THE GOVERNMENT should not grow too dependent on “sin” taxes, which are regressive, and needs to focus on improving tax administration, analysts said.
Ateneo de Manila economics professor Leonardo A. Lanzona said in an e-mail that sin taxes, such as those collected on tobacco products or alcohol, “tend to disproportionately impact low-income individuals who are more likely to be the heaviest users of these taxed products and services, thus resulting in greater inequality.”
The Department of Finance (DoF) estimates that collections generated by sin tax laws improved 23% to P65.3 billion in 2022.
Revenue from excise taxes on tobacco and alcohol products totaled P36.5 billion and P31.8 billion, respectively.
Mr. Lanzona also said the government should not “over-depend” on personal and corporate income taxes.
“Overdependence on these taxes can cause lower demand for products which may eventually lead to higher production costs. As consumers reduce their demand, firms are not able to meet their revenue targets, forcing them to lay off workers and to incur greater severance costs,” he said.
“Additionally, with lower consumer demand, firms cannot operate at full capacity if they have invested in heavy machinery or equipment and cannot negotiate for better prices with raw material suppliers,” he added.
The DoF estimates that income tax foregone as a result of reduced rates last year amounted to P51.1 billion.
Revenue foregone as a result of the Corporate Recovery and Tax Incentives for Enterprises Act amounted to P80.4 billion, against the P68 billion foregone a year earlier. This included P59.2 billion in foregone revenue arising from the reduction in corporate income tax rates.
Mr. Lanzona said that the Tax Amnesty Law is also not expected to generate much revenue.
“The amnesty does not necessarily stop tax evasion. These are voluntary in nature and it does not mean greater compliance with tax laws in the long term. The government and the policymakers usually develop these measures without regard to the main reasons why there was tax evasion in the first place,” he added.
The DoF said that collections from the Tax Amnesty Law fell 69.6% to P1.4 billion in 2022.
On the other hand, Jonathan L. Ravelas, senior adviser at professional services firm Reyes Tacandong & Co., cautioned against adding new taxes and recommended focusing on tax administration.
“Raising additional taxes is contractionary to the economy. We know that we have a fiscal consolidation strategy to bring down the deficit, but spending less will also slow the economy. If you raise taxes by too much, consumers will be burdened and consumption will slow down; we don’t want that. It leaves us no choice but to think about better tax administration,” he said by phone.
“(We need) to up the effort of encouraging people to take the tax amnesty and take advantage of technology to efficiently collect taxes. Computer accounting systems (can be used) to monitor transactions of companies and do the assessment and eventually the compliance. If the computer accounting softwares are enabled to be the monitoring agent, that will enhance collection,” Mr. Ravelas added.
John Paolo R. Rivera, an economist at the Asian Institute of Management, said in a Viber message that the government should address leakages to improve tax collection without imposing new taxes.
“Collection has to be improved and taxes should be spent on productive activities that will generate returns so that the population would be more considerate of additional taxes,” he added.
Mr. Lanzona said that wealth taxes are “reliable sources of revenue especially during times of economic hardship.”
“Policy makers are wary of wealth taxes because of their negative impact on investment. However, under the right economic conditions, these taxes can encourage individuals to divest their wealth into productive assets rather than hoarding it,” he added. — Luisa Maria Jacinta C. Jocson