Governance and tax collections

While tax administration is crucial in improving tax collection, an efficient tax system requires a whole government approach. Equally important in addressing tax evasion and smuggling is eradicating graft and corruption.

The government needs to offer value for taxpayers’ money, better public services and to uphold transparency and accountability especially during the pandemic and economic crisis that resulted in more than P12 trillion national debt.

The approved national budget for 2022 amounting to P5.02 trillion is more than enough to fund the full digitalization of all government agencies, both local and national, the economic recovery programs including more tax relief measures, incentives and interest-free financing especially for micro, small and medium enterprises (MSMEs) to help them bounce from losses and debt, and to provide more funding to develop the countryside and encourage more businesses to relocate and operate outside Metro Manila.

Needless to say, good governance is necessary to curb almost P1 trillion losses due to corruption and unused budget annually. This taxpayers’ money can significantly help poor farmers, fisherfolk, poultry raisers and almost a million micro entrepreneurs or 88.77 percent of total registered MSMEs.

Moral ascendancy

We need to elect good leaders with moral ascendancy to govern, collect taxes and especially deal with tax evaders, smugglers and corrupt government officials and political dynasties who continue to amass wealth illegally. Undeniably, tax evasion and corruption in government significantly reduce tax collection and seriously hurt economic development, making it more difficult to achieve inclusive growth.

Now more than ever, the Commission on Audit (COA) plays an important role. Its report must have an unqualified opinion to reassure the taxpaying public that government funds are being spent efficiently, judiciously and are free from graft and corruption.

Unfortunately, the recent COA reports of some agencies, including the Procurement Service-Department of Budget and Management (PS-DBM), show the opposite of what we expect, especially during the pandemic. The alleged overpricing in the procurement of medical supplies by PS-DBM prompted a Senate Blue Ribbon Committee investigation, later on exposing possible tax evasion of Pharmally Pharmaceutical Corp., which bagged P8.68 billion worth of contract in 2020 despite being newly registered on Sept. 4, 2019, with P625,000 paid-up capital.

While tax evasion is considered to be a corrupt behavior itself, those who are involved in graft and corruption are more likely to evade taxes as well.

Ground for disqualification

Section 253 of the National Internal Revenue Code of 1997, provides the perpetual disqualification from holding any public office, to vote and to participate in an election for public officer or employee in addition to the maximum penalty prescribed for the offense. Tax evasion triggers a fine of not less than P500,000 but no more than P10 million alongside imprisonment of six to 10 years.

Clearly, violation of our tax code is a criminal offense.

In view of the ongoing campaign for the May 9 election, the Bureau of Internal Revenue (BIR) issued a circular reminding all individual candidates, political parties/party list groups to register, issue receipts and withhold 5 percent on income payments or campaign expenditures. Unutilized or excess campaign funds are subject to income tax.

The more important question is whether other political candidates declared their excess campaign funds in the past elections and consequently paid the income tax due.

We need to raise the bar of integrity, transparency and accountability among our government leaders and electoral candidates. At the very least, they have to be honest taxpayers themselves to set a good example to our taxpaying public. Otherwise, they will lose their moral ascendancy to collect taxes.

Public office is a public trust. As public servants, they have to declare with all honesty correct information on their Statement of Assets, Liabilities and Net Worth and Statement of Campaign Contributions and Expenditures, and pay corresponding taxes on their income or increase in assets.

New or higher taxes

The next administration must continue to financially support the modernization and digital transformation of the BIR. As we laud its unprecedented performance in surpassing collection targets for two consecutive years, we also support the recommendation of BIR Commissioner Caesar Dulay to increase the salary of our revenue officials and employees to be least competitive with other government units and agencies, like the judiciary, the COA and Bangko Sentral ng Pilipinas.

With the 16-year high of 60.5 debt-to-GDP (gross domestic product) ratio, new or higher taxes like digital tax, carbon tax, wealth tax, in addition to online gaming, excise tax and e-sabong (online cockfighting) tax are being proposed among other pending tax bills in Congress.

But before imposing new taxes, Congress must significantly increase the budget of the BIR to better equip it with enough tax experts, IT geeks and lawyers to run after big-time tax evaders, including those generating significant income in the digital economy.

Further, instead of a wealth tax and other new taxes, the next administration must seriously consider general tax amnesty and lifting the bank secrecy law especially to curb tax evasion.

Fair and equitable

The Comprehensive Tax Reform Program of the Duterte administration enacted landmark legislation to make our tax system simpler, fairer and more efficient. But was it enough?

With the emergence of the digital economy, broadening the tax base becomes more challenging as online transactions can hardly be audited unless tax administrators gain full access to various fintech platforms, e-wallets and digital accounts where funds are directly transferred.

There is a need to ensure that the tax system is fair and equitable, whether transactions are done through traditional means, physical store or digital platforms. As reiterated by the World Bank, fairness considerations include: the relative taxation of the poor and the rich; corporate and individual taxpayers; cities and rural areas; formal and informal sectors, labor and investment income; and the older and the younger generations.

Introducing a flat tax system is also an option to further simplify compliance and lower its costs, especially for micro and small businesses.

In the end, good governance will likely increase tax collections. INQ

This article reflects the personal opinion of the author and not the official stand of the Management Association. The author is member of the MAP Ease of Doing Business Committee, founding chair and senior tax advisor of Asian Consulting Group and co-chair of Paying Taxes–EODB Task Force.