Plug the revenue leaks

Dindo Manhit, President of the Stratbase ADR Institute for Strategic and International Studies

The fiasco at the Bureau of Customs (BOC) unfolded during congressional hearings in the past month, revealing the decades-old corruption entrenched in the agency. While the incident has yet to be resolved, it trained the spotlight on the complex web of errant customs officials, brokers and traders, all of whom conspired to facilitate the entry of 604 kilograms of shabu (crystal meth) worth P6.4 billion last May. This is only the tip of the iceberg; a long list of commodities still escapes the watch of our officials every day.

Earlier this year, the University of Asia and the Pacific conducted a study on illicit trade, which confirms the prevalence of smuggling in our country. The study was commissioned by the Federation of Philippine Industries, which launched the Fight Illicit Trade movement a few years ago. The study estimates that over P200 billion in revenues are lost each year due to smuggling. From 2011 to 2015, at least P900 billion in revenues were lost to illicit trade, including its indirect effects on local manufacturers and laborers. This has denied our national coffers billions of pesos in revenues.

The researchers covered eight industries with the most frequently smuggled products, including petroleum, steel, resins, wood, cigarettes, sugar, palm oil, and automotive batteries. Of these items, excise taxes will soon be levied on petroleum and sugar (although the excise tax only covers those used to sweeten beverages). The study finds that an estimated P680 billion worth of petroleum oil was smuggled from 2011 to 2015, resulting in VAT losses of P81 billion — a figure that exceeds the projected collections from excise taxes on fuel for 2018. Around P9 billion worth of refined sugar has been smuggled into the country in the same period. Although generally declining, foregone revenues from smuggled sugar amounted to P1.1 billion.

The BOC’s sister agency, the Bureau of Internal Revenue (BIR), has its own controversies. In July, reports surfaced on the alleged infighting among BIR officials stemming from Del Monte’s deficiencies in its tax settlement. This led to a plunder case filed at the Office of the Ombudsman against Commissioner Caesar Dulay and 17 other officials, who supposedly reduced the company’s tax liabilities, resulting in a potential revenue loss of P29 billion for the government.

Scandals and corruption accusations aside, collection agencies have also consistently failed to reach their revenue targets. Despite growth in its revenue collections, the BIR fell short of its P1.35-trillion target by P50 billion, collecting P1.302 trillion for the first nine months of the year. In one piece of good news, the BOC reached a record-high collection for September. But despite their record high, collections were still short of P10.5 billion for the month.

The poor revenue collection performance brings several concerns to the fore, especially with the imminent passage of the Tax Reform for Acceleration and Inclusion (TRAIN) bill. After months of delays and endless deliberations, President Duterte is expected to sign the bill into law before the year ends. Finance officials argue that the revenue generated will be used to finance the administration’s ambitious infrastructure program, as well as finance its investments in social capital. Government officials insist that without these investments, the country will fail to reach its development targets.

But for those who pay their taxes religiously, the increase in taxes of several commodities will be a bitter pill to swallow, despite the government’s assurances that the tax reform will leave all of us better off. For many Filipinos, it is difficult to fathom an increase in taxes when several administrations have failed to fix inefficiencies in the system and plug the billions of pesos lost from decades of tax leakages — money that could have been used to fund the investments that we need. Moving forward, it would be best for the government to redirect its efforts on improving tax administration instead.

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