What should we tax next?

A higher tax on coal hits ev­ery­body, but at a rate that is man­age­able for all.

Business World - - OPINION - MARVIN A. TORT

One news­pa­per re­port noted that the Fi­nance de­part­ment was look­ing into the pro­posal of an air­line com­pany for the gov­ern­ment to re­move the travel tax, par­tic­u­larly for de­par­tures from small air­ports. No fur­ther de­tails were given, but some­how, I doubt if the pro­posal will ac­tu­ally fly. Fi­nance, af­ter all, seems bent on hav­ing new taxes to fund pub­lic projects.

While the gov­ern­ment has con­vinced the House to lower in­come taxes, it wants new or ad­di­tional taxes on oil and fuel, mo­tor ve­hi­cles, and sweet­ened bev­er­ages, among oth­ers. And, it says, these rev­enues will help fund the gov­ern­ment’s in­fra­struc­ture pro­gram. To date, the Se­nate doesn’t ap­pear to be as con­vinced as the House on the need for all these new taxes.

The logic is some­what bent, in my opin­ion, if Fi­nance opts to scrap travel taxes, for in­stance, when it fact part of that is al­ready al­lo­cated or ear­marked for tourism in­fra­struc­ture. Aren’t we try­ing to raise more funds for pub­lic works, in the first place? And why raise fuel and car taxes so high that this may dampen de­mand. Tax col­lec­tion can ac­tu­ally go down, rather than up.

In the same vein, why target food and drinks as a source of new taxes, which can raise food and bev­er­age prices? Food and drinks should re­main ac­ces­si­ble, par­tic­u­larly for the poor. Per­haps more taxes can be col­lected from im­prov­ing col­lec­tion of ex­ist­ing taxes, or by ad­just­ing rates of taxes on to­bacco and liquor prod­ucts, on com­mon car­ri­ers, and on coal, among oth­ers.

I be­lieve the Se­nate should se­ri­ously con­sider higher ex­cise taxes on to­bacco prod­ucts and cig­a­rettes, in­clud­ing e-cig­a­rettes, and beer and liquor and other al­co­holic prod­ucts. These are pre­cisely the kinds of con­sumer goods that should be made less ac­ces­si­ble to the pub­lic, as they are known to have harm­ful health con­se­quences and lit­tle to no health ben­e­fits.

On the other hand, bev­er­ages like fruit juices and 3-in-1 cof­fee mixes still have nu­tri­tional value, as long as con­sumed in mod­er­a­tion. So, why tax these rather than cig­a­rettes? More­over, these bev­er­ages in­vari­ably form part of the ba­sic diet of most poor Filipinos nowa­days, pri­mar­ily be­cause they are cheap and read­ily avail­able, much like in­stant noo­dles.

Even farm­ers are now wor­ried by the pro­posed sweet drinks tax, given its po­ten­tial neg­a­tive im­pact on agri­cul­ture in gen­eral, and not just on sugar farm­ing. The Philip­pine As­so­ci­a­tion of Agri­cul­tur­ists, Inc., in a news re­port, noted that the pro­posed sweet bev­er­age tax would af­fect agri­cul­tural and ru­ral en­ter­prise pro­duc­tiv­ity.

A call for higher taxes on cig­a­rettes will res­onate with health ad­vo­cates like Sin Tax Coali­tion, which is propos­ing a 60% in­crease in ex­cise taxes on to­bacco prod­ucts by 2018, and an an­nual hike of nine per­cent for the suc­ceed­ing years. The coali­tion brings to­gether about 100 health care pro­fes­sion­als’ as­so­ci­a­tions and civil-so­ci­ety en­ti­ties sup­port­ive of higher taxes on sin prod­ucts like cig­a­rettes.

The coali­tion, in a news re­port, warned that there would be an ad­di­tional one mil­lion smok­ers in the coun­try by the end of President Duterte’s term in 2022 un­less cig­a­rette taxes are raised. It added that rais­ing to­bacco taxes anew would help limit ad­di­tional cases of ill­nesses re­lated to smok­ing such as lung can­cer, chronic lung dis­eases, and stroke.

As for liquor, when a stan­dard bot­tle of one’s fa­vorite “brandy” can be still be had for less than P100, then I guess we are not tax­ing the item as much as we should. In terms of hi­er­ar­chy, I re­gard liquor as a lesser evil than cig­a­rettes, but I still think there is plenty of room for the gov­ern­ment to hike taxes on al­co­holic bev­er­ages and im­ported liquor.

The com­mon car­ri­ers tax (CCT) is an­other ma­jor source of tax leak­age. Congress should take a long and hard look at present laws and reg­u­la­tions and prac­tices, and de­ter­mine how best to re­vise the CCT sys­tem. The present 3% tax on gross re­ceipts can still be raised to at least 5%, and then col­lected more ef­fi­ciently un­der a sys­tem that re­lies on tech­nol­ogy.

The CCT has sig­nif­i­cant tax col­lec­tion po­ten­tial. And I sus­pect many land trans­porta­tion ser­vices like buses, jeep­neys, and

taxi op­er­a­tors, and per­haps even Grab and Uber car own­ers, do not cor­rectly pay the 3% CCT, nor the equiv­a­lent 3% per­cent­age tax on their gross re­ceipts. Many of them may not be reg­is­tered with the BIR.

If there are 200,000 jeep­neys in na­tion­wide, with their op­er­a­tors col­lect­ing a “bound­ary” of at maybe P500 per unit daily, then the 3% tax on the daily to­tal take is P3 mil­lion. Mul­ti­ply this by 300 days a year, and the gov­ern­ment can get P900 mil­lion an­nu­ally from jeep­neys alone. Add to this CCT from buses, taxis, and Uber and Grab cars, ship­ping com­pa­nies, air­line com­pa­nies, and truck­ing com­pa­nies and the state can ex­pect a hefty sum.

There is plenty of po­ten­tial since un­der the law, gross re­ceipts of pub­lic util­ity op­er­a­tors are not lim­ited to what they earn in terms of “bound­ary.” For pur­poses of tax, gross re­ceipts sub­ject to CCT ac­tu­ally cover “bound­ary,” the earn­ings or “com­mis­sion” of the driver, ex­penses for gaso­line, and other ex­penses taken from the earn­ings de­rived in the op­er­a­tion of the com­mon car­ri­ers. In short, the CCT should be col­lected on to­tal gross re­ceipts.

But no­body in Congress seems to be in­ter­ested in look­ing into this. Not even Fi­nance is re­motely in­ter­ested in im­prov­ing its col­lec­tion of CCT, when in fact the op­er­a­tions of most pub­lic trans­porta­tion have a very sig­nif­i­cant neg­a­tive ex­ter­nal­ity that af­fects us all: air, wa­ter, and noise pol­lu­tion. The po­ten­tial col­lec­tion runs up to tens of bil­lions of pe­sos, I reckon.

Speak­ing of pol­lu­tion as a neg­a­tive ex­ter­nal­ity to be ad­dressed by tax, per­haps Congress should also heed the call of for­mer So­cioe­co­nomic Plan­ning Sec­re­tary Cielito Habito for a higher tax on coal, not­ing that “taxes on fos­sil fu­els serve as a ‘pol­lu­tion tax’ that ac­counts for the ex­ter­nal cost to so­ci­ety of in­creased car­bon emis­sions into the at­mos­phere — the es­tab­lished key cause of cli­mate change — re­sult­ing from use of such fu­els.”

Habito noted that while Fi­nance of­fi­cials and law­mak­ers were rais­ing ex­cise taxes on fos­sil fu­els like diesel, gaso­line, and liq­ue­fied pe­tro­leum gas, it is leav­ing out coal, where the tax “has stayed the same for decades, at only P10 per ton,” and this is “be­cause coal has al­ways been clas­si­fied as a min­eral rather than a fuel, [and] is treated sep­a­rately from pe­tro­leum fu­els.”

Habito wrote, “Clearly, there’s a strong case for a big hike in the long-out­dated ex­cise tax on coal. With an an­nual do­mes­tic con­sump­tion of 15-17 mil­lion tons, the P10- per- ton coal ex­cise tax yields less than P200 mil­lion, when it could be yield­ing bil­lions if we only taxed it at even just half the rates Japan and Korea do. With an es­ti­mated 2,700 kWh gen­er­ated for ev­ery ton of coal, a P10-in­crease in tax would raise power cost by less than half a cen­tavo. We are miss­ing out on a large ad­di­tional rev­enue source here.”

Habito noted that ma­jor coal im­porters Japan and Korea charged a car­bon tax on coal rang­ing from P600 to P900 per ton, while our gov­ern­ment col­lected a measly P10 per ton. This small tax, Habito said, is equiv­a­lent to an ef­fec­tive tax rate of only about “0.2% ( based on a coal price of $ 86 per metric ton), com­pared to around 10% [tax] for gaso­line,” and an es­ti­mated 43% tax on nat­u­ral gas from Malam­paya, as a re­sult of the 60% roy­alty charged on sales.

He added, “Coal, the dirt­i­est among [ fu­els], gets taxed very lightly, while the clean­est, nat­u­ral gas, is ef­fec­tively taxed the heav­i­est — a case of per­verse tax­a­tion, if you ask me. How can we ex­pect to have a cleaner en­vi­ron­ment when we pe­nal­ize the clean­est fos­sil fuel the most, but give the dirt­i­est a vir­tual free ride?”

I fully agree with Habito on this. A higher tax on coal hits ev­ery­body, but at a rate that is man­age­able for all. And a higher tax al­lows the gov­ern­ment to col­lect bil­lions of pe­sos in rev­enues while ad­dress­ing a sig­nif­i­cant neg­a­tive ex­ter­nal­ity, pol­lu­tion. More­over, “lifeline” rates or sub­si­dized elec­tric­ity prices min­i­mize a coal tax’s im­pact on poor power con­sumers.

But, just like CCT, it seems that Congress and the Se­nate would rather skip coal and target in­stead diesel fuel, cars, and drinks with sugar in them.

MARVIN A. TORT is a for­mer man­ag­ing ed­i­tor of BusinessWorld, and a for­mer chair­man of the Philip­pines Press Coun­cil. ma­tort@ya­hoo.com

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