excise tax structure was designed to make it difficult for new entrants to come in as it favors old brands through lower excise tax rates while high rates are slapped on new brands. I will support down the road the review of the current structure,” he added.

But he admitted that raising sin taxes would not be easy, at least in the near term.

“Increasing the sin tax clearly is an opportunity but I think we are not in a position to propose that over the next 12 months,” Purisima said.

Health Secretary Enrique Ona and Framework Convention on Tobacco Control Alliance Philippines (FCAP) executive director Maricar Limpin earlier urged authorities to adopt the cigarette tax scheme proposed by US President Barack Obama, which would translate to P4.50 tax per stick or P90 tax per 20-stick cigarette pack.

The existing taxes on cigarettes under Republic Act 9334 or the Expanded Value Added Tax Act of 2005 range from P2.47 per pack for low-priced brands to P27.16 for premium brands. The Philippines has the cheapest cigarettes in Asia.

Purisima explained that aside from enhancing tax collections, the Finance department is focused on eliminating or reducing smuggling and on improving the management of government-owned and controlled corporations and government financial institutions.

He said the government has scored a major victory with the Court of Tax Appeals’ conviction of Forever Living Products owner Benjamin Kintanar last week for tax evasion. Kintanar was sentenced to up to two years in jail. The case against Kintanar was filed in 2005.

“We’d like to see the day that he actually enters the jail so we can convince you that it’s not worth taking the risk to evade paying taxes,” he said.

Data show that about 82 percent of the total personal income tax collections of the Bureau of Internal Revenue come from fixed income earners whose salaries are automatically subjected to withholding tax. Taxes paid by self-employed individuals account for 17 percent of BIR’s collections, according to data.

“This fight against tax evasion will not be a single event. It will be a journey. There will be ups and downs but the key is to sustain effort so we can create tipping points and make believers out of skeptics so they will realize that it will no longer be business as usual,” Purisima said.

The finance chief said the Aquino administration is bent on trimming the budget deficit to two percent of the gross domestic product starting 2013 from the current level of 3.9 percent of GDP.

Economic managers through the Cabinet-level Development Budget Coordination Committee sees the country’s budget deficit swelling to a new record level of P325 billion or 3.9 percent of GDP this year eclipsing the previous record level of P298.5 billion last year.

“Our goal is to reduce the deficit to two percent by 2013, to make sure we extend and better manage our liabilities, reduce our vulnerabilities in foreign exchange fluctuations and ensure better health for GOCCs and GFIs,” he said.

He said the administration of former President Fidel Ramos had managed to raise revenue efforts to 19.9 percent of GDP in 1994 and the tax effort to 17 percent in 1997.

“There is no reason we cannot do that again. In fact, on another year, the tax effort was at 70 percent and at that time they did not even have the VAT law. Right now there is so much room for improvement. That is why we are confident that we will be able to go and reduce our deficit to two percent without new tax laws,” Purisima stressed.