Any trained economist knows that two documents are of utmost importance to the sustained success of an economic development plan. One is the annually produced schedule of government expenditures and income—also known as the General Appropriations Act—and the other is a soundly structured program of taxation.
The GAA indicates how much the government intends to spend during an ensuring 12-month fiscal period and the resources it expects to be able to raise to pay for the expenditures. The tax program indicates the sources of the revenues that it expects to collect from each source. A responsible government does not program expenditures that it will realistically not be able to pay for with non-borrowed resources; in other words, a responsible government does not, unless required by highly adverse economic conditions, engage in deficit spending. Additional government borrowings are added to the national debt, which, when expressed as a percentage of GDP (gross domestic product) indicate whether the finances or a country are being soundly managed.
To its credit, the administration of Benigno Aquino III practiced fiscal prudence, progressively bringing down the debt-to-GDP ratio. True, the Aquino administration appears to have been overly prudent, resulting in government underspending, with dire consequences for the maintenance of adequate infrastructure. Indeed, it is partly to the historically low Aquino debt-to-GDP ratio that the succession of Philippine credit rating upgrades is to be ascribed—upgrades that are bound to be reversed if the management of this country’s finances begins to turn bad.
The P1.3 trillion GAA has now gone through the Congressional mill and become law, but the Duterte administration’s ballyhooed tax reform program thus far has made little progress in the tax-writing House of Representatives, which is said to be controlled by a Duterte ‘supermajority.’ The Secretary of Finance expects that the program will clear the Lower House during the first months of 2017. With the supermajority, this may well happen. But there will be the Senate to contend with afterwards.
There are elements of the Duterte tax reform package that I welcome and support. Foremost among the reforms is the proposed move toward a modified—i.e., simpler—income tax system. Excise taxes are not unacceptable if their objects are goods and services that may be considered less desirable, such as sugary products and high-end motor vehicles; thus I support the reformist moves with regard to such products. And the list of VAT-exempt goods and services can stand a rigorous review.
The parts of the Duterte tax reform program that I am uncomfortable—nay, worried—about are those that are intended to be compensatory. New measures are being proposed to raise revenues that will compensate for revenues that will be foregone as a result of lowerings of taxability thresholds and reductions of tax rates. The expectations of compensation appear to me to have been made with a fingers-crossed-behind-my-back attitude. Too much hopefulness, methinks.
Are the taxable individuals and enterprises of this country likely to respond positively to the concessions that the Duterte reform package is offering? I am a hopeful person, but I am a realist first and foremost. Tax concessions, once given, give rise to Treasury losses, and expected-but-uncollected incremental revenues likewise produce Treasury losses. It will then be a double whammy for the tax authorities.
Is my concern totally without basis? I sure hope so. But, given the culture of the Bureau of Internal Revenue and Filipinos’ historical attitude toward taxation, maybe it isn’t.
In any case, a sound tax reform program is a necessity for the success of the Duterte administration’s success.
E-mail: rudyromero777@yahoo.com