Making the rich, richer
Much can be said in defense of the tax amnesties. Government needs additional revenues which tax amnesties can raise. They can give errant taxpayers a chance to return to the fold and take part in government's programs. They can improve tax administration. The BIR can have a more comprehensive list of taxpayers who can be audited. And, a broader tax base opens opportunities for greater fairness in taxation, robust tax collection, and a lower tax burden.
But these lofty goals have not been realized by government despite the so many attempts to grant tax amnesties. There have been more than 20 amnesty laws that government implemented since the martial law regime. But amnesties had short-run effects and brought insignificant changes in compliance and enforcement. The only amnesty that worked was the first one declared by President Marcos. Note, that it was preceded by a total overhaul of BIR and BOC which sent a strong signal to taxpayers that government meant business. The succeeding tax amnesty laws did not reach their targets and progressively weakened the tax fiber of the nation. Honest taxpayers resented the lack of fairness. In their minds, it does not pay to be honest because compliance is not rewarded. Those who are brazen enough to monkey with tax laws are not only forgiven but are allowed to go scot free for the violations they committed. The current tax amnesty bill deepens this sentiment. It gives taxpayers with immunity from all civil, criminal, and administrative cases for their failure to pay their taxes, not just in 2017 but for prior year. The tax amnesty condones delinquencies for all taxes which have become final and executory, including criminal cases that are pending before the Department of Justice and the courts. Even withholding agents who withheld taxes but failed to remit them are pardoned. Indeed, how generous and forgiving our government can be.
But these are not all. Discounts will be given for the early birds. There is a 20% discount for those who will avail of the amnesty three months from the effectivity of IRR. Progressivity is carried to the hilt and corporations are given a choice to pay 5% of net worth or a fixed amount ranging from 1100, 000 for small firms up to 11, 000,000 for big corporations. And, the taxpayer can choose to pay the fixed amount of 5% of net worth, whichever is higher. Indirectly, the bill is telling us that there is little hope from collecting taxes from taxpayers, even if the BIR has brought them to court. This says a lot about trusting the BIR’s integrity and competence. It has been stripped of its power to question under-declaration of net worth. What is declared by the taxpayer is considered true and final.
Perhaps, the tax amnesty program was inspired by the Indonesian experience, but it has departed from the model. The Indonesian tax amnesty lured the repatriation of foreign assets by citizens. Government selected financial institutions to handle the repatriation of funds and required that they should be rupiah-denominated. This implied that foreign stocks and properties had to be sold before asset repatriation.
But the strongest argument against tax amnesty is that it defeats the major role of public finance in income and wealth redistribution. The basic tenet of income taxation is to collect more from those who have greater ability to pay and redistribute them to the poor in the form of transfers or better and more public services. Studies show that there is a reciprocal relationship between income and wealth, i.e. people with higher income have higher net worth. The tax amnesty program is pro-rich and will not benefit the poor.
The tax amnesty comes after lowering the inheritance tax from 20% to 6%. This is really the best example of the Matthew principle where the rich get richer and the poor get poorer. A song that was written in 1921 can be played over and over again:
“Times are bum and getting bummer Still we have fun There's nothing surer The rich get rich and the poor get poorer Ain't we got fun?”
mguevara@synergeia.org.ph