Hurting the poor more
Thank God for Prof. Winnie C. Monsod. Her questions and comments throw us off our balance, but they keep us thinking, and hard. She reminds us that 37% of our labor force is exempt from paying the income tax. They are minimum wageearners, or are micro-traders and small service providers. Labor statistics show that 26.9% or 11.02 million of employed persons are in elementary occupations, i.e. they are employed in the performance of simple and routine tasks and considerable physical effort. These may include carpenters, masons, and the bricklayers who we hire occasionally. Ergo, they do not pay an income tax and are outside the tax base. For years, we have just been looking at taxpayers who are caught in the tax net. They are the ones in our mind when we talk of providing tax reliefs. We should now consider a huge sector that will not benefit from give-aways on tax exemptions and reduction of income tax rates. They have no wins in this regard, but plenty to lose in the reform of indirect taxes. They may end up losers in the end.
It is good for government to consider subsidies and transfers to the poor. Some R30 billion from the estimated collection from the increase in excise taxes on oil products are earmarked for the poor. But Prof. Winnie reminds us again that the plans may look good on paper. The 4Ps already suffers from “bureaucratic and logistical nightmare.” We need to remind ourselves how government fails to solve simple problems such as the lack of immigration officials at the airport. It pains us to accept that many things do not work in the Philippines.
A great mentor and a public finance expert, Prof. Richard Bird reminds us that taxes may not make the poor richer, but “they can certainly make them poorer.” The tax on sweetened beverages will certainly make them poorer. The tax incidence will be heavier on the poor. The effective tax rate, or the ratio of the excise tax to income is indeed regressive: 0.52% of the income of the poorest families will be paid as tax on sweetened beverages compared to 0.47% of the income of the wealthy.
The burden on TRAIN (Tax Reform Acceleration and Inclusion Act) is that it is expected to raise R133.8 billion for government to finance its infrastructure program. I hate to think of it, but the strategy reminds me of the song “Any which way but loose.” Thus, government is focused on the revenue impact of TRAIN and all sorts of proposals are forwarded, with the most recent one, a tax on salted products. “Parang kahit ano, pwede. (Any revenue measure would do.) And so again I ask, if we are going to maximize the use of an excise tax on non-essentials, and harmful products, why don’t we tax cosmetics, beauty enhancement products and services, plastics, gambling, and harmful sources of energy? Why don’t we remove the preferential treatment that is given in the Tax Code itself, like the tax exemption of Pagcor, and several other government corporations? The tax rates on individuals are differentiated, e.g. 20% on interest on peso deposits and 7.5% on interest on dollar deposits. These create distortions and great inequities.
And since taxation is only one component of public finance, we should look at all the other means to generate resources. Public-private sector partnerships can finance infrastructure projects without the need to frontload public funds. Given our rich experience on PPPs, we are in the best position to optimize its use.
A balanced mix of resource mobilization measures will be a healthier alternative particularly for the poor.
mguevara@synergeia.org.ph