Attrition

It is now more than two years after President Arroyo signed into law the "Lateral Attrition Law under Republic Act (RA) 9335 on Jan. 25, 2005. This was one of the fiscal reform measures that the Chief Executive pushed in Congress with her economic advisers led by former Albay Rep. Joey Salceda who chaired then the House committee on ways and means. In a bid to convince lawmakers to pass these revenue-raising measures, the Arroyo administration foisted the specter of a looming "fiscal crisis" due to the crippling budget deficit of the government.

As envisioned by this law, it aims to enhance the revenue collection performance of both the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) through the institution of a system of rewards and incentives and corresponding punishment by attrition, either by demotion, reassignment, or outright dismissal from the job. Thus, RA 9335 provided for a fund to implement this reward system and set of penalties that would be determined by a revenue performance evaluation board (RPEB).

Covered by the Lateral Attrition Act of 2005 are all the revenue examiners, tax assessors, collectors and other personnel of the two agencies whose performance on the job are objectively gauged in terms of whether they meet or surpass, or fail to deliver their tax collection targets. To date, however, I was surprised to learn that there are no implementing rules and regulations (IRR) yet to carry out the letter and spirit of this law.

To their credits, though, the BIR and the BOC have managed to meet their collection targets for the past two years. However, it was quite difficult for the BIR to meet its collection target when legal obstacles delayed the effectivity of the Revised Value Added Tax (RVAT).

Unlike the RVAT which increased the VAT rate from 10 percent to 12 percent, the Attrition Law is a revenue-neutral measure since no new tax or additional tax rate was imposed. The Arroyo economic managers projected as much as P10 billion in additional revenues to be generated from this law in terms of improved collection efficiency of the BIR and the BOC, the top two tax collecting agencies of the government under the Department of Finance.

BIR commissioner Jose Buñag and Customs commissioner Napoleon Morales almost started at the same time in their respective posts when Mrs.Arroyo appointed them in 2005. At one time, the two of them almost lost their jobs at the same time last year over their perceived failure to meet their monthly revenue collections. Thanks to their immediate boss, Finance Secretary Margarito Teves who stuck with them against those salivating to get their posts.

In the case of the Customs Bureau, there was renewed vigor in the collection efforts following the appointment of Morales who naturally had to show off that he could hack it. Fortunately for him, the Bureau surpassed its collection target last year. The Bureau collected for the whole year a total of P198.2 billion as against the target of P196 billion, or P2.2 billion more than the set collection goal.

Applying the Attrition Law, the Bureau is entitled to get the P2.2 billion excess from the collection target as their reward. The Customs Bureau has 15 revenue districts and 35 sub-port collectors that all contributed to the total year collections that overshot the revenue ceiling. But under the Attrition Law, only those who surpassed or met their individual collection targets would be rewarded and to attrite those who missed their marks. Since there is no IRR yet for RA 9335, there is nothing to reward the best performers nor to punish the under-performers in the Bureau.

I gathered from Commissioner Morales that he has asked a group of professors from the University of the Philippines School of Economics headed by Dr.Ramon Clarete, to study and help the Bureau come up with an acceptable formula on how to equitably distribute the reward in accordance with the Attrition Law even while the IRR is still being finalized. The study is funded by the United States Agency for International Development (USAID).

Given the resurgence of the Philippine economy, with the peso getting stronger vis-a-vis the dollar, this should give everyone reason to hope for the best for the country. But for an agency primarily involved in collecting tariff from all importations subject to levy, a stronger peso gives Morales sleepless nights. The Customs chief cited that for every peso difference in the exchange rate against the dollar, this is equivalent to P2.2 billion increase or decrease in the collections of the Bureau.

Morales is very much worried these days after the agency was given a P228 billion total collection goal for 2007 which was based on the assumption of P49 to $1 exchange rate. Actually, the target was already cut from the previous high of P235 billion full-year collections based on P53.50 to $1 assumption. But lately the peso keeps getting stronger and range at P48 to $1.

With no new tax laws to increase collections, Morales is counting on the possible increase in their revenues once the first batch of X-ray machines procured by the Bureau come into operations this year. The X-ray machines would not only speed up the inspection of all containers coming out from ports but also enable the Bureau to clamp down smuggling and plug other sources of revenue leakages due to corruption, red tape and collection inefficiency.

For now, Morales fears he will either lose his head in trying to crack his brains on how to collect that much or be the first victim of the Attrition Law if his agency falls short this year from its collection target.

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