No one really wants to pay taxes and it is easy to think up reasons why we should be tax free. But taxes are a fact of life, unless we want a totally useless government with no money to spend on anything at all. We have to be serious about taxes, if we want economic recovery. Loopholes utilized for tax avoidance and tax evasion must be closed. Our tax system must be fair and equitable, based on ability to pay. No more must a corrupt bureaucracy connive with an equally corrupt elite to cheat the nation with impunity.
I am dreaming, of course. I am probably reading a little too much, hoping too much in the words uttered by President GMA before Congress. We need tax reforms badly. The tax base must simply be expanded. Ironically, the number of tax filers decreased by 425,569 in 1999, as a result of among others, the exemption of OFWs from income tax. Unless every Filipino realizes that he has an obligation to pay his rightful taxes, the very stability of our economy and our government is threatened.
Government needs to raise revenues to, among others, provide social services to the poor and modernize the armed forces. But they can no longer just impose new taxes on an overtaxed segment of society. That will simply drive those who have choices, out of the country. All of us professionals should just all work abroad and pay no Philippine taxes, earn dollars we can salt away in foreign accounts and come home amid adulations about being a modern day hero.
I was just talking with former Finance Secretary Ed Espiritu and he agrees with me on this point about removing all these tax exemptions granted by Congress through the years for political expediency. That includes the tax free status of OFWs, all income tax exemptions enjoyed by foundations, civic organizations, non-stock non profit organizations, NGOs and GOCCs in so far as their income producing activities are concerned. If they really want to help, their highest civic duty is to pay the proper taxes.
I am also in favor of imposing a limit in the number of years a corporation can avoid paying income tax on account of it being in the organizational stage. If a business entity cannot make a profit after three years, it has no business continuing to exist or pay some form of minimum tax. It is pretty common for business corporations to report losses for income tax purposes for as long as 20 years or more.
Ed was saying that a tax of between five percent and nine percent of gross income applied across the board for individuals and corporate entities is reasonable, will remove the corruption involved in net income taxation and will increase overall tax collection. I checked with a number of tax experts and they estimate that most corporations pay an effective rate of just three to six percent, while I pay 32 percent as a fixed income earner.
I am told that if one factored the money paid to corrupt revenue examiners, corporations are actually paying closer to nine percent anyway. If the gross taxation scheme is adopted, everything goes to the government. But Ed warns that President GMA should not agree to water down the proposal with a "modified" gross tax scheme where certain deductions are still allowed under the heading cost of goods sold. That is where corruption will creep in and destroy the purpose of the reform measure.
The beauty of a fixed rate applied on gross is that income taxes can now be anticipated and made a part of cost and included in the profitability ratio even for new entities who expect losses in the first three years of operations. It will also be very transparent. An uncompromised gross tax scheme will make the job of the BIR almost ministerial, with their computers checking only on the accuracy of the gross figure being reported.
President GMA said her main concern in her tax reform proposal is to clean the BIR. Former Finance Secretary Espiritu shares her concern and doubts it is possible to truly reform the BIR without changing the tax system. And Ed thinks nothing short of a drastic overhaul of our tax system will truly clean the tax collecting agency. The added benefit of the gross tax scheme is the potential for higher collections for the Treasury.
Here's hoping that Congress shares this sentiment. This is also a test for the business segment of civil society – the Makati Business Club types – to put their own narrow interests aside and help put these reforms into our statute books. Any attempt to dilute will merely destroy the whole thing. If we are to undertake this tax reform at all, we might as well do it boldly now so we can look forward to reaping its benefits fully.
We can deliver all the sanctimonious speeches on the values of EDSA 2 and the need to help the poor but if President GMA does not have the means to put a compassionate social agenda in place, what's the use? Her biggest problem is an empty Treasury. The best way we can all help the country at this point is to pay our taxes… our rightful and just share of the tax burden. If we can't pay the taxes we should, we lose our right to bitch if the government is less than responsive to all our needs.
Let the cases be heard in Zamboanga or some other part of Mindanao. Or if it has to be moved, move it to Manila, the closer to the powers that be the better, to encourage them to settle the problem a little more quickly.
A young girl who has not been feeling well went to her family doctor. "Young lady," the doctor began, "you’re pregnant."
"But that can’t be. The only men I’ve been with are nudists and in our colony we practice sex only with our eyes."
"Well my dear," said the doctor, "someone in that colony is cockeyed."
(Boo Chanco's e-mail address is bchanco@bayantel.com.ph)