June 15, 2004

Tax on Text

I am against the proposed tax on texting. My reasons are simple really. The proposal was made on the premise of remedying the P200B+ annual budget deficit. This begs the question: why is there a deficit in the first place. In first place is the public debt. Servicing of principal and interest payments take up over 1/3 of the country's budget already. It has become both the cause and the effect in the deficit situation. In this regard, Camacho and company have done their jobs already, stretching the maturities and preventing any further comparisons between the country and Argentina. FPJ also said it best when he suggested suspending payments, and sent financial markets tumbling afterwards. On that I note, I argue that not much can be done about debt servicing at this point.

What else has caused the deficit? Tax effort, which is defined as total revenues as a percentage of GDP has plummeted from 17% in 1997 to 12.3% in 2003 according to Ben Diokno, a former budget secretary. There lies the problem. As my MBA teachers would insist, the solution must answer the stated problem. More bluntly, if tax effort is the problem, new tax legislation cannot be the answer.

But what has the government done in this regard? How much has it collected from Lucio Tan? Why are tax delinquents being given leeway? How many erring tax collectors have been jailed? These things, if not answered, will adversely affect future tax effort. As I will disagree with GMA's policy everytime, the answer is justice, not reconciliation. I think the diminishing tax returns are a function of trust. Collect taxes from evaders. Jail corrupt officials. These are the things that will raise revenues.

My third target would be government bureaucracy. The government is not behaving like a profit seeking private corporation. What happens when companies are cash strapped? They eliminate redundancies, reorganize structures, and remove non-performing individuals. There is an estimated 1.5M employees in the government. There is an estimate that more than 80% of the national budget is allocated for debt service, allotment of local government units, and the salaries of government employees. Surely some savings can be had by streamlining the government fat.

My fourth is a question: why text? Beer and cigarettes are taxed because they are 'sin' products? But why text? Because people are addicted to texting? Because Smart and Globe are raking billions of pesos in profits? These are arbitrary decisions and are unjust. Prepaid cards are already imposed VAT, so excise taxing would constitute double taxation. Profitability level should not be a basis for taxation. That would be tantamount to discouraging efficiency and business sense. On the other hand, Meralco, which I perceive as inefficient is getting away with abuses such as overcharging. And the nature of text messaging? It's a form of communication. It's a medium of commerce. These are in fact things to encourage.

My fifth point is another question: why not some other products? Granted that income taxes are hard to collect. Fine, let's shift to consumption taxes. Tax the Pajeros, the yachts and all those other luxury items. Tax has to be progressive after all, so it must be the rich that is most taxed. It's not hard to figure out that texting is not an elite preoccupation. There are about 22M texters out of the 70M+ population. I'd say that cuts across all sectors.

Lastly, do we even want the government to have more money? I once read that what auditors did not find, a recession will reveal. I believe there are too many leaks in the governments coffers. Put it through enough hardships and all those leaks will be exposed (hopefully). I certaintly am not willing to fund pork barrels, bribes to government employees and expense accounts of mistresses.

No to tax on text.