It is encouraging that the Bureau of Internal Revenue (BIR) is finally cross-checking its list of tax-registered businesses against the list of companies registered with the Securities and Exchange Commission (SEC). The BIR didn’t use to do that, for one reason or another.

Fortunately, under BIR Commissioner Lilian Hefti, initiative was taken to do just that, and the research results were appalling: over 9,000 companies registered with the SEC were not registered with the BIR.

It’s easy enough to assume that these companies are avoiding some taxes. After all, unless registered with the BIR, they have no Tax Identification Numbers. So imagine the loss to the government over all the years that these firms were not covered by the tax net. Incidentally, many of these firms are reportedly nonstock and nonprofit. But with the recent discovery, it is hoped that the BIR will exert extra effort to go after these over 9,000 companies and ensure their payment of tax liabilities, past and present—in fairness to businesses that pay the correct taxes.

The BIR is also reportedly planning to cross-check its data against other databases, including those of the Land Transportation Office, Land Registration Authority, Insurance Commission, Department of Trade and Industry, and the Social Security System. One can just imagine how many small business owners, registered vehicle owners, landowners or insurance policyholders don’t have Tax Identification Numbers, and are probably avoiding particularly income taxes. And yet, they were able to pay for a small business, one or several cars or even property or tracts of land, or life and nonlife insurance policies. In fact, even assuming their acquisition of any asset is by inheritance or donation or transfer, even these are subject to tax.

Allowing tax auditors to cross-reference asset ownership (small business, cars, property, bank deposits, insurance policies, etc.) with income tax returns (or lack of it) will help the government significantly in determining actual tax due and tax paid. It can thus drastically reduce tax avoidance, and help shore up government revenues. Provided, however, that bank secrecy laws can be relaxed, and that tax amnesties will no longer be offered by the government.

To a large extent, the 12-percent value-added tax (VAT) has also helped the government raise more money in the last three years to finance public infrastructure and services. However, given rising oil prices of late, perhaps the government should now reconsider VAT exemption for fuel and electricity. The peso’s rise against the US dollar is not enough to cushion high world oil prices’ impact on fuel and electricity prices locally. One can recall that it was in December 2004 that the Jose de Venecia Jr.-led House of Representatives decided to drop the proposed taxes on telecommunication firms’ profits and on text messaging. And this was in favor of (1) broadening the VAT to cover even basic necessities such as electricity and fuel; and (2) raising the VAT to 12 percent from 10 percent.

While the 12-percent VAT is already something that people have learned to live with, exempting fuel and electricity from VAT now will go a long way in easing their burden. In turn, Congress may impose a tax on text messaging to make up for the resulting revenue shortfall. Assuming that the cost of a text message is raised to include a P1 tax, at an average of about 100 million text messages daily, the government can raise as much as P36 billion annually—almost enough to cover the estimated P39 billion in forgone revenues with the exemption of oil from VAT and tariff. And while a so-called text tax may bring down average use, it is doubtful if this will decline significantly. After all, a tax on texting would probably deter only unnecessary text messages. What’s more important is that people would no longer be unfairly burdened by a 12-percent VAT on basic goods such as fuel and electricity.

And exempting fuel and electricity from the broader VAT would not necessarily be at the expense of the telecommunications industry, since any tax on text messages, a consumption tax, would be passed on to consumers, anyway. It is also an acceptable compromise since relatively fewer people use cell phones compared with the number of people (including farm workers and the urban poor) that use fuel and electricity. Alternative sources of additional tax revenues may include higher taxes on cigarettes and liquor, and on luxury goods such as jewelry and high-priced vehicles. It appears, anyway, that people are more inclined to accept such taxes rather than continue to endure high fuel and electricity prices. It is uncertain, however, that Congress and the Palace can actually consider these tax alternatives, given their seeming protection of vested interests. 

Comments to matort@yahoo.com

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