Business Bureaucracy 9, Land title registration

A friend who is still enamored with the idea of more government regulation of markets, Floro Francisco, had a little shock of his life when he experienced government bureaucracies first hand. He posted this yesterday in his fb wall, reposting with his permission. Thanks Floro.

The images I got from the web and just added them here.
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Whew, just got back from following up documentary requirements from the BIR, Municipal Hall and the Register of Deeds for the transfer of the land title under my name for a piece of land I bought. Wow so many requirements I had to accomplish and the funny part is I have to submit almost similar requirements to 3 government agencies. And boy the amount of taxes and filing fees I have to pay was a bit shocking: 6.0% for Capital Gains Tax, 1.5% for Documentary Stamps to be paid at the BIR based on the purchase amount of the property. And then you pay also 0.50% for the Transfer Fee of Title at the Munisipiyo. And then another > 1.0% approximately to the Register of Deeds!

On top of these you need to pay the Munisipiyo for a certification of your Tax Declaration and another certification for the Tax Clearance and yet another for the Certification of No Development on the land. And you do not get to know all these payments on the first day you visit them unless you get or better yet make a checklist of the 3 agencies of government. You also had to pay for a Certified Xerox Copy from the Register of Deeds for the Duplicate of the Land Title even if you have a copy of the original owner's duplicate.

It is painstaking hard work and patience. If you play fair like me and do not go through the channel of experts and facilitators lurking around. You might need several months to complete these tasks. If you are not intelligent and ask the right questions to the right people, may be it would take you a year or two to finish everything only for a small piece of land. What if you lacked communication skills and knowledge about documentations? I wonder what happens to the lowly farmers who inherit or buy lands and the agrarian reform beneficiaries who had to deal with such government requirements to get their names on their properties.

I think I should find a politician or become a politician myself to push for reforms in such a bureaucratic mess! No wonder many lazy inheritors just leave their properties to be taken over by knowledgeable government officials and politicians! I think there is injustice there somewhere in terms of the amounts to be paid and the processes to be followed as well as the volume of documentary requirements. Yung ibang maliliit pampa-xerox lang eh wala na, yung pang taxes and processing fees pa kaya mabayaran nila? Some progressive form of taxation in this regard is much needed. A one stop shop processing system that would simplify the procedures need to be pushed! I am actually about to go through the same process for some properties we inherited from our parents and Sister which remain un-acted upon for years since they died because I nor my brother had the material time to do it. It may require that I take a leave from work to attend to these! Ah Bureaucracy! I wish I was born to a Dynasty!

… Ironically in my case mas nahirapan ako sa BIR kung saan mas maraming requirements at mas mahal ang bayarin! Also now you have to be computer literate to deal with BIR kasi you have to fill e-Forms sa eBIR. Paano na ang ka-awawang Magsasaka! Mas madali sa Register of Deeds! Kaya lang yung IT fees nila mahal! Pero tingin ko diskarte sa itaas yung IT Fees At sakop lang ng isang private servicing company yan kasama ng ID system ng SSS, GSIS at Pag-ibig pati ang Drivers License!

Some comments by his friends (I made minor revisions to #1 to make it more readable):

1. may bibilhin govt sa amin (lupa) na maliit lang naman, gagawin service road.. kaso mas malaki daw yung tax na babayaran namen compare sa ibabayad nila.. take note, hindi pa nila nare-release amount ng bayad nila, pero my computation na ng taxes na need bayaran.. at nakakaloka, binigyan kami ng two options, isang mas mataas n babayaran at isang binabaan ng around 3 percent ..whew..

2. yung mga "lazy inheritors" ay hindi talaga "lazy" in the real sense of the word. Marami lang po sa kanila ang walang pambayad sa Estate Taxes, at kung anu-ano pa pong ibang klase ng fees and taxes, para sa transfer ng title sa pangalan ng mga heirs. Idagdag pa ang layo ng locasyon ng namana. Kailangan mo munang umalis sa trabaho upang makasunod sa pinapatupad na proceso ng gobyerno, na kadalasan naman ay nakakalito sa common tao.

3. Don't forget sir that there are Land grabbing syndicates who have ties with officials of LRA and Register of Deeds.

4. These seemingly rigid requirement of the Register of Deeds are the causes of fraud and anomaly in the registration of real properties. It is almost impossible for poor landowners to effect the transfer of title to them!

5. Ha ha funny how you started your cycle, BIR payments agad... The cycle actually starts from acquiring a certified true copy of the title from RD, then Municipal level, then provincial level, then BIR, then the Register of Deeds,,, after this good luck on how soon you can get your title, unless you know somebody from Rd so that release of the title can be expedited!!!

I also commented that it's a good experience for Floro. And we may wonder why many people are still enamored with "more government intervention/regulations" mantra. 

Someone said that the purpose of government is to expand government. Somehow this is true. And that explains why I and other friends campaign and advocate for minimal or limited government, more market competition, more civil society role.

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See also:

Business Bureaucracy 5: Doing Business 2012 Report, August 28, 2012

Business Bureaucracy 6: Presentation at Rotary Club of Manila Bay, February 01, 2013 

Business Bureaucracy 7: Penalizing Small Businesses, February 01, 2013 

Business Bureaucracy 8: Exchanges at Imperium et Populi (Philippines), June 12, 2013

Boxing and Politics 3: Manny Pacquiao vs. BIR

After Manny Pacquiao beat Tim Bradley last week, grand celebration among millions of Filipinos as well as other fans of Pacman abroad.

Then the next round of jokes and sattire went to Bureau of Internal Revenue (BIR) Commissioner Kim Henares, in relation to its pending tax charges against the boxing icon. of "tax evasion".

Public sentiment is predominantly against the BIR of course.

More Pacquiao vs Henares memes. The BIR will simply harass Manny, especially if he will side with the opposition in the coming elections. Aside from the prize money, reportedly at $20 million, plus possiby share in pay per view, gate tickets, etc., Manny also earns from ads. His short has prominent name and logo of Motolite battery, including the head bands of his coaching team. There is also a Nike logo in his short. For sure the BIR will go after his ads earnings too. 

Commissioner Henares is known as a shooting club partner of President Aquino. A number of memes of the Commissioner show her holding a gun.

The income tax is a clear example of the politics of envy. If one is lazy, batugan, and has little or no income, most likely that person will get many subsidies and even a "cash transfer for the poor." If one will work hard, go also into boxing, soccer, etc. but he/she loses and may even have broken ribs or legs and arms, wala lang, ty na lang sa entertainment.

But if one is successful like Pacquiao and earns big money, there are many taxes, demand letters, even court harassment, to go after him/her. Luckily, hard working and self-driven people like Pacquiao will endure the pain of the fights and regular practices, push themselves hard, regardless of the politics of envy. More than the money, it's the joy of winning a competition that drives them hard. Pushing to give pride to fellow Filipinos.

For the BIR and government in general, it's all about money. There are many state-dependents, even batugan who need lots of subsidies. Millions of government personnel and officials who need regular salaries, allowances and offices, both national and local governments. And there are many politicians who need more pork barrel, national and local.

Meanwhie, Nanay Dionesia, Manny's mother, was a scene stealer during the fight. She was seen mouthing some prayers or spell as the Pacquiao-Bradley fight was on-going. 

More Pacquiao-BIR meme.

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See also: 
Boxing and Politics 1: Pacquiao as a Boxer and as a Congressman, November 13, 2011 
Boxing and Politics 2: Pacquiao Loses, Long Live Pacquiao, December 10, 2012

Weekend fun 1: Pac U, November 21, 2010
Inequality 7: Roger Federer, Manny Pacquiao and Free Market, June 19, 2011 
Welfarism 14: Hard Work vs. Dependence, the Pacquiao Experience, January 30, 2012 
Weekend Fun 50: Pacquiao, Rios and Pacman U., November 30, 2013

Tax Cut 17: BIR vs. Physicians

The Bureau of Internal Revenue (BIR) made this paid advertisement that appeared in several national newspapers last weekend I think. 

Posting below some comments by doctors expressed in facebook, posted on my friend Dr. Jed Inciong's fb wall, except those from change.org petition and Dr. Calimag. My own discussion at the end. Other posters/images are also posted in fb, copy-pasting them here.

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(1) Change.org Petition (around March 2, 2014, initiated by Minerva Calimag)

The medical profession and all physicians are always portrayed as tax evaders by the BIR. The recent BIR Ad that appeared in the Manila Bulletin is certainly discriminatory of the medical profession. Many of us physicians pay our taxes diligently...should the indiscretions of a few be invoked to penalize the entire medical profession? Many physicians also work in the countryside and they are often overworked and compensated less...this overgeneralization on the part of the BIR certainly maligns the medical profession. We demand that the BIR retract this Ad and issue a public apology in all newspapers for this act.

(2) Butch Tamesis, March 4, 2014

This picture shows the PHYSICIAN in general as a burden to the TEACHER, a representative of the MASA. I wonder if the BIR has really thought about this carefully? BIR is actually inciting the masa to revolt against the doctors and blame them as the cause of their poverty. PAMPABIGAT KAMING MGA MANGGAGAMOT SA MGA MAHIHIRAP! 

Does BIR honestly believe this? I will not repeat what my colleagues have said already against the BIR, but just enlighten you about my sentiments. 

In plain language, I am saddened by your portrayal of me as a burden to the society. After so many years of hard work, and sacrifice to help Filipinos (in general), I now live comfortably, able to sustain my family's needs. And this is how you treat me, as a burden to society!? My parent's left me with a wonderful name, a name I am constantly taking good care of. After my father died, the clinic he left was in shambles as his practice had diminished since he got sick. My sisters and I slowly picked up the pieces and built it back to its old glory. The taxes we pay the government ( yearly business tax, machinery tax, real property tax, tax on improvement, garbage tax, sanitation tax, fire and hazard tax), monthly SSS, Philhealth, Pag-Ibig contributions, VAT (not ours anyway since we collect it for the government) is so much that we barely have savings for the clinic on infrastructure improvements.

My clinic is a medical clinic, not a business enterprise, and yet the instruments to make my skills viable is taxed so much that I have no way of recovering the cost unless I charge my patients for its use. A lot of times I don't charge my patients since they cannot afford it. Medicines I prescribe are also taxed exorbitantly by government (i thought the government is pro people?). Electricity and water, and my gasoline expenses have been constantly going up. I am forced to buy electric fans and air conditioners to make my patients comfortable. That adds to my cost of electricity. And you Commissioner Henares and the BIR look at me as a burden to society???!

I have nothing else to say to you, no threats, no dirty finger, no nothing. At my senior age, I am no longer as violent as I was when i was younger since I saw the futility of being a hot head. I am done with that. But I would HUMBLY and RESPECTFULLY ask you to take a second look at this disgusting picture you have portrayed my profession to be. Please take it back because it slaps every physician (guilty or not) on the face. Prosecute these erring physicians, businessmen, lawyers, etc. but please, do not generalize because even JOSE RIZAL OUR NATIONAL HERO IS ALSO GETTING THE HEAT.

My comment comes from the heart, and I feel it every time I read it. Considering the amount of time I spend treating and caring for my patients, sometimes to the point of giving them free consult (in the clinic, by text, or by phone call anytime of the day,or by email) and medicine if they cannot afford it, I get this distasteful ad from BIR. I cannot NOT take it personally!

And the comments of some people against the doctors also hurt. But it does not matter. What matters most is one, our guilty colleagues must change their ways, and two, BIR must also take it back.

(3) Jed Inciong, March 3, 2014

Much like the persecution of jews in Nazi Germany. Our Doctors are being made "whipping boys" and scapegoats for a flawed income tax collection system. Our physicians are being portrayed as contemptuous cheaters.

All said, it pains me to admit I may have made the wrong choice to stay and practice medicine here in my beloved "Inang Bayan" katangi-tanging Pilipinas!
Ninais na manilbihan sa mga kababayang nangangailangan, kahit na higit na mas malaki ang kikitain sa ibang bayan. Dahil sa pagmamahal sa Bayang tinubuan!

Mining 35: Opposition to Mining, Where Do They Come From?

In my previous article in this subject, I said that the EITI Secretariat has declined my belated application to join their conference last month. Upon the request of a friend who is a DOF official, the secretariat invited me to attend the conference of Day 2.

Below is my article today in Mining Week.
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Other than the usual left-leaning and anti-capitalism, anti-globalization groups, there are many other camps and individuals who oppose large-scale mining (metallic and non-metallic) for other reasons. What are these reasons and where do they come from?

During the “Conference on the Adoption of the 2013 EITI Standards” last September 27, 2013 at Crowne Plaza in Ortigas, sponsored by the Extractive Industries Transparency Initiative (EITI) International Secretariat and the World Bank, Dr. Elmer Billedo, Assistant Director of the Mines and Geosciences Bureau (MGB, DENR) was one of the speakers. Among the slides he showed was this one.

It is a useful illustration and it shows that the major groups of people who oppose the industry come from the following:

1. Politics and politicians, either for personal or professional reasons, the painted or assumed destructiveness of mining is exaggerated, begging for more regulations and taxation on top of existing ones, if not outright banning of LSM.

2. Propaganda groups, especially the anti-capitalism groups who dislike big corporations and multinational firms extracting rocks and soil from the Philippines and exported to other countries.

3. Lack of information by the public, media and other civil society organizations. Many are not aware that “responsible mining” is possible and is in fact happening in many large mining projects in the country.

4. Legacy mines, like the mining disaster in Marinduque about two decades ago. Then the occasional fatal landslides in Mt. Diwalwal and other areas where small scale mining (SSM) is the dominant practice, but is attributed to large scale mining (LSM).

5. Current violations of environmental standards, by some LSM companies, and is more rampant among SSM but is attributed by the public to LSM.

6. Lack of benefits, coming from some mine workers themselves and residents of the mining village. Sometimes this is an objective assessment but oftentimes, it is a subjective and biased opinion. For instance, some residents who are not connected with the mining company may feel that they should be “entitled” too to some benefits like free or highly subsidized healthcare, education, given by the mining  firm.

As a result of such opposition, (a) local government units (LGUs) are issuing more ordinances and resolutions against mining; (b) Congress is considering Bills declaring “mining-free” provinces, cities and municipalities; (c) MGB-DENR and BIR-DOF are increasing regulatory requirements and taxes; and (d)

Advocacy groups  are filing complaints and cases against mining projects, both in Congress and the Supreme Court.

During the open forum, I spoke and shared my observation that many anti-mining groups are easy to address if they are shown with lots of data, that responsible mining can and does exist, that LSM are already over-taxed, that the total area under LSM is very small compared to the total land area of the country. That I was surprised that my former teacher at the UP School of Economics (UPSE), Prof. Winnie Monsod, is misinformed and thinks that mining tax is only the 2 percent excise tax, that is why she is advocating that the Malampaya natural gas sharing scheme of 60-40 of net revenues going to the government and the private developer respectively, should also apply in mining.

Then I suggested that the MGB, DOF and DILG should produce more detailed data available online, like breakdown of mining taxes and fees collected by both national and local governments from LSM, SSM and large non-metallic mining. If the public can see these data for themselves, negative sentiments against LSM and mining in general can decline.

The participation of the Philippines at the EITI is a good move. The regulated and taxed companies can declare how much they have paid to the barangay, city/municipal and provincial governments, the royalties and social development management projects (SDMP) given to communities and people’s cooperatives, and to the MGB, BIR, BOC, SEC and other national agencies. These agencies will also be forced to report how much they collected from each mining enterprise, small and big alike.

Of course there are other costs that are not reported by the mining firms. Like special and monetary requests by the LGUs and national agencies, otherwise these government officials will harass the mining firm, if not disallow its continued operation. This data is hard to produce.

Nonetheless, information is empowerment. The more information that will be available to the public, the lesser will be the misconception and unnecessary opposition  to mining.

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See also: 

Mining 31: Prof. Winnie Monsod's Faulty Tax Proposal, August 22, 2013 

Mining 32: Output Contraction in 1st Half 2013, September 02, 2013 

Mining 33: Job Creation, Taxes and the Politics of Envy, September 13, 2014 

Mining 34: EITI, Taxes and Other Costs of Regulations, September 24, 2013

Abolish Income Tax 9: Tax Revolt Against Government Corruption

The on-going pork barrel and government corruption scandal is radicalizing more and more middle class and average taxpayers. Some individuals are getting bolder and explicitly announcing that they will stop paying taxes. Like this story by Sandy Allan Beltran who owns a book shop. She posted this nearly a month ago and look, her story has been shared more than 400x, wow.

See her story below. The other posters I just added, not part of her original fb posting.

My shop The READING ROOM has been religiously paying taxes since we opened it in 2007. Every month I pay my accountant a retainer fee, and he religiously looks over my books, and files my papers, and at the end of the tax season, or during renewal of licenses, he religiously, zealously even, to the detriment of my wallet & my husband's burdened bank account, pays whatever he sees is my due.

I want to stop paying taxes, because the system has proven itself to be a corrupt one, and I find my moneys to go not to where it will be used for the good of my country or countrymen.

But. If I do so, they will close up my shop. Do I want this? Of course not.

But. It hurts to think that people like the Napoles' and the Revillas and the Marcoses and the Domogans and the Enriles and the Estradas and who knows who else live their undeserved luxurious lifestyles from the hard-earned moneys that I and the rest of my blindly religiously-tax-paying countrymen work our asses off. It makes me so angry to think that corruption is at the core of a government that has consistently failed at taking care of its peoples.

But. Have faith, they say - somewhere there are those who will take your taxes and put it in the right places.

But. It is no longer fair. It would also not be fair to the people I have hired to lose their jobs once I close up shop. They are important to me, as much friends, companions, what I like to call my shop family. It is also unfair to close the shop because there are some customers who have come to love it, come to depend upon it for the "good stuff", items that only I can find and come up with. One client told me "your shop is my splurge haven", and that I can't forget.

But. I've been paying taxes since I was 14 - I sold my first short story to a local women's magazine at that age, and when I got my writer's fee, the government made sure it got its rightful chunk. So for 29 years I have been paying taxes, and in all honesty,

I don't see that it's being used right.

I just don't see it. The roads - wehhh... The police & the military - wehhh... The public school system - wehhh... The salaries of government workers, teachers - wehhh... The whole PDAF scam - wehhh...

The whole situation has left me speechless, wordless.

Angry. Uncertain. Afraid of the future. Angry because after all this time of doing the basic right thing, it has left me afraid. The government failed to take care of me, one who can, and should demand that things turn around.

So BIR chief whoeveryouare = think again. I'm not going to pay my taxes in the next round. I'm letting go of my accountant. I'm not renewing my shop's license.

But my shop will still be open. I will still serve customers. I will still sell what there is to sell, and restock when my shelves become bare.

But I refuse to pay taxes UNTIL THIS COUNTRY'S GOVERNMENT STARTS DOING THE RIGHT THING.

Am I really going to do this?

Yes.

I'm so afraid - but I'm more afraid that if I won't, I'll get sick at heart knowing I'm not doing something about it.

By the way - if anyone from the BIR comes to my shop and puts some form of notice on it that says CLOSED FOR FAILURE TO PAY TAXES, I'm going to tear that notice down and open up my shop. If they bar my door, I'm going to shoot the locks off. If they do something else, I'm going to do something else.

It's already wrong that they stole from me. I refuse that they continue to do so, without any assurance that anyone in the government will make it right.

I will do this, until I'm told, I see, I hear, that something good, something REAL, something changes, and it is proven to me.

Goodness gracious, I'm shaking in my boots.

I'm reposting this because the link is now broken. The original link was deleted - it now says "server error". the article originally reported BIR CHIEF Kim Henares saying the normal taxpaying citizen will still continue to do so because (am paraphrasing) "of the current administration's stance to improve things."
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I support this citizen expression of anger and dissatisfaction against corruption and government failure. But more than individual expression of disobedience, I think the tax policy should be amended and move to a low, flat tax, with timetable towards the abolition of income tax. Government has lots of consumption-based taxes, transaction taxes, mandatory and regulatory fees to survive.

Meanwhile, here's the logo of the Tax Revolt fb group.
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See also:
Abolish Income Tax 6: Income tax and VAT trade-off, February 08, 2010
Abolish Income Tax 7: Rene Azurin, Peter Wallace, John Mangun, August 19, 2011 
Abolish Income Tax 8. From low flat tax to zero income tax, September 30, 2011

Tax Cut 14: APTU Meeting in Bangkok, March 1-2, January 22, 2013 
Tax Cut 15: Some Resistance to Reducing Personal Income Tax, May 04, 2013 

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

CSOs and State 15: Old Debate on Competition and Markets

Many civil society organizations (CSOs) leaders remain unfriendly to the idea of moving society from more government to less government via more CSOs and voluntary groups. Below is one of the debates I've had with some friends more than eight years ago. I think a number of arguments remain relevant, hence posting them here. A bit long, get your popcorn. :-) 

Exchanges on Competition and the Market

June-July 2004

Hey Vince, folks, If GMA will do or support this -- fewer bureaucrats and higher pay for those who will be retained -- I say halleluiah for her! Enough of "more taxes" moves. I say "less tax rates" and there will be larger tax base.

Expenditures cut through merger, corporatization, if not outright abolition, of some govt. agencies, will inspire taxpayers that the money they surrender to govt. (nay, govt. automatically expropriates) is wasted less and less. Will the group possibly support these developments, or it will keep its focus on tax admin reforms?

-- Nonoy

Noy, I would dare say that the group effort will stay focused on tax administration reform. But I do agree with you, enough of the "more taxes" approach, it merely masks the problems in tax administration.

-- Vince

P.S. Why am I not surprised at your response to this article?

ha ha ha, right Vince -- you know my advocacies are very clear: small government, small bureaucracy, small taxes; more and freer markets and trade. so my reaction to news reports like these are highly predictable.

I have a new org. Vince, folks -- Minimal Government. Among our major advocacies are (a) flat 10% individual income tax (vs. the current 6-tiers, from 10% to 32%), and (b) a lower, 16% of net corporate income (vs. the current 32%). These smaller taxes will be compensated by fewer line departments, bureaus, and state universities and colleges, smaller bureaucracy.

So, somewhere we shall complement each other's advocacies. The group on tax admin reforms, us and other orgs. and individuals on tax rates and policy reforms. Pero mahirap magbago ng utak pre, when people's minds are "statist" -- that the state should intervene, regulate, subsidize, etc. in almost all aspects of our lives.

-- Nonoy

Folks: Today, I speak purely as a taxpayer and not as a reform BIR advocate.

I am tired of new taxes (or at least proposals for new taxes). I think the government should not be able to impose new taxes unless it can show: 1) that it can improve collection of existing taxes; 2) that it can plug leakages on the collection side; 3) that it can plug leakages on the expenditure side; and 4) that the first three are not enough to narrow the budget gap to manageable levels. Otherwise, any time there is a revenue shortfall, the government will resort to new taxes. If the figures coming out of the office of the Ombudsman or the World Bank are accurate, anywhere from P240-P400 billion is lost EVERY YEAR through "leakages" in the BIR. As far as I know, these leakages are still rampant and SOP. I am aware of several firms that are at the moment being extorted for money by BIR examiners. Despite vigorous, and largely successful efforts, by Parayno to clamp down on tax loopholes, extortion by BIR officials seems to go on unabated. Another P20 billion or so is lost in the procurement process. One can only guess how much is lost through inefficient government service or substandard delivery of goods and services.

Imposition of new taxes increases the burden on the taxpayer, while relieving pressure on the corrupt BIR official and pork barrel-gorging politician. New taxes are a means to subsidize the corrupt lifestyles of the tax collectors and politicians.

And that's plain and simple, WRONG!

-- Vince

Pilipinas Forum 9: Corruption's Deep Root

This is one of those long papers posted in pilipinasforum yahoogroups -- a fantastic online discussion group that I co-founded and moderated -- more than 10 years ago. I was not fully convinced of the free market philosophy then. Otherwise, I would have posted a long counter-rebuttal to the author of this paper and a good friend, Citizen Kori. I'm posting this because a number of the ideas he raised then still ring a bell up to this time.
-- Nonoy Oplas
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Counting the Cost of Corruption in the Philippines

by citizen kori
June 29, 2001

We must however not only limit the cost of corruption to the monetary value. We must also bear in mind the tremendous hardships of those who rely on state monies for survival have to go through. The plight of the children, the plight of the aged and the plight of the homeless and destitute are but a few that I can mention. This in turn influences the socio-economic climate in the country affecting the unemployment rate and resulting in a rise in the crime statistics.

The message is clear - if we cannot manage our own money and assets, how can we be expected to manage investment from 1st world countries. This was clearly demonstrated by the International Finance Corporation - who in February this year identified corruption as the most serious government-related constraint on doing business in South Africa.

Judge W H Heath Institute for Security Studies Seminar 5 November 1998

Among my very first lessons in business is that there is no such thing as a free lunch. Somebody is bound to pay. Always. Especially when it comes to corruption. So how does corruption get to us? Let us count the ways.

1. Loss of government revenue

The first victim of corruption is government revenue. In a developing economy like the Philippines, this can be extremely debilitating. The continuing budgetary deficit of the government results in to cutbacks in expenditures for much needed social services.

2. Education

The gap of classrooms in public elementary schools is estimated to be about 30,000 by this school year. The case of books is even more pathetic, as the lack of qualified teachers further confound the problems. While the population of students keep on growing year after year, these gaps in classrooms, books and teachers keep widening. What do these lead to? Poor quality education in the basic education of the future citizens of the Republic, further undermining their prospects of contributing to nation-building. That is a very high price to
pay for corruption.

3. Infrastructure

With tightening sources of funding for infrastructure development, government has to resort to partnerships with the privates sector. A public good like roads, bridges, ports and airports will necessarily be charging user fees to recover the profit of private capital. Nothing wrong with because he who benefits should share the cost. But a lot of these projects require performance undertaking from government to be financiable to lenders. This result into the contingent liabilities of the national government burgeoning to levels no one wants to even find out. Last count by end of March 2001 it stood at Php465.6 billion. That's about Php30,000 per Filipino household. That is no loose change to pay for corruption.

Multiple Taxes on Electricity

On July 08, 2007, I wrote this in my other (now inactive) blog:

Why a tax on system losses?

Last June, our electricity bill was P3,457.00 for a consumption of 364 kwh. This was higher than our average monthly electricity consumption. The biggest items there were: (a) generation 46.6%, (b) distribution (Meralco) 20.5%, (c) transmission 9.6%, taxes 8.8%, and (d) system loss 7.7%.

The per kwh charges were: (a) generation charge P4.43; (b) distribution charge P1.16; (c) transmission charge P0.92; (d) system loss charge P0.73.

System loss, in my understanding, arise from (a) electricity uses of the power generating plants, transmission lines, and perhaps by distribution utilities like Meralco, and (b) pilfered electricity passed on to legitimate users. I am just wondering why is government imposing a tax on electricity that was not used by users, whether residential, industrial or commercial.

The government VAT rate for the following are as follows: (a) generation charge 9.56%; (b) transmission charge 10.65%; (c) distribution charge & subsidies 12%; and (d) system loss charge 9.76%. In our case, out of total of P305 VAT collection, P89.56 was VAT on system loss. 

VAT is a tax on value-added. When a tomato is transformed and processed into tomato paste then tomato sauce or ketchup, there was “value added” to the consumer who bought and consumed the tomato ketchup. Thus, the consumer is billed by the government a tax on the values added to the raw tomato. When a chicken was transformed and cooked into chicken adobo or chicken cube, there was “value added” to ordinary dressed chicken.

But when an electricity was used by a power plant or a transmission line, or stolen by some people, there was zero value added to legitimate electricity users because they have already paid the generation charge, transmission charge, and distribution charge. We can possibly call this “value subtracted”, not “value-added”, because consumers were billed for an electricity they never used. Consumers could tolerate this. But when government imposes a tax on an unused electricity (or other services), this is adding salt to the injury.

I hope this analysis is wrong. Otherwise, I will conclude that this practice by the government is just one of those numerous rip-off and robbery of consumers and taxpayers.

Then I followed it up the next day, July 09, 2007:

Value-Subtracted Tax (VST), not VAT

This anomaly of taxing unused electricity (or water or other services) should be reviewed by the BIR, and/or Congress, the House of Reps. especially. I think this defect was made in the expanded VAT law's implementing rules and regulations (IRR).

My friend and former classmate from UPSE, Raymund Addun, concocted the term Value Subtracted Tax or VST (short for vuwisit), which jibes with the ugly practice of government taxing value-subtracted, not value-added, service. Raymund added that "Its like we're short changed (or better short circuited) from the start."

My posting yesterday was not against charging to consumers the system loss. The consumers could tolerate it. I could tolerate it. With those stolen electricity by some people, especially in squatter areas in cahoots with some Meralco people actually, someone has to pay, and that's the legitimate electricity users. It's part of enduring the negative externalities of being provided electricity by a natural monopoly.

In the case of taxing system loss, the villain is not Meralco but the government.Charging to consumers system loss is already painful. Taxing that unused electricity makes it doubly painful.

Last month, our electricity bill was P3,470 for the 323 kwh consumed. It was higher than our usual monthly bill. Here is the breakdown of costs, in descending order:

1. Generation charge, P4.862/kwh, P1,571

2. Distribution charge, P1.724/kwh, P557

3. Transmission charge, P1.076/kwh, P348

4. Government taxes, (from 8 to 12%), P323

5. System loss charge, P0.656/kwh, P212

6. Supply charge, P0.635/kwh, P205

7. Metering charge, P0.466/kwh, P150

8. Subsidies, P0.139/kwh, P 45

Others (fixed supply charge, fixed metering charge, universal charges,...)

T O T A L P3,469.80

As usual, my main beef is the high government taxes, VAT (P307) + local franchise tax (P16), representing 9.3 percent of our total bill. The VAT applies on generation, distribution and system loss. Transmission is VAT-exempt.

I have argued above that passing on the system loss (including those stolen and unpaid electricity) to the public is somehow unfair, but taxing the system loss is adding insult to the injury. The government is so callous that it even taxes electricity that was never used by the consumers.

And don't forget, power generation companies, power transmission company/ies and power distribution companies pay various taxes to the government -- corporate income tax, VAT, franchise tax, documentary stamp tax, real property tax, business permit fees, etc.). All those taxes are costs that they already pass on to the consumers and reflected in the per kwh charge that they bill us.

If those taxes on those companies are added to the direct taxes consumed by the public, I will not be surprised if they reach nearly 20 percent of our total bill.

Yes, government cares a lot for us. It makes things more expensive and more costly for us. Long live BIG government.

Abolish Income Tax 6: Income tax and VAT trade-off

The income tax system in the Philippines is one classic example of the absence of the rule of law. The rule of law says that rules, laws, regulations and prohibitions apply to all people, no one is exempted and no one can grant an exemption.

A quick look at how the law on income tax is being implemented would immediately show that it is one of the most hypocritical laws in the country. Many rich people do not pay the “correct” personal income tax of 32 percent top marginal rate. Among them are businessmen, professionals, corrupt government officials, those in the informal sector, and personnel and consultants of foreign aid bodies (UN, WB, ADB, IMF, USAID, etc.). The bulk of personal income tax collection by the government, especially the Bureau of Internal Revenue (BIR) comes from fixed-income earners.

So if those who are supposed to pay are not paying and the burden of heavy taxation falls on the helpless workers who are subject to mandatory withholding tax, might as well abolish income tax system. Or drastically cut it to a rate that is not burdensome to the people, rich and poor alike, in order to reduce the level of hypocrisy and the extent of tax evasion.

Taxes and government spending were among the major topics discussed by the 3 speakers on the panel, “Debt and Deficits” during the UP Academic Congress, Beyond 2010: Leadership for the Next Generation last Monday, February 1, at the UP College of Law, http://www.econ.upd.edu.ph/?p=906.

The speakers were Professors Felipe Medalla of the UP School of Economics (UPSE) and former NEDA Director-General from 1998-2000; Prof. Benjamin Diokno of UPSE, former DBM Secretary in 1998-2000, and Prof. Leonor Briones of UP National College of Public Administration and Governance (UP NCPAG).

The two former cabinet secretaries were suggesting that to avoid a fiscal crisis in the near future, revenues have to increase significantly, and one such measure is to raise the VAT from the current 12 percent to 15 percent, while reducing income tax from the current 32 percent (personal income) and 30 percent (corporate income) to 25 percent.

I support the move to shift government revenues from income to consumption. As discussed above, many rich people do not pay income tax and the BIR cannot fully implement that law anyway. People hide their income as much as possible, while they flaunt their consumption: their new cellular phone, new computer, new shoes and clothes, new car and appliances, and so on.

So if people voluntarily show off their consumption, even their profligacy, then collecting higher VAT would be easier. And with reduced income tax, fixed-income earners will have higher take-home pay, which means higher savings and/or higher consumption.

What can greatly compensate for the initial revenue losses of the government as income tax rates (personal, corporate, others) decline, will be the entry of thousands of entrepreneurs and businessmen from abroad who want to escape their high-taxes regime in their home countries and are looking for low-tax economies to put up new businesses, or to transfer their existing businesses.

Of total income tax collections by the BIR in 2008, personal income tax comprised 59 percent of total BIR collections; VAT comprised 22 percent, and other taxes 19 percent.

An earlier panel also on February 1 lecture, was a session on “Jobs and the Cost of Doing Business in the Philippines.” The speakers were Dr. Cielito Habito from the Economics Department of the Ateneo de Manila University and former NEDA chief from 1992-98, and Dr. Cayetano Paderanga of UPSE, former NEDA chief before Dr. Habito.

I noted during the open forum, that one major reason why there are not enough jobs in the country and the cost of doing business is high, is because there are many planners in the government, both at the national and local government units. Planners tend to create distortions in the incentives and disincentives system in society because it is simply impossible to predict how people would behave if certain regulations and restrictions were put in place by the government.

Thus, to remedy the situation, we might consider abolishing a number of planning agencies in the government, like NEDA and the Department of Agriculture (DA), for socio-economic and agriculture planning, respectively.

Consider the food sector. There is no government carinderia, no government restaurant, no government supermarket, and yet people are eating. There are no central planners suggesting or dictating how many thousands of pizza and hamburger, or how many kilos of “sisig” and “kaldereta”, to be produced everyday across the country at what price, at what servings and topping, and so on. Product differentiation and market segmentation allow food producers and sellers to target certain group of consumers and consumers do the same to the various food producers and sellers.

The two speakers were hesitant of course, to support my proposal to abolish, or at least drastically reduce the size and functions of those bureaucracies. What was important for me was to articulate the perspective of less government intervention to allow more competition in the market, to allow personal, parental and community responsibility in running their own lives.

Reforms in both taxation policies and government spending are necessary to combat the endemic corruption in Philippine public administration and to discipline, if not discourage, unwarranted expansion in the size and power of the various bureaucracies that tend to restrict individual freedom.
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See also:
Part 5, Consumption taxes, other government fees, November 25, 2009
Part 4, Ayn Rand and income tax, November 02, 2009, and
Part 2, VAT and tax extortion, August 01, 2008