(Article published in
TODAY, Business Section)
high school teachers who taught me Latin at the Ateneo de Manila must be
squirming, if not turning, in their graves every time the government –
not just the administration of President Gloria Macapagal- Arroyo but also
the previous ones—uses “rationalization” to describe its major
root word is the latin “ratio”
meaning reason, that faculty of men that separates them from animals. When
properly exercised, reason results in order and order is the key to a
man’s harmony with himself and with the universe.
From the way “rationalization” has been invoked recently, one
tends to agree with Marc Anthony that reason, or judgment, has in fact
fled to brutish beasts.
For instance, R.A. No.
8424, made into law during the Ramos administration, declares it the
policy of the state “to promote sustainable economic growth, through the
rationalization of the Philippine internal revenue tax system…” Is
there anyone now living willing to lay down his life for the proposition
that the current tax code, the National Internal Revenue Code of 1977, is
On Friday last week, the
newspapers report that the Department of Finance (DOF) announced that the
government lost about Php 229 billion last year on account of “tax perks
and duty exemptions granted to investors.”
The DOF was said to be thus conducting a review of tax laws with a
view to the formulation of a “fiscal rationalization” measure that
will be submitted to Congress for the appropriate legislation.
Then, early this week, we are told by a DOF official that only Php
5 billion is expected to be recovered from the projected rationalization
of tax perks given to business. It
seems that the DOF, poring over the pile of provisions in the National
Internal Revenue Code, Tariff and Customs Code and the host of special
laws granting benefits to business, is bound to be, if I may once more
hark back to my latin classes, like Horace’s
mountain that labored and brought forth a mouse.
if only to realize how tricky the matter of tax collections is, we need to
go through the exercise of re-examining the tax incentives incorporated in
the system to evaluate their effectiveness. It is crucial, however, that
the premises and methodology of arriving at the amount of the “lost”
revenue are clearly explained so that the results of the review are
for one, am clueless as to how the Php 229 billion characterized as
“lost” revenues was arrived at. My non-economist understanding of
“loss” is that it is an amount which should have been collected by the
government as tax but, as a result of a provision in the tax law, was not.
There is to my mind, a definitional problem of what “should”
have been collected.
us take, as an example, executive who earns, after the allowable
deductions and exemptions, exactly Php 500,000 a year by way of his
compensation from his employer. However, this executive also earns Php
100,000 (net) annually by way of rentals from a studio
unit that he bought years ago. The
tax on the rentals, because the salary has brought his net income up to
the highest tax bracket under Sec. 24 of the Tax Code, is Php 32,000.00 or
32% of any taxable amount that he earns in excess of Php 500,000 net
income. To save on taxes, he upon advice of a tax consultant, transfers
his studio unit to his 18-year old, single, son who is not earning
anything. The tax that will
be paid on the Php 100,000 rental will be only Php 8,700.00.
Which is the tax on the Php 100,000 that “should” have been
collected, the Php 32,000 or the Php 8,700?
Note that the difference is due not to any illegal act, but simply
to a minimal effort at tax planning that is all legal. Is the Php23,300
saved by the executive and son “lost” when in fact the law itself
allowed the tax-induced maneuver that brought about the tax-savings?
Assuming we have defined “loss” properly, I still am unable to see a reliable means of measuring it. Specifically, in arriving at the “loss”, have those making the study made allowances for the taxes that the government is able to collect as a consequence of the investors decision to put their money in the tax favored business activity?