WHY is it bet­ter to pur­sue tax amend­ments in just one step?

Philippine Daily Inquirer - - FRONT PAGE - ———— E-mail: wal­lace_­likeitis@wbf.ph. Read my pre­vi­ous col­umns: www.wal­lace­busi­ness­fo­rum.com PETER WALLACE

Idon’t un­der­stand the ra­tio­nale be­hind amend­ing taxes in two phases. The first phase ad­dresses per­sonal taxes and es­tate and donor taxes, and the sec­ond, cor­po­rate, prop­erty and other taxes (e.g., car­bon tax, lot­tery and casino tax, etc.).

In­sti­tut­ing changes in a tax sys­tem is al­ways con­tro­ver­sial, ar­gu­men­ta­tive, and too slow. Politi­cians are more than will­ing to re­duce the taxes peo­ple pay, but un­will­ing to cover the cost. That can be a bruis­ing fight, so why go through it in phases? Get it over and done with at once.

There will be ve­he­ment op­po­si­tion to the in­creases es­sen­tial to cover the cost of the tax re­duc­tions. I have no doubt that the Left, par­tic­u­larly, will ar­gue for no increase on the silly ar­gu­ment that “we can re­duce taxes be­cause it’s good for the peo­ple, and the losses to gov­ern­ment will be found some­how.” But that “some­how” has to be painful to some­one, so why not the peo­ple who will ben­e­fit?

The Depart­ment of Fi­nance is rec­om­mend­ing that per­sonal tax losses be cov­ered by in­creas­ing the ex­cise taxes on pe­tro­leum prod­ucts, re­duc­ing cov­er­age of VAT ex­emp­tions, and rais­ing taxes on au­to­mo­biles.

To com­pen­sate for the cor­po­rate tax re­duc­tion, the mea­sures sug­gested are ra­tio­nal­iz­ing fis­cal in­cen­tives, rais­ing taxes on sweet­ened drinks, fur­ther in­creases in “sin” prod­uct taxes, and other taxes.

These all to­tal about P300 bil­lion in yield for the per­sonal tax re­duc­tion, and P120 bil­lion for the cor­po­rate. Both will read­ily cover the P128 bil­lion and P77 bil­lion of ex­pected losses if they all pass as re­quested. They won’t.

The big­gest op­po­si­tion will be on re­duc­ing the VAT ex­emp­tions, es­pe­cially on se­nior ci­ti­zens. But there will also be ve­he­ment op­po­si­tion to a higher ex­cise tax on gas and diesel. Ra­tion­al­iza­tion of fis­cal in­cen­tives got stymied in the last Congress as the DOF and the Depart­ment of Trade and In­dus­try ar­gued with each other. It may in the in­cum­bent Congress, too.

We sug­gested (see my col­umn “Taxes up in smoke,” 10/13/16) ad­di­tional ar­eas where rev­enues could be found. These in­clude uni­ver­sal mark­ing of oil prod­ucts to stop smug­gling (which could gen­er­ate be­tween P30 bil­lion and 40 bil­lion) and stop­ping the sale of il­licit cig­a­rettes (P13 bil­lion). Elim­i­nat­ing smug­gling of all sorts of prod­ucts has the po­ten­tial to raise P200 bil­lion. A P5 tax on each kilo­gram of sugar that enters the mar­ket, in­stead of sin­gling out just one prod­uct that uses sugar (cakes and can­dies are just as bad), equals P68 bil­lion. More ef­fi­cient tax col­lec­tion, rais­ing the tax ef­fort to the 17 per­cent achieved dur­ing the Ramos ad­min­is­tra­tion, could pro­duce P370 bil­lion. Com­plet­ing 500 tax eva­sion and smug­gling cases that have not pro­gressed in court (P95 bil­lion) and the re­cov­ery of the Mar­cos ill­got­ten wealth (be­lieved to be around P290 bil­lion) round up my sug­ges­tions. Now I know there’s noway the Mar­coses will give back our money—as 30 years of his­tory show us, and no one will force them to. So, you can’t ex­pect that. But that still leaves P946 bil­lion added to the pile. So, some ac­com­mo­da­tion to Congress op­po­si­tion could be made if these are in­cluded.

There are other sources of rev­enues, but these can’t be quan­ti­fied, only guessed at. And that is the ad­di­tional in­vest­ment in busi­nesses that will oc­cur with lower taxes and, hence, eas­ier abil­ity to make a profit. It will also re­move one of the de­ter­rents to for­eign in­vest­ment, by mak­ing the tax regime com­pet­i­tive with that of our neigh­bors. There will def­i­nitely be more rev­enues. It’s the same with the VAT: More money in peo­ple’s pock­ets re­sults in more to spend, but how much can’t be de­ter­mined. But we can’t fol­low the Left’s ar­gu­ment. So, we can’t take this into ac­count. But it will hap­pen.

Let’s get it over and done with at once. This is a gov­ern­ment that promised a break from the past, of end­less prom­ise and lit­tle action. Let’s see that action now, not in phases. And in the first quar­ter for im­ple­men­ta­tion by midyear. Time to stop pussy-foot­ing around.

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