Text Tax: An IMF Imposition That Could Blow in Arroyo’s Face


MANILA — As expected, the revived proposal to impose a tax on text messaging is generating controversy and broad opposition. What surprised some people perhaps are the strong statements from telecommunication companies (telcos). They called the plan “anti-poor,” “oppressive” and “one of the worst anti-consumer legislations ever made.”

Telcos, of course, are still reeling from the public relations beating they have been receiving stemming from their questionable charges, missing load and other abuses, which was the subject of a Senate probe. Thus, some surmise that telecommunication companies are strongly opposing the text tax to recover some publicity points by taking on an issue their customers are strongly opposed to. But Globe Telecom and Smart Communications are actually defending their business interests, which are being threatened by the text tax proposal. Specifically, the proposed tax would affect their promotional bucket-priced short message service (SMS) plans that allow them to protect their market share and earn billions of pesos in profits.

Broad Opposition

Nonetheless, the firm position of Globe and Smart against the text tax is a welcome development. They reinforced the broad opposition against an onerous tax proposal repeatedly raised by Congress as well as Malacañang the last seven or eight years. Members of the Senate, led by self-styled consumer advocate Senate president Juan Ponce Enrile, have also spoken strongly against the text tax. Add the 2010 elections to the equation, some say, then it is almost certain that this plan will not materialize any time soon.

But proponents of the measure are adamant. The House ways and means committee led by Quezon Rep. Danilo Suarez and Ilocos Sur Rep. Eric Singson has promised to pass a law imposing a five-centavo tax on SMS within the year. Some sort of an alternative bill is also being pushed by Sen. Richard Gordon reportedly supported by the DOF and NEDA. In Gordon’s version, the text tax is in the form of a 5-year levy on telcos’ profits on SMS. Malacañang has not asked its allies to drop the text tax though it set conditions for its support, namely a “no pass-on to users” provision, telcos must pay, and revenues from this must go to education, health or computerization.

IMF Pressure

The latest incarnation of the text tax (a consolidated version of Singson’s House Bill 6625 and Suarez’s House Resolution 282) comes in the context of an administration under pressure from the International Monetary Fund (IMF) to widen its revenue base. In its latest consultation with Philippine officials concluded last January 2009, the IMF Executive Board “suggested” that the government raises its tax collection efforts, broadens its revenue base and rationalizes fiscal incentives. The IMF noted the still high level of public debt amid continuing need for a measured fiscal stimulus, and thus raised said proposals to provide government “more scope for fiscal easing and well-targeted pro-poor cash transfers”.

While no longer in debt with the IMF, the Philippines remains a hostage to it because its assessment of a country’s fiscal situation is used as a signal by foreign creditors and investors. A favorable review by the IMF means a high rating for “creditworthiness” for the debt-dependent economy. The IMF has exercised control over the country’s fiscal policies through regular consultations between its Executive Board and Filipino officials, such as the one they concluded in January.

Incidentally, it was the IMF that first openly pushed the text tax idea in 2002 to address the government’s burgeoning budget deficit. But it was hugely unpopular and promptly rebuffed by some lawmakers. Even so, various text tax and related bills have been filed in Congress since then. Finance and Trade officials have also raised the proposal at various times and circumstances – at one point to pressure the bicameral committee to fast track the also infamous Reformed Value-Added Tax (RVAT) law in 2005 and in some instances as trial balloon on public opinion. The National Tax Research Center (NTRC) has conducted a study as well on the text tax in 2007 to weigh potential revenues and impact on consumers.

Lobby Vs. Sin Taxes

Due to its unpopularity, the text tax could not be found in official policy pronouncements of Mrs. Arroyo. In her July State of the Nation Address (SONA), for instance, Mrs. Arroyo has categorically asked Congress, to further restructure so-called “sin taxes”, which unlike the text tax does not invite loud public outcry. During its January consultation with IMF officials, Arroyo officials promised to pass a law imposing separate uniform tax rates for alcoholic drinks and cigarette products.

But apparently, Malacañang and Congress have given in to the strong lobby of local manufacturers of sin products, who reportedly sought a meeting with Mrs. Arroyo in her Forbes Park (Makati) home to lobby against the proposal. The coming 2010 elections could have also played a role – with known huge election campaign contributors Lucio Tan (who owns Asia Brewery Inc and Fortune Tobacco) and Danding Cojuangco (who own San Miguel Corp) as among the stakeholders to be affected by sin taxes reform. There is also strong opposition from the so-called Northern Luzon bloc, or congressmen from the country’s tobacco-producing region.

Share This Post

One Comment - Write a Comment

Comments are closed.