Purisima vows to plug tax leaks before imposing new taxes

The Department of Finance is bent on plugging tax leaks as foregone revenues, which reached an alarming P250 billion, before introducing new tax measures including higher excise tax on cigarettes and alcoholic beverages or sin products. The orders of President Benigno "Noynoy" Aquino III are clear not to adopt new tax until the government has managed to plug tax leaks, Finance Secretary Cesar Purisima on Wednesday told participants to the Philippine Mid-Year Economic Briefing in Makati City. "I support the stand of President Aquino to first fix the leakages before implementing new tax measures. We estimate that at least P250 billion is lost because of tax evasion," Purisima stressed. A possible source of fresh revenues is to restructure the current excise tax regime on sin products that favors old brands over new brands, according to him. "The current excise tax structure was designed to make it difficult for new entrants to come in as it favors old brands through lower excise tax rates while high rates are slapped on new brands. I will support down the road the review of the current structure," he added. He pointed out that the department has its hands full in plugging tax leaks to raise the ratio of the tax collections to domestic output as measured by the gross domestic product (GDP). Increasing sin taxes "Increasing the sin tax clearly is an opportunity, but I think we are not in a position to propose that over the next 12 months," Purisima said. Health Secretary Enrique Ona and Framework Convention on Tobacco Control Alliance Philippines (FCAP) executive director Maricar Limpin earlier urged authorities to adopt the tax scheme for cigarettes as proposed by US President Barack Obama. In the case of the Philippines, the Bureau of Internal Revenue would impose a P4.50 tax per stick or P90 tax per pack of 20 sticks. Under Republic Act 9334 or the Expanded Value Added Tax Act of 2005, low-priced brands are taxed P2.47 per pack and up to P27.16 for premium brands. The Philippines has the cheapest cigarettes in Asia. The department is focused on making sure that tax collections are improved, rampant smuggling is reduced, and government-owned and -controlled corporations (GOCCs) and government financial institutions (GFIs) are better managed, Purisima said. The government scored a major victory after the Court of Tax Appeals (CTA) last week convicted Forever Living Products owner Benjamin Kintanar for the tax evasion case filed in 2005. Kintanar was meted a jail term of up to two years, he said. "We’d like to see the day that he actually enters the jail so we can convince you that it’s not worth taking the risk to evade paying taxes," Purisima said. Data showed that about 82 percent of the total personal income tax collections of the Bureau of Internal Revenue (BIR) come from fixed income earners whose salaries are automatically subjected to a withholding tax, with only 17 percent filed by self-employed individuals. A journey "This fight against tax evasion will not be a single event. It will be a journey. There will be ups and downs but the key is to sustain the effort so we can create tipping points and make believers out of skeptics so they will realize that it will no longer be business as usual," Purisima said. The Aquino administration is bent on trimming the budget deficit to 2 percent of GDP, from the current level of 3.9 percent, starting 2013. The Cabinet-level Development Budget Coordination Committee sees the country's budget deficit swelling to P325 billion or 3.9 percent of GDP this year, a new record, eclipsing the previous record of P298.5 billion or 3.9 percent of GDP last year. "Our goal is to reduce the deficit to 2 percent by 2013, to make sure we extend and better manage our liabilities, reduce our vulnerabilities in foreign exchange fluctuations and ensure better health for GOCCs and GFIs," he added. According to him, the administration of former President Fidel Ramos managed to raise the government's revenue effort to 19.9 percent of GDP in 1994 and the tax effort to 17 percent in 1997. "There is no reason we cannot do that again," Purisima said. "Right now there is so much room for improvement. That is why we are confident that we will be able to go and reduce our deficit to 2 percent without new tax laws," Purisima added. —VS, GMANews.TV