Complacent

Last month, the BIR again missed its collection target — as the agency has done consistently. It shouldn’t be news; but it is.

Last April, the month when annual taxes are paid, the BIR managed to collect P156.1 billion. The revenue goal for that month, however, was 176.1 billion. The main revenue agency missed its target by 12.88% or P20.1 billion.

The same shortfall happened in March. The BIR managed to collect only P82.18 billion against a target of P90.5 billion for the month.

Whoever sets the revenue targets for both the BIR and the BoC must be masochistic. After all the complex calculations based on assumptions about our general economic performance, targets are set — and missed with painful regularity.

Those revenue targets are not useless goalposts. They, in turn, constitute the assumptions on which public spending is planned. When revenues do not meet targets, we suffer budget deficits. We are forced to incur debt our children will inherit.

In a frantic effort to meet its targets, the BIR engaged in a name-and-shame campaign against professionals in particular and the middle class in general. It is doubtful, however, if this is the right strategy the agency should pursue. There is only so much in taxes the BIR could squeeze from fixed wage earners.

The better strategy is to plug the loopholes in the VAT system and more closely monitor tax-intensive businesses. Yet, strangely, the BIR seems averse to do this.

I mentioned in this space before the case of a major distributor of high-end vehicles. That distributor is notorious for grossly under-declaring its vanity imports, avoiding duties as well as VAT. Senior officers of the agency have asked the commissioner permission to audit this distributor. The commissioner adamantly refused.

One recent study shows the BIR missed collecting P15.6 billion in VAT and excise taxes because of illicitly sold cigarettes in the domestic market. The study was done by the US-based International Tax and Investment Center and the UK-based Oxford Economics.

Rather than heed the findings and recommendations of this study, BIR Commissioner Kim Henares chose to downplay it. She even labeled the report as part of a demolition job mounted against her office. The fact that revenues from sin taxes exceeded expectations is not reason to be complacent.

The ITIC-Oxford study has truly disturbing findings. It shows that while legal domestic sales of cigarettes dropped by almost 16% last year after the imposition of a more punitive sin tax schedule, this was more than offset by a sharp rise in the sales of illicit cigarettes. Last year, illicit cigarettes accounted for 18.1% of total consumption.

The trade in counterfeit cigarettes grew some 800% last year, accounting for 1.8 billion cigarettes consumed by Filipino smokers. Counterfeit cigarettes constituted only 0.2% of local consumption in 2012. That rose to 1.8% in 2013. It is probably greater this year.

Those who crow about the “health benefits” of the sin tax law should consult the results of this study. Read the numbers and weep. Counterfeit cigarettes, being unregulated, are likely more dangerous. They are sold to lower-income consumers, the same ones who will rely on state health spending.

The ITIC-Oxford study estimates illicit trade in tobacco products caused the BIR to lose P12.7 billion in possible excise taxes last year. Another P2.9 billion in potential VAT revenues was lost.

“This represents,” the study notes, “a P13 billion or 497% increase versus the tax loss in 2012, which was estimated at P2.6 billion.”

If the BIR and the BoC focus their efforts at cracking down on illicit tobacco trading and other large businesses that indulge in under-valuating imports they might significantly close the yawning gap between revenue targets and actual collections. That will, in turn, help us mitigate our chronic budget deficits and propensity to incur debt.

Yet, the BIR Commissioner, it seems, prefers to be complacent about the phenomenon. She would rather mount a name-and-shame campaign against lawyers and doctors, an effort that yields vastly less results.

Isis

The last round of fuel price increases is due, according to industry analysts, to renewed uncertainty about the situation in Iraq.

After a tenuous ceasefire was arranged in Syria a few weeks ago, it appears the Sunni rebels affiliated with a group called Islamic State of Iraq and Syria (ISIS) crossed the border into Iraq. They quickly occupied the city of Mosul and several towns just north of Baghdad. Units of the Iraqi army simply ran before the virulent foe, abandoning heavy equipment behind.

The US, reluctant to get involved in the new outbreak of violence in this devastated country — although the latest reports indicate the Americans might be willing to project their air power against a patently terrorist group. They have to do that or court the collapse of the Shiite-led government in Baghdad.

Strangely, Iran might be more willing to help their fellow Shiites in Baghdad. If that happens, Washington will lose more than face. They will lose influence over what they consider a client state.

The ISIS is so brutal in its methods, it was denounced and disowned by Al Qaeda, no less. That says a lot. 

As part of the rebel forces fighting the Assad regime in Syria, they murdered fighters of other rebel groups as much as they inflicted a harrowing war of attrition against pro-Assad forces. In the towns they occupied in Iraq the past week, they quickly indulged in mass executions.

They failure of the West to decisively resolve the problem in Syria caused this new complication.