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I HAVE
previously expressed my reservations about proposals to
suspend the value-added tax on petroleum products. I
wrote then that the benefits from such a move were not
clear, while the potential losses were huge and
long-lasting, including the erosion of investor
confidence.
But I
have no qualms whatsoever about raising taxes on
alcoholic beverages, cigarettes and other tobacco
products, which are aptly called “sin” products.
My
understanding is that the Department of Finance has
already reviewed Republic Act 9334, or the Sin Tax Act
of 2005, that mandates the increase in excise taxes on
cigarettes and alcoholic beverages every two years up to
2011.
The
department’s experts believed that even under the
existing law, cigarettes and alcohol are not
sufficiently taxed. One problem is that the tax on sin
products is specific, meaning, the actual amount going
to the government gets eroded by inflation.
Another
problem is that “old brands,” or those that went to the
market in 1997 or earlier, are being taxed based on
their original prices and not on current, higher prices.
Even the
World Health Organization (WHO), which has been
campaigning against smoking because of its health
hazards, recognized that local taxes on sin products
can, and should be, increased further to discourage
excessive consumption of these products.
Based on
the WHO’s data, excise taxes on cigarettes in the
Philippines range from $2.42 to $29.28 (for the really
expensive brands, apparently) per 1,000 sticks. In
contrast, cigarettes are taxed at $39.30 per 1,000
sticks in Brunei, $23.29 in Malaysia and as high as
$192.56 in Singapore.
When we
enacted RA 9334, which was part of a comprehensive
legislative-reform package to strengthen the
government’s fiscal condition, I said we had enough tax
laws to drive economic growth and finance infrastructure
and public services; and that if ever, we would need
only to refine existing tax laws rather than impose new
taxes. Raising the tax on cigarettes and alcohol is one
such refinement.
That
would be the legislature’s responsibility and task. The
Executive, however, must see to it that the laws we
enact are implemented fully and efficiently so that our
efforts are not for naught.
What’s
lamentable is that the collection of excise taxes has
gone down instead of up after we increased these taxes.
I cannot believe that consumption of cigarettes and
alcoholic beverages went down because of the taxes. Just
look at the profits being reaped by manufacturers of
these products. They’re among the top 1,000 corporations
of the country.
Yet the
latest government data show that the Bureau of Internal
Revenue (BIR) collected P29.83 billion worth of excise
taxes on cigarettes and alcoholic beverages in January
to September 2007, reflecting a P692-million or
2-percent drop from the P30.52 billion generated in the
same period in 2006.
And now,
in addition to amending the tax rates on sin products,
some wise guys want to revive the proposal to tax text
messages. The National Tax Research Center has even
estimated that a 50-centavo tax on each text message can
yield more than P40 billion in additional revenues.
The
projected revenue collection does not take into account
the fact that text messages are now the most affordable
means of communication among our people, especially
low-income households.
I would
advise proponents of tax on text messages to look
somewhere else. Why not, for instance, improve tax
collection, beginning with sin taxes? It would be easier
to justify an increase on excise taxes on sin products
if revenue agencies show that they are collecting what
the law mandates.
That
also goes for other taxes. It’s been 10 years since the
ratio of tax collection as percentage of gross domestic
product (GDP) reached 17 percent during the
administration of then-President Fidel Ramos. A few
years ago we were able to raise the tax-to-GDP ratio to
14.3 percent in 2006 from a low of 12.5 percent
following the Asian financial crisis. But we’re sliding
back to 14 percent.
Now, the
main revenue-generating agencies are complaining that
they will not be able to reach the targets imposed on
them to finance the P1.23-billion national budget for
2008. The BIR wants to lower its P845-billion collection
target to less than P800 billion. The BIR collected an
estimated P712 billion in 2007, P54 billion short of its
P765.9-billion target. The Bureau of Customs, likewise,
complains that its P254-billion target for this year is
unrealistic, given the continuing appreciation of the
peso.
Improving collection, with support from refinement
measures but without imposing new taxes, is a challenge
for the administration. We have a lot of catching up to
do, not only to reach the 17-percent tax-to-GDP ratio
but because of the underspending in the past few years,
to narrow the fiscal deficit while revenues were slow.
Now, we have to spend on infrastructure, education and
health.
I must
caution the administration against relying too much on
revenues from the sale of government assets. These are
one-time gains, as against the recurring revenues from
taxes.
In the
private sector, corporations emphasize core income, or
income from their normal operations, instead of one-time
gains (from sale of assets or foreign-exchange gains,
for example), which are basically considered as
extraordinary income.
I am
sure Finance Secretary Gary Teves and his pool of
experts know where the loopholes are, and are doing
their best to plug them so the government can collect
what is due from taxpayers.
As I
said in the beginning of this column, I will support
higher taxes, but the executive must take enforcement
seriously.
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