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Don’t make us cry like Argentina

(Article published in the January 8, 2002 issue of TODAY, Business Section)

We have a lot in common with Argentina, from having to serve the same colonial masters to having to suffer the Evita/Imelda phenomenon. If we do not watch it, we just might end up battling for our lives in the same dire straits. The common enemy? Tax evasion.

Sovereign analysts, those whose task is to examine governments and states instead of private entities, tell us that the root of Argentina’s current problems is public finance. It’s public spending for too long and by too much so far outstripped its tax collections that Argentina is now hard to put to service its public debt of $132 billion.

The estimate of the tax evasion rate, calculated roughly by getting the ratio of the tax collections to the amount of taxes that should have been collected under its value-added tax and income tax systems, is roughly 40 percent. In value-added tax alone, the short fall amounts to about $15 billion, based on a "should have collected" figure of $35 billion.

Here at home, the papers reported last November various estimates of what we euphemistically label as "tax leakages." The figures vary (obviously because of differing assumptions) ranging from P74.86 billion, as estimated by the International Monetary Fund, to P113.08, according to the National Tax Research Center, to P198.1 billion, as calculated by the Philippine Institute of Development Studies. Internally, the Department of Finance thinks that we should have collected more than P242.47 billion. Our figures are not as mind boggling as Argentina’s but they do commend seriously looking at the Argentine reasons for collection failure.

There were many reasons, say the sovereign analysts, why the Argentines did not pay their taxes, apart from the natural human tendency to avoid the inevitable pain of having to part with their money.

Rapid inflation made delaying tax payment a sensible course of action. Obviously, if your one peso today will be worth fifty centavos tomorrow, why should you not want to pay your present tax liability with tomorrow’s depreciated currency? A judicial system that permits the taxpayer to tie up the hands of the tax collector in endless litigation also aided and abetted the tax dodgers. Complexity of the tax system itself was another culprit. A complexity no doubt brought about by a proliferation of tax preferences and outright loopholes written into the statute by special interest groups.

To salvage the situation, Argentine tax authorities are batting for a simplified income tax, a value-added tax with very few exceptions, excise taxes on tobacco alcohol and similar "sin" goods, and a basic tax for low-income workers.

Both the Argentine reasons for tax evasion and the remedial prescriptions are of course familiar to us. Our tax authorities, lead by Rene Baņez, are of course doing their very best, within the parameters of their administrative capability, to increase tax collection.

But effort at the administrative level is not enough.

Remedial legislation is an urgent need, and tax reform bills must be pushed out of the committees where they seem to be forever languishing to floor debates in both the Senate and the House of Representatives.

How we wish our legislators would buckle down to work with the same urgency and focus that they gave to antimoney-laundering bill. But, alas, all they seem to be concerned with at the moment are rumors of coups by the military and reorganization of their chambers.