Wednesday, October 08, 2014

Tax Cut 20: On the Excise Tax on Gasoline, Various Regulatory Fees

Prof. Amado "Bong" Mendoza of the UP Political Science Department wrote another good article yesterday on tax policy.

Part of his paper mentioned a low tax-GDP ratio (T/GDP) of only 12 percent in 2011, in reference to other data and points raised by WB consultant and now UPSE visiting Prof. Rosa Maria Alonso  Terme. I commented that those measurements of low T/GDP ratio are wrong because such measurement counts only the collections of the BIR + BOC in computing T. It excludes other collections: 

1. Collections by local government units (LGUs) of various taxes (real prop. tax, residence tax, various business taxes) and regulatory fees (sanitation fee, fire dept fee, bldg permit fee, Mayor's permit fee,...).

2. Collectios of various regulatory fees by other agencies: DFA's passport fee, DOT/PTA's travel tax, NAIA's terminal fee, DOTC's vehicle registration tax, driver's license fee; PNP's police clearance fee, DOJ's NBI clearance fee, NSO's birth cert fee, death cert fee, marriage cert fee, and so on.

3. Collections of various fines and penalties by both national and local governments. More prohibitions in society, more violations to catch and penalize, more revenues to collect.

4. Collections of mandatory and forced monthly contributions by the SSS, GSIS, PhilHealth, PagIBIG, etc.

If these various payment to government, by hook or by hook, are included in the tax collections by BIR + BOC, a T/GDP ratio of 25 percent or higher is possible.

Singapore, Hong Kong, other governments with no or little LGUs have tax revenue that are almost equal to total revenues. In governments with many LGUs, many government corporations and financial institutions, many departments having their own collections and mandatory fees system, the total revenues are much much larger than the usual T/GDP ratio. It is an old trick by the WB, IMF, ADB, other foreign aid bodies to justify and rally a rah-rah-rah, more-taxes-rah campaign and lobbying.

Talking about government provision of public goods, the best "quality public goods" that the PH or any government can give its citizens is to have rule of law. The law rules over governors and governed, administrators and administered. The law applies equally to unequal people, no one is exempted and no one can grant an exception. Thus, the law against stealing and robbery, the law against killing and murder, the law against abduction and rape, the law protecting private property, applies to all. 

Then people will have peace of mind and have high respect for government. When there is government failure in rule of law promulgation, then one can expect government failure in many of its avowed welfarist functions. All other axation to justify multiple, endless welfarist functions lose their value.

Some sectors are proposing that taxes on petroleum products should be raised further. They are echoing the old WB and other foreign aid lobbying. They are wrong of course because petroleum is a useful product, it should not be penalized with more taxes. If people think that petroleum is a socially-bad product and hence, must be taxed as high as possible to discourage its frequent use, then they may be suggesting implicitly that we should ride carabaos, horses or bicycles to work or bring our kids to school so that we will use less or zero petroleum products. 

But petroleum is a socially-useful product. Government should in fact reduce taxes on it, and in particular, abolish the excise tax on gasoline, only VAT, import duties and related taxes should apply.

The main arguments by those advocating for more, higher petroleum tax, are: (1) Gasoline pollutes and creates traffic; increasing the tax will alleviate these twin problems; (2) Gasoline is mainly consumed by the rich and the middle class; hence a higher tax on gasoline is progressive; and (3) Petroleum products are imported, and scarce resources.

I disagree with these arguments of course.

1. Non-gasoline transportation of goods and cargo (via carabaos, horses, cows, etc.) creates more animal dung and urine pollution, creates more traffic as they move very slow. To transport Dagupan bangus or Batangas tilapia to Manila via animals will take several days, the bangus and tilapia reach Manila either rotten or in dried fish form.

2. Gasoline is used by tricycle drivers, taxi drivers, and other non-rich people. Besides, what is wrong with the middle class and rich driving a car? People work hard to have more convenience in life and this is not a bad or criminal goal. Those who demonize car ownership may consider not owning or driving one and ride bicycles only.

3. All imported products from mobile phones, laptops, flat tv, buses, boats, medicines, processed foods, etc. are also scarce. The price of a product or service is a reflection of its scarcity or non-scarcity. Gold and diamond are very scarce to find and hence, their prices are very high. Air is non-scarce, it is abundant hence, its price is zero. Unless one is into scuba diving, then air in scuba tank has a price and not free.

So government should either abolish the excsie tax on gasoline, or all other imported goods should be slapped with excise tax too.

Many environmentalists and anti-capitalism activists who demonize fossil fuel capitalism are actually car-owners too; they frequently ride planes for their meetings and activities across the country or around the world. And all airplanes use that "bad" (if not "evil") product called petroleum.

Back to the basic function of government -- yes, there is a need for government. Promulgate the rule of law. Of what use to a poor man that he gets free PhilHealth card, free education for the kids, free conditional cash monthly, subsidized train rides, etc. but his tricycle or 2nd-hand jeep or car can be easily stolen by other people; or the kids can be easily abducted and raped or murdered; the small piece of land he inherited or bought can be easily land grabbed by influential people?

Protection of private property, protection of human life, government role is needed and recognized, and taxation to allow government to do this job is needed. All other functions are secondary or unnecessary, as most functions can be provided by the private sector under a voluntary exchange system. Thus, the various taxes and mandatory fees to justify those secondary or non-necessary government functions should be significantly cut, if not abolished.

See also:
Tax Cut 16: Conserving Fishery Resources by Taxing Demersal Fish Catch?, May 27, 2013 

Tax Cut 17: BIR vs. Physicians, March 06, 2014

Tax Cut 18: On 10% Flat Tax, Greco Belgica and GDP Growth, March 27, 2014

Tax Cut 19: Letter to Sen. Sonny Angara Re. SB 2149, June 06, 2014

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