What should we tax next?

One newspaper report noted that the Finance department was looking into the proposal of an airline company for the government to remove the travel tax, particularly for departures from small airports. No further details were given, but somehow, I doubt if the proposal will actually fly. Finance, after all, seems bent on having new taxes to fund public projects.

While the government has convinced the House to lower income taxes, it wants new or additional taxes on oil and fuel, motor vehicles, and sweetened beverages, among others. And, it says, these revenues will help fund the government’s infrastructure program. To date, the Senate doesn’t appear to be as convinced as the House on the need for all these new taxes.

The logic is somewhat bent, in my opinion, if Finance opts to scrap travel taxes, for instance, when it fact part of that is already allocated or earmarked for tourism infrastructure. Aren’t we trying to raise more funds for public works, in the first place? And why raise fuel and car taxes so high that this may dampen demand. Tax collection can actually go down, rather than up.

In the same vein, why target food and drinks as a source of new taxes, which can raise food and beverage prices? Food and drinks should remain accessible, particularly for the poor. Perhaps more taxes can be collected from improving collection of existing taxes, or by adjusting rates of taxes on tobacco and liquor products, on common carriers, and on coal, among others.

I believe the Senate should seriously consider higher excise taxes on tobacco products and cigarettes, including e-cigarettes, and beer and liquor and other alcoholic products. These are precisely the kinds of consumer goods that should be made less accessible to the public, as they are known to have harmful health consequences and little to no health benefits.

On the other hand, beverages like fruit juices and 3-in-1 coffee mixes still have nutritional value, as long as consumed in moderation. So, why tax these rather than cigarettes? Moreover, these beverages invariably form part of the basic diet of most poor Filipinos nowadays, primarily because they are cheap and readily available, much like instant noodles.

Even farmers are now worried by the proposed sweet drinks tax, given its potential negative impact on agriculture in general, and not just on sugar farming. The Philippine Association of Agriculturists, Inc., in a news report, noted that the proposed sweet beverage tax would affect agricultural and rural enterprise productivity.

A call for higher taxes on cigarettes will resonate with health advocates like Sin Tax Coalition, which is proposing a 60% increase in excise taxes on tobacco products by 2018, and an annual hike of nine percent for the succeeding years. The coalition brings together about 100 health care professionals’ associations and civil-society entities supportive of higher taxes on sin products like cigarettes.

The coalition, in a news report, warned that there would be an additional one million smokers in the country by the end of President Duterte’s term in 2022 unless cigarette taxes are raised. It added that raising tobacco taxes anew would help limit additional cases of illnesses related to smoking such as lung cancer, chronic lung diseases, and stroke.

As for liquor, when a standard bottle of one’s favorite “brandy” can be still be had for less than P100, then I guess we are not taxing the item as much as we should. In terms of hierarchy, I regard liquor as a lesser evil than cigarettes, but I still think there is plenty of room for the government to hike taxes on alcoholic beverages and imported liquor.

The common carriers tax (CCT) is another major source of tax leakage. Congress should take a long and hard look at present laws and regulations and practices, and determine how best to revise the CCT system. The present 3% tax on gross receipts can still be raised to at least 5%, and then collected more efficiently under a system that relies on technology.

The CCT has significant tax collection potential. And I suspect many land transportation services like buses, jeepneys, and taxi operators, and perhaps even Grab and Uber car owners, do not correctly pay the 3% CCT, nor the equivalent 3% percentage tax on their gross receipts. Many of them may not be registered with the BIR.

If there are 200,000 jeepneys in nationwide, with their operators collecting a “boundary” of at maybe P500 per unit daily, then the 3% tax on the daily total take is P3 million. Multiply this by 300 days a year, and the government can get P900 million annually from jeepneys alone. Add to this CCT from buses, taxis, and Uber and Grab cars, shipping companies, airline companies, and trucking companies and the state can expect a hefty sum.

There is plenty of potential since under the law, gross receipts of public utility operators are not limited to what they earn in terms of “boundary.” For purposes of tax, gross receipts subject to CCT actually cover “boundary,” the earnings or “commission” of the driver, expenses for gasoline, and other expenses taken from the earnings derived in the operation of the common carriers. In short, the CCT should be collected on total gross receipts.

But nobody in Congress seems to be interested in looking into this. Not even Finance is remotely interested in improving its collection of CCT, when in fact the operations of most public transportation have a very significant negative externality that affects us all: air, water, and noise pollution. The potential collection runs up to tens of billions of pesos, I reckon.

Speaking of pollution as a negative externality to be addressed by tax, perhaps Congress should also heed the call of former Socioeconomic Planning Secretary Cielito Habito for a higher tax on coal, noting that “taxes on fossil fuels serve as a ‘pollution tax’ that accounts for the external cost to society of increased carbon emissions into the atmosphere — the established key cause of climate change — resulting from use of such fuels.”

Habito noted that while Finance officials and lawmakers were raising excise taxes on fossil fuels like diesel, gasoline, and liquefied petroleum gas, it is leaving out coal, where the tax “has stayed the same for decades, at only P10 per ton,” and this is “because coal has always been classified as a mineral rather than a fuel, [and] is treated separately from petroleum fuels.”

Habito wrote, “Clearly, there’s a strong case for a big hike in the long-outdated excise tax on coal. With an annual domestic consumption of 15-17 million tons, the P10-per-ton coal excise tax yields less than P200 million, when it could be yielding billions if we only taxed it at even just half the rates Japan and Korea do. With an estimated 2,700 kWh generated for every ton of coal, a P10-increase in tax would raise power cost by less than half a centavo. We are missing out on a large additional revenue source here.”

Habito noted that major coal importers Japan and Korea charged a carbon tax on coal ranging from P600 to P900 per ton, while our government collected a measly P10 per ton. This small tax, Habito said, is equivalent to an effective tax rate of only about “0.2% (based on a coal price of $86 per metric ton), compared to around 10% [tax] for gasoline,” and an estimated 43% tax on natural gas from Malampaya, as a result of the 60% royalty charged on sales.

He added, “Coal, the dirtiest among [fuels], gets taxed very lightly, while the cleanest, natural gas, is effectively taxed the heaviest — a case of perverse taxation, if you ask me. How can we expect to have a cleaner environment when we penalize the cleanest fossil fuel the most, but give the dirtiest a virtual free ride?”

I fully agree with Habito on this. A higher tax on coal hits everybody, but at a rate that is manageable for all. And a higher tax allows the government to collect billions of pesos in revenues while addressing a significant negative externality, pollution. Moreover, “lifeline” rates or subsidized electricity prices minimize a coal tax’s impact on poor power consumers.

But, just like CCT, it seems that Congress and the Senate would rather skip coal and target instead diesel fuel, cars, and drinks with sugar in them.

Marvin A. Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council.

matort@yahoo.com