Sta. Ana coordinates Action for Economic Reforms. This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, July 2, 2007 edition, page S1/4.
Remember the Beatles’s song titled Taxman? Even though we, like the Beatles, hate taxes and the tax collector, it is to our interest to make the Bureau of Internal Revenue (BIR) efficient.
For the ordinary people, the BIR’s enhanced revenue collection can translate into more and better provision of public goods. Over the years, under Mrs. Arroyo’s administration, per capita spending or real spending for basic services—education, health, infrastructure, and others—has declined.
The budget for basic education has been below 1.5 percent of GDP since 2001. Health spending has been below 0.5 percent of GDP. Infrastructure spending since 2003 has been below one percent of GDP (0.73 percent in 2006, according to the Department of Budget and Management). As a ratio of GDP, infrastructure spending in poor Laos is bigger. All these expenditure figures are way below the international benchmarks.
The fiscal deficit has significantly narrowed. In fact, the budget has a primary surplus. But it exacted a high price, for government, aside from increasing taxes, cut productive spending.
The passage of new taxes should result in a better fiscal picture without sacrificing government spending. Both the increase in the rate of the value-added tax and the adjusted excise tax on sin products have contributed to the fiscal turnaround. Taxes have increased, but collection is below the avowed goals or targets.
Mrs. Arroyo claims that she also wants to allocate more resources for education, health, and infrastructure. That’s the rhetoric, but the fact is real or per capita spending for these sectors has either stagnated or diminished. In light of the repeated call of investors and creditors to address the lack of resources for infrastructure, the Philippine government has committed to embark on an infrastructure program amounting to PhP372 billion for the next few years. How this will be done, given the government’s difficulty of meeting revenue targets and the problems that hamper private sector participation in infrastructure, remains to be seen.
Actually, Mrs. Arroyo’s main concern in reducing the deficit is to please the international creditors and the credit-rating agencies. In this regard, it does not matter how the deficit is reduced so long as the result is satisfactory to the creditors. Not surprisingly, the BIR under Mr. Joel Buñag, now resigned, resorted to quick-fix practices to generate immediate revenues.
Mr. Buñag put in place a tax amnesty program, which yielded additional but negligible revenues. Congress, too, approved a tax amnesty legislation, which Mrs. Arroyo did not veto. Tax amnesty is harmful because it only encourages taxpayers to evade taxes or defer payment.
The BIR also collected advance payments from the large taxpayers to window-dress the year-end numbers. Mr. Buñag accused Finance Secretary Margarito Teves of ordering the collection of advance tax payments.
The administration’s response to the missed revenue target is likewise a quick fix. Aside from firing Mr. Buñag, the administration aims to meet its target by way of privatization. It will be selling the government shares in San Miguel Corporation, Manila Electric Company and the Philippine National Oil Company Energy Development Corporation. The selling of government shares in these companies can fetch PhP75 billion. But being a non-recurrent revenue measure, this is hardly the means to address the fiscal deficit in a sustainable manner.
The prima facie evidence of the BIR’s poor performance is that the growth rate of its revenue collection for the first quarter of 2007, equivalent to 6 percent, was considerably lower than the nominal GDP growth rate of 9.9 percent. In effect, the BIR’s collection effort (amount collected as a percentage of GDP) slipped from 9.7 percent to 9.4 percent.
The lower collection might not solely be attributed to the BIR’s inefficiency. Former Economic Planning Secretary Felipe Medalla has noted that in recent years, the statistical discrepancy in the national income account has increased. In other words, the growth rate might be overstated. It is thus possible that the difference between the GDP growth rate and the growth rate of BIR’s collection is closer.
The report of the tax audit group for the first quartet of 2007 said that excluding the impact of macroeconomic variables (such as growth, inflation, and interest rates) on collection, the BIR’s collection did not meet its programmed level of efficiency, falling short by PhP10 billion. Parenthetically, a high-level source from the BIR informed me that the advance tax payments of big corporations, which were posted in 2006, amounted to PhP12.6 billion. The BIR thus became a victim of it own window-dressing.
The tax audit group reported that based on macroeconomic indicators, the BIR collection was below the program it set in relation to capital gains tax, corporate income tax, excise tax on petroleum, insurance premium tax, excise tax on tobacco, and excise tax on motor vehicles.
The tax audit group also proposed measures for the BIR’s immediate implementation. But the measures such as strengthening the tax audit system and process and using third-party information are nothing new.
Reforms in the BIR are stalled not just because of the resistance from within but also because its leadership is not insulated from politics. Mr. Buñag in fact is close to the Arroyos, and he willingly accommodated their needs. But the calculating if not ruthless Mrs. Arroyo has no qualms in axing a friend or an ally to suit her expediency.
Mr. Buñag’s departure, welcome as it is for the sake of accountability, does not by itself resolve the efficiency problems that beset the BIR.
In the meantime, the administration has yet to name a permanent replacement for Mr. Buñag. The officer- in- charge, Ms. Lilian Hefti, does not relish the post, knowing how politically sensitive the position is.
What is necessary for a reformed, efficient BIR is to depoliticize its leadership, to free it from the political expediencies emanating from Malacañang.