Tax Reforms and Collective Action

The fiscal problem is perhaps P-Noy’s toughest challenge. He promised not to impose new taxes, and this limits his room for maneuver to solve the fiscal constraint, which is essentially a problem of low revenue collection. This is the context in which P-Noy welcomes PPPs (public-private partnerships). Yet, PPPs will not result in higher tax effort.

Improving tax efficiency (like catching tax evaders) and rational- izing fiscal incentives are most welcome. They will increase tax effort (tax collection as a percentage of Gross Domestic Product or GDP), cur- rently at around 13 percent, by a few percentage points. Unfortunately, these actions are not enough to boost the tax effort to a secure level, say, 17 percent of GDP. One measure that should be immediately taken, without breaking P-Noy’s campaign promise of new taxes, is the indexation to inflation of the specific taxes on alcohol and tobacco. Adjusting the tax to inflation is not a new tax.

The NGOs can take up a crucial challenge: Take the lead in hav- ing a fiscal covenant with the P-Noy administration. The NGOs should demand fiscal efficiency, accountability and transparency. They should demand higher spending for education, health and infrastructure, which will benefit the poor. As part of the covenant, they should be open to introducing progressive taxes to finance development. P-Noy will also benefit from this type of NGO intervention. He gains political space and additional political capital to resolve the fiscal constraint.

Read full text of “Tax Reforms and Collective Action”. (in .pdf, 12pp.)

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