Tax reform under GMA, Part III

Early in PGMA’s full term, a new sin tax law (that again failed to index tax rates to price changes) was passed together with a reformed VAT law (which increased the VAT rate from 10% to 12% and

President Gloria Macapagal Arroyo

 expanded VAT coverage) and a lateral attrition law (which provided a stick-and-carrot system to spur revenue collection) by the 13^th Congress from late 2004 up to the first half of 2005.  The political crisis that ensued after the surfacing of tapped telephone conversations between President Arroyo and a high-ranking election officer (which alleged vote padding in her favor during the 2004 presidential elections) precluded the possibility of subsequent tax reforms.  Several conclusions could be made after a careful assessment of the tax reform initiatives undertaken since Arroyo became the country’s President in January 2001.

• Initiatives to improve tax administration are comparatively the most difficult to enact into law, as shown in the IRMA-NARA episodes.  Legislators, especially members of the House of Representatives, apparently do not see any possibility of extracting divisible policy favors in this arena.  For this reason, tax administration reforms continued to wither on the vine even if the country faced formidable fiscal problems.   In fact, some of them behaved as if they were oblivious to these difficulties and proposed a moratorium of new taxes.

 

• The alacrity of legislators to provide divisible policy favors to constituents, supporters and financiers alike continue to be illustrated by the primary attention accorded to and the immediate passage of the tax amnesty measure.  In this occasion, members of the House outdid its predecessors when they made tax delinquents with pending or final tax assessments and with pending court cases eligible for the tax amnesty.  The almost give-away amnesty rates (a standard rate 2-3% of net worth; 10% for those with pending assessments; and 20% for those with final assessments and pending court cases) approved by the House members is another indication of readiness to cater to special interests.

 

• The pronounced difference in the private-regardedness in policy preferences of the House compared to the Senate can be seen in the ‘sin’ tax measure. 

 

• The salience of individual legislators and legislative committees noted during the Ramos presidency continued during the Arroyo presidency.  This is to be expected since the institutional parameters and structures of Philippine tax policy making remained unchanged.  The House Ways and Means Committee continued to be instrumental in watering down the tax reform proposals of the Executive, particularly the Department of Finance, even if said measures were certified urgent by the President. 

 

• Familiar individual legislators, such as Reps. Exequiel Javier, Eric Singson, Raul del Mar and
  

  Raul del Mar

  

  Rep. Eric Singson

  Catalino Figueroa continued their predisposition to champion the needs of special interests.  Javier, Singson and del Mar separately authored bills providing for tax amnesty.  In addition, Javier spearheaded efforts to question the constitutionality of the provision requiring every taxpayer to submit a statement of assets and liabilities (HOR-CAD 2004a).  Javier also sponsored HB 2653 that proposed a shift in the excise taxation of tobacco products alone (excluding alcohol) back to the ad valorem system. In another coincidence, Fortune Tobacco also favored a shift back to the ad valorem tax system for cigarettes (HOR-CAD 2004b).  The veteran lawmaker also sponsored HB 2456 aptly titled “An act to recapture the power over tariffs,” which proposed to amend Section 401 of the Tariff and Customs Code.  This particular section empowers the President to set tariff rates for imported products when Congress was not in session.  The thrust of Javier’s proposed bill is to limit the powers of the President in this regard (HOR-HM 2004b). For his part, Figueroa filed HB 2509 that sought to abolish the value-added tax (VAT) (HOR-HM 2004a).