The Market Monitor Minding the Nation's Business
Riza Lozada
The falling prices of crude oil have prompted several institutions to suggest ways to exploit this to the advantage of the economy.
The World Bank (WB) has recommended to the government the imposition of higher taxes on the rich through an increase in the excise tax on gasoline that private cars use.
In a recently released study, the WB said the top 10 percent of the population consumes 60 percent of gasoline but the excise tax this sector pays on its fuel consumption has remained unchanged since 1996.
“Taxes that are not adjusted for inflation also worsen the equity of the tax system since the rich pay less and less for certain goods as their incomes rise,” the WB said. A 2015 Budget Briefer of the Congressional Policy and Budget Research Department also noted that indexing petroleum excise taxes to fuel prices should be implemented beginning this year as part of the revenue-enhancing measures.
A proposed formula was to automatically raise excise taxes once fuel prices fall below a trigger price, according to the report.
The same report from Congress noted that, “by 2015, only after revenue-enhancing measures are in place, a comprehensive tax reform to broaden the base and reduce the rate can be considered. This would help simplify and improve the efficiency and equity of the tax system. The end goal is to make the tax system more responsive to investments and job creation.”
For its part, the WB study noted that, “a more equitable, efficient, and simpler tax system should be the aim of any tax-policy reform.”
This reform should include adjusting the petroleum excise taxes and property valuations that have not been updated for decades, based on the WB study.
It said, “gasoline excise-tax rate has remained at P4.35 per liter since 1996, whereas the income of the top 10 percent has tripled in the same period. Since they consume nearly 60 percent of gasoline, the amount of tax that they pay today relative to their income has fallen drastically.”
The Congress paper said, “following the passage of excise tax in December 2012, the following revenue-enhancing tax-policy reforms could be considered in 2014 for implementation beginning in 2015: rationalize tax incentives by making them more transparent and performance-based; enact a tax-expenditure ceiling to plug systemic leakages in the tax system, level the playing field, and raise revenues; and reduce the number of VAT exemptions (e.g. cooperatives, power transmission, and selected inputs and imports) to reduce leakages and improve the administration of the VAT.”
The Congress paper added, “Vulnerable sectors of society can be better protected using the national household targeting system for poverty reduction, centralize the valuation of real property and, if needed, levy a national surtax of up to 2 percent on real property to improve the equity of the tax system. The increased burden of this tax can be reduced by eliminating the estate tax, which is very hard to collect in practice, and reducing the transfer tax, index petroleum excise taxes (which have been frozen since 1996) to boost revenues and improve the overall progressivity of the tax system, as the top 10 percent of the population consumes almost 60 percent of total petroleum.”
The congressional report added that with the budget of P2.606 trillion for this year, the Development Budget Coordinating Council (DBCC) has set the revenue target at P2.337 trillion, which is 15.8 percent higher than the previous year’s goal of P2.018 trillion.
“As a ratio to GDP, the revenue goal is equivalent to 16.5 percent or 0.8 percentage point higher compared to fiscal year 2014 estimate of 15.7 percent. By source, 73.6 percent or P1.72 trillion will have to be generated by the Bureau of Internal Revenue (BIR). Of this, around 60 percent (P1.033 trillion) will come from income tax while close to 22 percent (P372.4 billion) will come from sales taxes,” the report said.
“Meanwhile, the Bureau of Customs (BOC) is expected to shore up almost 20 percent (P456.5 billion) of total revenue take. Of this amount, 76 percent (P347.4 billion) corresponds to value-added tax (VAT) on imports,” it said. “Import duty is targeted at P75.8 billion while excise tax on imports is set at P33.3 billion. Other tax sources include motor-vehicle fees, fire-code tax, immigration tax, and forest charges.”