Tuesday, 27 July 2010

Economists on Aquino's SONA: ‘A missed opportunity’


President Benigno Aquino III missed his opportunity to "cash in on his political capital," when he failed to propose sin tax amendments during his first State of the Nation Address (SONA), two economists interviewed separately by GMANews.TV said.

Using his political capital, President Aquino should have proposed to reform the Philippines' excise tax system, a move that requires legislation, said Victor Abola, an economist at the University of Asia and the Pacific.

"It was a missed opportunity," Abola said. "A new president always comes in with a lot of good capital and he should have exercised it."

Successfully amending the excise tax law would have raised as much as P20 billion in taxes on alcohol and tobacco products for the first year of implementation alone.

Filomeno Sta. Ana, a coordinator of the non-government policy advocacy group Action for Economic Reform (AER), agreed.

"The process of reforming sin taxes should begin now," he told GMANews.TV in a separate interview. "After all, how long does it take Congress to approve this kind of legislation?"

After the first year of collecting newly-adjusted sin taxes, the government is expected to earn P40 billion yearly, previous estimates from the Department of Finance (DOF) said.

Additional revenues sourced from the initiative could be used to spend for health, education, and infrastructure as well as plug a budget shortfall that is expected to reach P325 billion this year.

If no sin tax reform measures are undertaken, Sta. Ana warned that by 2012, excise taxes will erode revenue and that "will aggravate the problem."

Taxes collected from alcohol and tobacco products are composed of four categories, each with different rates.

Although subject to adjustment every two years from 2005 to 2011, the law reportedly is prone to abuse, supposedly allowing companies to report lower sales figures.

Abola also emphasized the need to raise revenues in the short term.

Like Sta. Ana, Abola welcomed the Aquino administration's efforts to file tax evasion and smuggling cases.

However, he said that "the key issue in the short term" is to "hike tax revenues" and that might be difficult especially without new taxes, a promise that Aquino announced during his bid for the presidency.

Aquino's SONA "looked at the past," Abola said, adding that it was just a "sideline."

"Instead, [the SONA] should have focused on the future. We should do whatever is necessary," he added.

Another proposal that the government should look at, according to Abola, would be to raise the corporate income tax rate to 32 percent.

The rate stands at 30 percent now.

The corporate income tax rate was raised to 35 percent and then slowly reduced as part of the Expanded Value Added Tax law that was passed in 2005.

He also called for the revocation of an executive order, signed by former President Gloria Macapagal-Arroyo, that cut oil import taxes to zero from three percent.

The increase of oil prices is not from the tax, Ebola said, adding that "the rise of inflation from taxing oil imports is negligible." - KBK, GMANews.TV

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