Arroyo’s Tax Measures to Hit the Poor Hardest

In a situation of higher taxes, the poor will bear an equal share of the taxes with the rich, who have higher incomes and are more able to absorb the impact. Doesn’t this contradict the administration’s claims of being pro-poor?

By JOSEPH S. YU
IBON Features
Posted by Bulatlat

Spare the poor, Malacañang tells Congress, even as it is asking lawmakers to give priority to its eight proposed revenue measures in order to stave off fiscal disaster.

President Gloria Macapagal-Arroyo has already admitted that the country is in a state of “fiscal crisis,” although her economic managers disagree.

But it is precisely the poor who will be most affected by the new measures if they are passed into law.

Regressive measures

This is because the eight revenue measures are regressive. This means that the poor bear an equal share of the taxes with the rich who have higher incomes and are more able to absorb the impact of higher taxes.

These measures are the P2 ($0.03, based on an exchange rate of P56.37 per U.S. dollar) per liter hike in excise tax on oil products; indexation of taxes on cigarettes and alcohol; increasing the value-added tax; shift from net to gross income taxation; a tax amnesty; an attrition system for government agencies; imposition of franchise tax on telecommunication firms, and rationalization of fiscal incentives.

The P80-billion ($1.42-billion) projected additional revenue from the new measures translates to an approximate tax burden of P4,998 ($88.66) per family. The computation is based on 16 million families in the country, according to the 2003 Family Income and Expenditures Survey (FIES).

Although this may not seem like much, it is a heavy burden for the poorest Filipino families, whose expenses already exceed their incomes.

The 2003 FIES divides Filipino families into 10 deciles based on their incomes. Families in the poorest three deciles are already in debt because their average annual incomes are not enough to meet their needs. The poorest 10% of Filipino families, in fact, have an average debt of P2,275 ($40.36) at current prices.

If the P4,998 ($88.66) is added to their average expenditure, the poorest 10% will have an average debt of P7,273 ($129.02), while families in the fourth decile, who were previously able to save more than P2,500 ($44.35), are now in debt by almost the same amount.

Thus, rather than the new tax measures, government should consider other revenue-generating measures that would have less impact on the poor.

Tax evaders, corruption

These should include cracking down on big-time tax evaders and corruption in government.

For example, government should pursue the P25 billion ($443.50 million) tax-evasion case against Lucio Tan and Fortune Tobacco Corp., which was recently revived by the Supreme Court.

The Marikina Metropolitan Trial Court (MTC) dismissed the case in 1999 after the Bureau of Internal Revenue’s (BIR) legal and prosecution division told the court that Tan did not commit tax fraud.

But the Supreme Court ruled that the Marikina MTC did not exercise its judicial authority properly by basing its dismissal merely on the findings of the BIR instead of making an independent finding on the merits of the case.

The Macapagal-Arroyo administration must now prosecute this case and others, if only to show that it is serious about addressing its fiscal problems.

It must also crack down on corruption within its ranks. According to the United Nations Development Program (UNDP), as much as P100 billion ($1.77 billion) of the annual national budget is lost to corruption. The UNDP noted that these revenue losses deepen poverty since it diverts resources from vital government projects.

Fraudulent debts

An independent body should also be constituted to review government’s debts and determine which of these are onerous and should not be honored.

One example is the Bataan Nuclear Power Plant (BNPP), which cost government $2.3 billion at the time of its completion in 1984. The BNPP has not generated even one watt of electricity, and yet taxpayers continue to pay $155,000 a day just to service the interest of the debt incurred in constructing the plant.

The review should also look into government contracts such as those entered into between the National Power Corporation (NPC) and its independent power producers (IPPs) to determine which of these should be cancelled.

But more importantly, government should review its tariff policies. According to the National Tax Research Center (NTRC), due to tariff reduction commitments under the World Trade Organization (WTO) and regional trade agreements, the country has already lost some P100 billion ($1.77 billion) annually.

The country can actually maintain a higher tariff rate even under our WTO commitments. For example, in 2001, the WTO allowed the country to raise average tariffs up to 27.5% but only a 6.7% average tariff was maintained.

Aside from generating more revenues, raising tariffs would also allow the development of the local agriculture and industry sectors by protecting them from unfair competition from cheap imports.

But other than revenue measures, government should also address the issue of its ballooning debt. The country’s total external debt has already reached $56.7 billion. Debt servicing of the interest alone on public debt reaches an average of one-third of the national budget. In the 2003 budget, 28% of the total was allocated for debt service (interest), but only 16% for education and 1.6% for health.

Government should prioritize social services rather than debt payments in its budget expenditures. Thus, it should repeal the late Pres. Ferdinand Marcos’ Presidential Decree (PD) No. 1177 which provides for automatic appropriations of tax revenues for debt service, and former Pres. Corazon Aquino’s Executive Order (EO) 292, which instituted Section 26 of the Revised Administrative Code of 1987 which provides for automatic appropriation of principal and interest on public debt.

It should also implement a debt cap, not just on future borrowings, but also on debt service payments, in order to give the country some breathing room to deal with its fiscal problems.

In any crisis, like the one the country is facing now, it is always the poor who are hardest hit. Thus, any solution to the crisis should consider not just its revenue-generating potential, but also social justice and equity. In this light, government should not implement its new tax measures. Bulatlat

Back to top

We want to know what you think of this article.