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Tobacco giant’s ridiculous proposal

DAN MARIANO

What is the government to do?

Faced with populist clamor to help consumers cope with rising commodity and fuel prices, with the need to expand social services for a rapidly growing population, with the urgent requirement to upgrade shoddy civil works, with a persistent budgetary deficit, with a plethora of other demands, each of which require public funding, the administration of President Aquino finds itself in a fix.


As candidate Noynoy, Mr. Aquino had vowed that he would impose no new taxes. Now, Malacañang is hinting, loudly, that the President might not be able to keep this particular promise after all.

Reminded of Mr. Aquino’s campaign pledge, Presidential Spokesman Edwin Lacierda was quoted saying Tuesday: “That wasn’t the promise made. What we’re very clear [about] is [that] there will be no taxes this year.”

In at least one published account, Lacierda reportedly said the proposals for new or higher taxes might be tackled next year, depending on the country’s fiscal condition.

Another official, Undersecretary Gil Beltran of the Department of Finance (DOF), was reported to have said earlier that the government is more inclined toward raising so-called “sin taxes” on tobacco products and alcoholic drinks than on increasing value-added tax (VAT) rates to shore up the public coffers.

Beltran reportedly added that the bills to raise “sin taxes” might be filed in Congress next year and that the DOF has begun studying the revenue impacts of several proposed tax measures.

So precarious is the government’s financial situation that the Bureau of Internal Revenue (BIR) has tightened the screws on delinquent taxpayers. Hailed by fixed income earners whose taxes are automatically deducted at the source, the BIR’s highly publicized campaign against tax cheats has reportedly produced mixed results.

In a recent newspaper column, Ateneo economics professor Cielto Habito noted that the government’s “tax effort”—the tax-to-GDP ratio—rose from 12.78 percent in 2009 to 12.85 percent in 2010. “Also, tax revenue collections appeared to have sped up in the latter half of 2010, but like in tax effort, the improvement was not particularly spectacular,” wrote Habito who served under former President Fidel V. Ramos as socioeconomic secretary.

“Tax revenues in the first half of last year, still under Gloria Arroyo’s watch, had grown 11.1 percent over the same period in 2009,” Habito noted. “In the second half, under the new leadership, tax revenues grew faster, by 11.7 percent, on the same year-on-year basis.”

The figures indicate that the tax authorities under Mr. Aquino have been more productive than under the previous administration. However, Habito added that “on closer examination of the data, any celebration is premature.”

It turns out that tax effort got worse within the course of 2010, Habito said. From 13.4 percent in the first half, it went down a full percentage point to 12.4 percent in the second half, even lower than the 12.8 percent posted in 2009.

“This means that even though tax collections sped up under the new administration, this mainly came from the economy’s expansion,” Habito said. “Even then, the reduced tax effort tells us that tax collection growth did not quite catch up with growth in the economy.”

He concluded: “Hence, it appears premature to judge better tax performance even with faster tax collection growth under the Aquino administration. Latest tax revenue figures for the first two months of 2011 in fact show that tax revenue growth has slowed again to 10.1 percent from the same period last year, a likely reflection of slower GDP growth due to the Middle East disturbances and their effect on remittance flows.”

Notwithstanding the exemplary efforts of BIR Commissioner Kim Henares, the administration’s tax machinery appears to be sputtering—and it is not entirely the fault of the taxman.

Adopting revenue-collection innovations is the concern, not of the BIR, but of Henares’s boss—the President himself. Long pending on Mr. Aquino’s desk at the Palace is a proposal that could inject at billions of pesos into the government’s coffers.

Recommended by the World Health Organization (WHO), the Global Adult Tobacco Survey (GATS) and other proponents, the strip-stamp system would help the government collect the right amount of taxes from tobacco products—even without raising “sin taxes.”

Touted as fool-proof and hi-tech, the system involves the use of sensors and strip stamps in all cigarette and cigar packs to electronically monitor the production and distribution of tobacco products.

Sicpa Security Solutions SA of Switzerland has a pending proposal to introduce this cutting-edge technology in the Philippines. It claims that the strip-stamp system would earn an additional P100 billion over a seven-year period alone via the accurate collection of taxes that tobacco companies are supposed to pay to the government.

Sicpa’s strip-stamp system seems superior to a recent proposal for bar codes to keep track of tobacco products and alcoholic beverages as they leave manufacturing plants.

For one thing, the bar-code proposal comes from the tobacco giants themselves, notably Philip Morris. Bar codes are notoriously vulnerable to tampering. According to sources, they can be purchased from professional counterfeiters that infest the sidewalks and back alleys of Claro M. Recto Avenue in downtown Manila.

Yet another proposal would have the government adopt hologram-aided tax stamps, a system being offered by the Chinese company Huagong Tech.

Instead of coming from an independent party, both the bar code and hologram proposals originated from the tobacco companies. As one observer put it, either scheme would “put the fox in charge of the chicken house.”

Rather than let an independent third party—such as Sicpa—operate a foolproof monitoring system like the Swiss company’s strip-stamp technology, Philip Morris has insisted that the government adopt its own bar-code scheme.

In effect, what the cigarette maker—along with others like it—wants is to keep watch over itself in order to ensure the it pays the right taxes.

Ridiculous!

dansoy26@yahoo.com

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