Revolutionary taxes

Posted: January 2, 2011 in Philippine politics, Political economy, Revolutionary taxes, Taxation

I have been trying to shake off the holiday inertia for a number of days now and cannot seem to succeed.

Perhaps, I can do so by writing a new blog entry–an insightfully serious one, that is (or so, I hope).

Earlier this week, the Philippine Daily Inquirer reported that the peace talks between the Philippine government and the communist-led National Democratic Front (NDF) will tackle the latter’s ‘revolutionary taxes’.   The chair of the government panel and also Department of Health undersecretary Alexander Padilla told pressmen that while it is not a demand for peace talks to continue, the government will raise the issue with the NDF.   This development immediately followed reports that several major mining companies were planning to shut down operations and withdraw from the CARAGA region in Mindanao due to ‘onerous’ revolutionary taxes.  CARAGA consists of the provinces of Agusan del Norte, Agusan del Sur, Surigao del Norte and Surigao del Sur.

Padilla declared that the issue will be raised because the NDF (or the New People’s Army for that

matter) is “not the government.”

The chair of the House defense committee and former Armed Forces of the Philippines (AFP) chief of staff, Muntinlupa Rep. Rodolfo Biazon, immediately backed Padilla’s proposal.

The military chimed in and said that the NPA has become less of a threat to security but has turned into a serious danger to economic development after it had extorted at least P1.5 billion from politicians, businessmen and companies since 1998.

The NPA collected from January to November this year P95.5 million, about P39.5 million of which came from the Davao region, the military spokesperson, Brigadier General Jose Mabanta, said at Camp Aguinaldo.  For 2009, it was much higher at P136 million.

Mabanta said NPA collection could be higher in 2010 because of unreported payments made by businessmen and politicians, particularly during the May elections.  It is generally known that the insurgents collect two taxes during elections–‘permits to campaign’ and ‘permits to win’.

With all due respect to Padilla, who is a Facebook friend, it should be pointed out that the insurgents can collect taxes or fines (as the case may be) primarily because of the relative weakness and incapacity of the Philippine state to assert its sovereignty over all the territory it claims.  The mere existence of an insurgent movement which can collect revenues is the primary evidence of such weakness. 

This is a point fully recognized by the insurgents themselves.

The spokesperson for the NDF, Jorge Madlos or Ka Oris, insisted in a phone interview Thursday, however, that taxation was a must in a government– in their case, a “revolutionary government.”

He said taxation was in line with the communist movement’s assertion of a status of belligerency, especially that the taxed companies are making huge profits from extracting natural resources within their territories.

“It is impossible not to tax them. The government of the Philippines will not surely acknowledge, and we do not expect them to, that the movement has territories and has its own government. But as a government that is why there is taxation,” Madlos said.

He said the issue of belligerency is not something that the NDF wishes to debate with the government at the negotiating table.

“We are not going to insist on this status. It will be the people, the masses, and the international community who will assert and recognize this status. We do not expect for the government to recognize that,” said Madlos.

He also warned that if the mining companies refuse to follow the laws of the revolutionary government, then they would be compelled to implement sanctions.

“They pay these taxes or they leave. And it would be better if they leave. These taxes are commensurate to their profit and these taxes compensate the destruction done to the environment and the injustice experienced by the people,” Madlos said.

Even the military acknowledges the point.

AFP spokesperson Gen. Mabanta expressed doubt that the insurgents would agree to stop the practice even if the government raised the issue in the upcoming resumption of peace talks.  He was quoted by the Inquirer: “It may be hard on their part to desist from extortion because these are the only fund sources that they get. 

A common theme amongst military and government circles is that revolutionary taxation is akin to extortion or, to use the more colorful Tagalog word, tong.

I must point out though that they forget that payment of taxes is never voluntary.  If that were the case, tax collections would be zero (or close to it).

A great social theorist, Charles Tilly, opined that all states are ‘protection rackets’ since the primary product they sell is security or protection.  To be able to offer protection, the state (or its agents) must be armed.  The great political theorist, Thomas Hobbes, pointed this out as early as the 17th century.

If one takes a clinical view of states, one can conclude that they consists of two basic units–an armed group and a tax collecting group.  The state needs tax revenues to maintain a full-time armed group (the members of which are therefore not involved in productive activity such as farming or craftmanship and must be supported so they can continue bearing arms).  The armed group is necessary so taxes can be collected since payment of taxes is never voluntary.  Non-payment of taxes will always have dire consequences for the negligent–from death in earlier times to incarceration to confiscation of property in the contemporary period.

In this sense , all states and proto-states are involved in extortion when they collect taxes.   

The collection of taxes is no longer considered extortion when the collecting agency–the state–is deemed legitimate by tax payers.  The legitimacy of the tax collecting state is a function of the volume and quality of public goods it offers in return for the taxes it collects.  Among these public goods include protection of life and property, security and public order plus social services such as health care and education.

If the state does not provide public goods or does not provide them at an adequate level (in the estimation of tax payers), then its legitimacy is threatened and tax collections will be seen as extortion.  Extortion in this sense is a one-way transaction where all value gets transferred to a single party without any or little benefit to the party that contributes the value.

Robert Bates and Avner Grief offer the insight that non-state actors can also offer public goods such as protection of life and property especially if the supposedly sovereign state is unable to do so.  Non-state actors operate in a vacuum left open by state incapacity.

The Inquirer reported that in past interviews with businessmen, they admitted to paying “revo tax” to communist guerillas operating in their areas to ensure an “unmolested” business operation.  The businessmen said that giving in to the rebel tax demand “has long been a natural part” of their operations.

The situation is not going to be remedied by the proposal of Senator Greg Honasan to allow ‘revolutionary taxes’ companies to form private armies to fight the insurgents and foil their ‘extortion’.  Rep. Roodolfo Biazon correctly pointed out that it would spur the creation of more private armies, which the government is moving to eliminate.

Encouraging private armies is further admission that the state is incapable of providing the basic public good of security and public order.  If private companies form private armies to provide for their own security, why will they pay taxes (or the same level of taxes) to the Philippine state?  They can or should ask for a tax credit for the expenses of providing for their own security–security that the Philippine state is obliged to but cannot provide.

I hope I have provided through this blog entry a more objective perspective on taxation–revolutionary or otherwise.

  1. ernieguinto says:

    Hi Bong, thanks for your more realistic view on the matter, as being involved in the Philippine mining industry for 20 years, I share your views that paying “revolutionary taxes” is a “necessary evil” if you want to do business in NPA/NDF-influenced areas of the Philippines.

    Even if the Armed Forces was adequately trained and equipped (which they are not) its impossible for them to safeguard business in the remote areas due to the difficult terrain and easiness to do hit & run operations.

    Considering the high cost and long (years) delivery-time of mining equipment, due to the international mining boom, burning of a few equipments can prove fatal to even a big company due to the serious loss of business while waiting for replacements to be available.

    If the government are really serious to dismantle the NPA, this can’t be done by negotiations as the demands would be unattainable for the present Philippine government.

    The NPA/NDF would not surrender for tokens only; they would require a real change in the system and their direct involvement in how government are run.

    Neither can it be done though military action as even the US, with their far superior military might, failed to stop guerrillas in Vietnam in very similar terrain. For anybody who have spent time in the remote areas of Mindanao this is rather obvious.

    In my humble opinion, it would take three things to neutralize the NPA/NDF:

    1. Provide assistance, education, health-care and infrastructure to the poor and uneducated upland communities who feel neglected by the Government and see the NPA/NDF as a modern Robin Hood fighting their cause.

    2. Elimination of corruption which is the main stumbling point for the Philippines to develop at the same pace as its less corrupt neighbours.

    3. Reduce the NPA/NDF’s financial capacity by providing indemnity to any business hit by “sanctions” from not paying revolutionary taxes. This indemnity or insurance should cover not only replacement of damaged equipment but more importantly reimbursement for loss of business.

    However, it would take a very strong and popular leader to do this, while Noynoy has the popular support required, has he got the political will?

    • bongmendoza says:

      Hi Ernie, thanks for reading the blog entry and for your comments.

      I am intrigued by your third suggestion which I find very interesting. I have a question, though. Who/which entity will provide insurance or indemnity for non-paying private business firms? Can it be provided by a public-private partnership (PPP) outfit?

      Could/will business firms buy such a unique insurance package, if available, from let’s say innovative insurance companies? Will Globe for instance be interested given the numerous cell towers destroyed by the insurgents over the years?

      Won’t the insurance premiums be so prohibitive?

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