New Taxes: The Poor Bite the Bullet, 
Big Tax Evaders are Untouched

Many economists claim that taxes are necessary to offset the growing deficit. They are wont to argue that whether the people like it or not, they must bite the bullet. Even the poor have to make sacrifices. The political economist interviewed by Bulatlat, however, believes otherwise.

By RONALYN V. OLEA
Bulatlat 

The Macapagal-Arroyo administration hopes to raise P80 billion ($1.42 billion, based on an exchange rate of P56.37 per U.S. dollar), mostly in new taxes, to offset the ballooning budget deficit.

Four of the eight proposed tax measures have dire implications on the poor, namely the proposed two-step hike in Value Added Tax (VAT); tax on the windfall profit of telecommunication companies; excise tax on oil products; and taxes on alcohol and tobacco. 

In an interview with Bulatlat, Paul Quintos, a political economist and executive director of the Ecumenical Institute for Labor Education and Research (Eiler), said the government prefers taxing the poor instead of the rich. By prioritizing the collection of indirect taxes, the burden falls on the shoulders of the poor majority.  Indirect taxes are imposed on goods and services. 

Quintos said that indirect taxes are easier to collect than direct taxes, the latter referring to those imposed on the income of individuals and corporations. He said that in the Philippines, a big part of the government’s revenues comes from indirect taxes. Asked why this is so, he stressed, “Mahirap singilin ang mayayaman” (It is hard to collect taxes from the rich). 

Regressive taxes 

The Eiler executive director also said that indirect taxes are generally regressive. This means that a smaller income results in a bigger proportion that goes to taxes. As an example, he said that regardless of the income of a minimum wage earner and a top official of a big corporation, both of them are taxed 10 percent VAT if they buy goods and services covered by it. The tax collected from the rich is insignificant given their higher income but the case is not so for the poor. 

According to the National Wages and Productivity Commission (NWPC), the family living wage in Metro Manila stands at P594 ($10.54) daily for a family of six. This means that a family who can afford to fulfill this amount would likely pay P1,782 ($31.61) monthly for VAT which is almost 30 percent of a minimum wage earner’s monthly gross income.  

Meanwhile, a P2 ($0.04) specific tax on oil translates to increased prices of petroleum products as oil companies are expected to pass this on to consumers. An increase in tariff of imported oil products, according to various studies, means another P0.25 ($0.0044) to P0.32 ($0.0057) increase per liter. This year alone, prices of oil increased twelve times by an average of P6 ($0.11).   

On the other hand, telecommunication companies stressed that they will charge to subscribers whatever taxes are imposed on them. 

Quintos described as hypocritical the government’s reasoning for taxing alcohol and tobacco.  “There are other ways… to discourage the consumption of undesirable products.  Gusto lang nitong pagkakitaan ang mga ito” (The government only wants to take money from them).  

Most favored 

On the other hand, Quintos revealed that ironically, foreign and local big corporations are not heavily taxed and actually enjoy fiscal incentives.

Citing data from the Institute for Development and Econometric Analysis (IDEA) in 2003, P174.6 billion ($3.10 billion) worth of fiscal incentives were given to corporations. Of this amount, 90 percent or P157.0 billion ($2.78 billion) was granted to special economic zones.   

Quintos said that most of the transnational corporations operating in the Philippines evade taxes by exploiting the five-year tax holiday.  “Magpapalit sila ng pangalan kada limang taon para hindi magbayad ng buwis” (They change their names every five years to avoid paying taxes).   

Instead of changing this arrangement, there is a pending bill in Congress that seeks to expand privileges to foreign investors. Through House Bill No. 271, House Speaker Jose de Venecia proposes more incentives for export-oriented corporations. These include four to 12 years income tax holiday, lower rate on gross income tax (five percent); up to 100 percent exemption from tax and custom duties; deferred imposition of minimum corporate income tax; and exemption from local taxes and licenses. 

A study by the National Tax Research Center (NTRC) reveals that the government loses P32.6 billion ($578.32 million) to P170.0 billion ($3.02 billion) potential revenues to fiscal incentives of big corporations. 

Moreover, since 1998, at least P100 billion ($1.77 billion) is reduced from government collection yearly due to tariff reduction. Collections by the Bureau of Customs declined from 5.0 percent in the last decade to 2.6 percent in 2002. 

Quintos noted that lower tariff rates discourage domestic production. Likewise, tax exemptions of transnational corporations do not ensure domestic sourcing of raw materials. 

Alternatives 

Instead of imposing new tax measures, he proposed the reversal of tariff liberalization to encourage domestic production and increase government revenues. He said that the country’s tariff rates are even lower than the bound rates as committed to the World Trade Organization (WTO). 

He also suggested that the government should cut down its incentives for foreign corporations and go after tax-evading big corporations. Bulatlat

Back to top

We want to know what you think of this article.