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Philippine Fiscal Incentives: A Note on Design, Administration, and Context

The main idea of this paper on Philippine Fiscal Incentives written by Cristina Morales-Alikpala, is that while fiscal incentives, in their current design, administration, and context, may have proven to be of little value when it comes to encouraging investments, the notion of providing effective subsidies to worthy investors should not altogether be abandoned.

Mining Revenues Unspectacular, Need to be Re-assessed

RA 7942, “An Act Instituting a New System of Mineral Resources Exploration, Development, Utilization and Conservation” was passed in 1995 and has since been touted as the enabling law for the revitalization of the mining industry.

Among the reasons put forward for the move to “revitalize” the industry were : its potential contribution to economic recovery and growth, to exports and foreign exchange earnings, to employment and to revenues that the government could utilize for development goals.

With the exception of exports, these expected contributions to the Philippine economy, have been, at best, modest. From 2005 to 2009, the mining industry accounted for an average of 4.2% of total Philippine exports. Its contribution to GDP during the same period, averaged at 1.2% and to total employment, 0.4 %. In addition, revenue statistics show that the actual contribution of the mining industry to government revenues is decidedly unspectacular.

Yes to sin tax reforms!

“From a societal concern, I say yes to the idea of an increase in sin taxes….As you know, these sin products have a health burden on the people.”

This was the statement of President Noynoy Aquino (P-Noy). His statement was an explicit signal to legislators to pass a law that will increase sin taxes and rectify the errors in the present law governing sin taxes.

The law on sin taxes needs to be overhauled. The sin taxes are not indexed to inflation. And the excise taxes on tobacco products especially are so convoluted, resulting in further erosion of revenues.

Statement of Support for P-NOY Regarding the Increase of Excise Taxes on Sin Products

We welcome the statement of President Benigno Aquino III to back reforms on excise taxes on sin products, including tobacco and cigarettes. In his statement, President Aquino said that, “From asocietal concern, I say yes to the idea of an increase in sin taxes.There are trade-offs. As you know, these sin products have a health burden on the people, and this health burden has a peso value.”

Year after year, tobacco-related diseases claim the lives of millions. Inthe Philippines alone, approximately 90,000 die every year or about 10 Filipinos every hour die from smoking-related diseases. [1] We believe that increased excise taxes, particularly on tobacco products, will not only address the economic costs by curbing tobacco usage, but also increase revenues for the government.

Political Capital

Political capital is precious, and it must be used well.

The Philippine Daily Inquirer (14 August 2010) reports that the P-Noy administration is “ready to sacrifice political capital” in implementing the imposition of the value-added tax (VAT) on road tolls. It is not just about the application of the VAT on the increased tolls of the South Luzon expressway (SLEx) but on the tolls of other expressways as well.

The news item quoted presidential spokesperson Edwin Lacierda: “In the short term, we’d rather be unpopular because in the long term we know that the [value-added tax] that will be collected will be used for the social services that we have promised.”