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How
gross can taxation be? |
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(Article published in
TODAY, Business Section)
Indicative
of how touchy we are about taxes is the intensity of the reaction to the
latest presidential suggestion of gross taxation for corporate income.
In an interview aired soon after her proclamation as the winner of
the May 10 elections, Gloria Macapagal Arroyo observed that “our problem
in revenue generation is corruption.
If we simplify the system, there will be fewer loopholes” and
proceeded to say that “ultimately,
I would like to change our tax system from net income to gross income
because it is more simple.” These
remarks immediately conjured up the ghost of a proposal past when she
stepped into office in 2001 and agitated the spirits of otherwise sober
and often somber souls.
Nene
Guevara, reputed to be the architect of the Comprehensive Tax Reform
Program of the Ramos Administration (and hence, to be blamed for its
defects?), quickly warned that gross income taxation could result in
“cascading” taxes, since, raw materials are expected to be taxed as
they pass from the hands of the producer or manufacturer, to the
wholesaler and the retailer. Her
assumption is, obviously, the cost of goods sold will be considered part
of the base of the tax.
Ronnie
Concepcion, for his part, jumped up and said he believes that the gross
income tax scheme, though seemingly simple, “may eventually prove
unwieldy because of the deductions”. Apparently, his assumption is contrary to Nene’s and that
certain deductions, like cost of goods, will not be considered part of the
base of the tax.
The
tax experts of usually unflappable foreign institutions were themselves
also not in unison. The International Monetary Fund hastened to say that it was
not sure whether in the end more revenues would be collected but was
certain that the transition would be confusing. PricewaterhouseCoopers, on
the other hand, was immediately definite that gross income taxation will
not solve the problem of deductions.
The
obvious reason for all these disparate and desperate wailing and flailing
is that no ear has heard, no eye has seen and no mind has yet conceived
precisely what form this new presidential aspiration will take.
Hence, what everyone commented on, or more precisely commented
against, was gross taxation in his or her own mind; hence, their remarks
of diverse disconsolation.
It
is clear from what the President had said that simplification of the tax
system is the end and gross taxation is the means.
The end obviously takes priority over the means and therefore it is
going to be more productive if we are to all focus on the end and, in a
common effort, form a consensus on the means.
I thus suggest, as a talking draft, the approach taken some ten
years back by R.A. No. 7496 which instituted, for professionals and the
self-employed, the simplified net income tax scheme, or “SNITS” for
short.
Essentially,
the SNITS limited the deductions which professionals in the practice of
their profession and the self-employed to seven types of direct costs: (a)
raw materials, supplies and direct labor; (b) salaries of employees
directly engaged in the profession or business; (c) telecommunications,
electricity, fuel, light and water; (d) business rentals; (e)
depreciation; (f) contributions to the Government and to accredited
institutions; and (g) interest on business loans from accredited financial
institutions.
For
those whose cost of goods sold and direct costs were difficult to
determine, a maximum 40% of their gross receipt was allowed as deduction.
No questions asked, because they are difficult to answer.
With
a concrete form of a bill before us, we, who are crazy enough to earn
their living from tax practice, may now delve into details.
It is true the devil dwells in the details, but so also the angels,
but, of course, in separate quarters like representatives and senators, of
one Congress, holding having their own separate offices in separate
buildings in separate cities. Some
quick answers can be made of certain knee-jerk objections earlier hurled
the President’s way.
For
instance, some are concerned that foreign businesses, if placed under a
gross income tax system in the Philippines, would not be able to
claim a tax credit usually granted by their home governments to net income
tax paid off-shore. A
SNITS-like law will most likely be upheld by our courts as an income tax,
following the ruling in Tan v. Del Rosario, Jr., 237 SCRA 324.
Anxiety
about how to determine the “cost of goods sold” can be by-passed by
corporations finding difficulty by claiming 40%, which under the SNITS
operated much like the optional standard deduction for individuals.
A
general sieve for expenses claimed as “direct costs” could be the
simple, “if the amount is taxable income actually reported by the payee
(or, in the alternative, subjected to the value added tax), then it is
presumed cost to the payor corporation whose only burden is to prove that
it went into the production of its goods or services (or, in the
alternative, incorporated in the output VAT)”.
This harnesses the cross-checking feature that was one of the
reasons why the country adopted the value-added tax system.
And
so forth, and so on.
Please do not get me wrong. I am worried, like everybody else, about the impact, particularly on my own pocketbook, of changes in our tax system. But I am just as worried, if not more so, when otherwise rational people rant and rave against their own fears projected to what can essentially be objectivized and calmly discussed. And most worrisome, of course, is prospect of our pitiful revenue collections pitted against the seemingly unstoppable swell of the budget deficit and our leaders not mindful of it.
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