Death By Taxes

Death By Taxes image

Text: Tito F. Hermoso / Photos: | posted September 08, 2011 16:04

More taxes to offset poor policies

While our economy ails and we muddle through business as usual, speculation masquerades as analysis. Governance and jurisprudence is by press release/TV news sound bites. Start with VAT on expressway tolls. Our taxes are supposed to pay for the roads the government builds. Government can't afford to build all the roads, so what it does is buy the right-of-way and let the private sector build the road. Then it allows the private company to operate it for a fee. Fair and just. This fee is now going to rise because the IRR [Implementing Rules & Regulations] say that a toll fee is a service charge that is VAT-able. Never mind if it raises the cost to small businesses and commuters. Why are we paying taxes again on the very good/service that our taxes paid for? Double taxation?

True, the VAT law was passed by a Congress so it meets the criterion of representation for this taxation. But the writers of the IRR are the agencies implementing it; BIR and DoF. Fair enough. After all who knows tax collection and financing the fiscal deficit of the government better than them? Problem is they are not tasked with the problem of Economic growth, the very same economic growth, that should expand the tax take.

BIR and DoF are behaving in accordance to their mission. Usually run by accountants, these arms of government do not need the vision and purview of an Economist to do their jobs well. The problem is that the DoF is only one of several government arms that orchestrate daily economic activity. Thus, the need for a leader, a chief coordinator. Without this CPU, the left arm may be doing harm to the right arm and vise versa.

In the meantime, the taxman, in keeping with post election tradition, seeks to score more brownie points by shaming and making examples of celebrities and big companies that they accuse guilty of tax evasion. But who are they targeting? The professional self-employed? Doctors. Lawyers. Engineers. Dentists. By extrapolation, many of these professionals are accused of under reporting their income. But many of these professionals, by virtue of their roles in their respective communities, provide pro-bono services and functions to the poor in communities where the State doesn't even function.

Another favorite target: "smuggling" Oil companies, even if said oil companies exclusively and legitimately import their oil by Bank L/C. The "highly-paid" officers of government owned and controlled corporations, companies that are net income contributors to the National Treasury. It is because these companies paid market salaries and fees to hire competent executives that these GOCCs thrived and made net contributions to the Treasury. The taxman always scores headline brownie points whenever they catch smuggled luxury cars but these are not exactly thick on the ground.

Meantime, where are our collected taxes going? A big unspent kitty or savings to show to all and sundry that corruption was avoided by not spending on more infrastructure projects? Half baked fuel card subsidies? A wealth transfer hand-out, a poor copy of Brazil's successful Bolsa Familia? Subsidies for dirty diesel fuel? Subsidies for 80% of the cost of train fares? An arms shopping list to saber rattle at Superpowers? Tariff walls and subsidies for a small Ethanol industry which will artificially raise fuel prices?

On the last matter, it is a case of "Here we go again", mimicking the USA, especially its failures. Some bright boys believe that we should grow our ethanol industry. To do so means slapping prohibitive tariffs on ethanol from Brazil, the world's most efficient and cheapest source. We should learn the lesson of President Bush's error of raising US tariff walls to subsidize an ethanol-from-corn industry. Two years later, half the refineries went bankrupt as food prices, corn and sugar included, went through the roof.

We are a developing country so its normal to run fiscal deficits. As a portion of Gross Domestic Product, we are well within the norm. Which means that the government should be able to spend more to expand employment and close the distant infrastructure gap. Given that we should not fund this deficit by foreign borrowings, but we have an eager and nation-loving private sector. It can source 20-40 year term development funds for high tech lake/river dredgers, high tech portable all weather metal Ro-ro ports like in Europe, world class expressways, etc. It was ready, willing and able to fund PPP projects. Its a pity that all that zeal, all that goodwill and all that interest from the first electronic national elections have died. Tax collection has no hope of expanding if the economy doesn't expand. How can the taxman possibly collect more taxes as more businesses find it difficult to even survive much less invest in new businesses?

Not all is bad news though. As the ritual witch hunt seems to be the government's main focus, which sidelines any kind of forward vision, Media outfits are flooded with spectacular headlines and cockfight-like he-said-she-said public rows. Statistics are abused to conjure up blood curdling headlines of massive corruption to incense the unthinking mob. Blood pressures and hospital bills climb. And with it, the good business of lawyering. On this last point, the BIR is right in putting law office accounts under scrutiny. But it doesn't mean they're guilty. At least we console ourselves that as our Economy atrophies, we can entertain away our worries and tune in, daily, to the 6'o clock news. At the end of the day, that seems to be the guide on how to reactively run this country.