The limits of public shaming

Posted: March 13, 2014 in Doctors, Professional fees, Shaming campaign

BIR Commissioner Kim Henares

BIR Commissioner Kim Henares

BIR ad shaming doctors as burdens of honest taxpayers

BIR ad shaming doctors as burdens of honest taxpayers

The controversy generated by Bureau of Internal Revenue (BIR) Commissioner Kim Henares’ shaming indictment of an entire profession reminds me of these words I wrote earlier.

Taxation is “a compelling phenomenon precisely because it is where the politics meets the economics” and because the “way in which a nation taxes creates incentives that pervasively influence the way in which political and economic life become organized”. 

When a government collects taxes, it removes revenues out of the private sector and therefore reduces the disposable income of private economic actors. Taxes meanwhile are necessary so that public goods may be supplied in adequate quantities and in a timely fashion. Thus taxes represent the costs imposed by governments so they can provide public goods. 

From the point of view of an average citizen, taxes potentially can (and do not actually) change the public-private mix of goods and services that she consumes. If no taxes were imposed (i.e., there is no state), then a person’s consumption package composed solely of private goods. 

However, as the English political philosopher Thomas Hobbes reminded us, life in the ‘state of nature’ (i.e., the state of statelessness) is “solitary, poor, nasty, brutish and short”. Thus a state is created so public goods (in this case, recourse to a powerful Leviathan to maintain peace and order and prevent people from simply taking the lives and the property of others as they see fit) could be provided. 

Bottom line, taxation is extortion even as voluntary taxation is more productive than coercive taxation. It is ultimately backed by the state’s coercive instruments like the police, courts, and jails. 

In this sense, while expected to provide public goods, the state itself can become a public bad. Indeed, there is not doubt that some professionals (doctors, lawyers, accountants, etc.) do not pay the proper taxes because of the lack of a paper trail (receipts, for instance).  Almost all of us have had this experience.

However, it is not right to condemn an entire group for the sins of some. One cannot use logic to indict an entire profession; a more solid case against individuals is needed. I doubt if shaming will suddenly convince erring professionals to pay the right amount on income taxes.

It’s true that the interests of cheating professionals and their clients are quite aligned. The issuance of receipts could be reason for passing the tax burden to the clients themselves. So clients make do with no receipts for lower professional fees. However, a lower tax take because of these cases of tax evasion or under-assessment harms the clients in the long run as they diminish the general fund for public goods.

The country’s tax authorities, instead of conducting this shame campaign, should allocate more time and resources, in convincing consumers that they’re better off with receipts from professionals. Of course, the public must be convinced that tax revenues are indeed spent for the provision of public goods and not for lining private pockets or funding public empire building. 

  1. CJ Castillo says:

    This is the externality of non-payment of tax dues and one cost of free riding by non-tax paying professionals. I think BIR did the shame campaign because in the absence of information on the identities of tax evaders and their true taxable income, it is more cost efficient to fire a shotgun than to identify and go after individual evaders. By unleashing the kraken, the BIR did not only hit the individual evaders but also professional organizations. Perhaps BIR expects these organizations to apply pressure on their members as a response, like accidental force multiplier. I cannot say, however, that this measure will be successful. Perhaps this depends on the amount of psychic cost that the campaign inflicts on tax evaders.

    • bongmendoza says:

      I don’t think it is going to be effective. Already, the Philippine Medical Association has gone on a PR blitz and it has gained some support. The alignment of interests between clients and interests is I believe the single most important factor why this campaign will not gain traction. The prevailing tax culture must change.

      I know there’s absence of information regarding identities of tax evaders and taxable incomes. But that’s true for all professionals. The information on income comes from them and only a paper trail can build the appropriate tax information. The shaming campaign does not succeed because whatever psychic cost is still minuscule compared to real financial costs.

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