Atty. Oscar Tan’s Commentary in the Inquirer Today…

13 Responses

1. As a mother of 3 school-aged kids whose salary is being taxed 14.71% bi-monthly, I really take offense that some people get away with not paying their correct taxes. I am reminded of an experience years ago when my sister got pregnant after 7 years of marriage and her OB was from a well-known hospital in Pasig. She gave birth at a public hospital (where the OB was the director or something) to save on costs(at the OB’s suggestion) but the PF the OB charged was 40K. When we asked for a receipt, the secretary said we will need to pay an addtl 500 if we want a receipt. We didn’t get a receipt since we need that 500 at that time. I am of course not saying that all doctors are like that, but hey, this was a personal experience.

   So kindly forgive me for saying that I do agree with BIR’s shame campaign and I just want everybody to pay their correct taxes, like us employees who have no choice at all in the matter. And I just hope that our taxes are indeed working for us, but I guess that’s just too much to hope for.

2. Dinah, I agree that people should pay their taxes, it’s the manner in which the BIR is pursuing their campaign that is at issue. As for doctor’s, when my wife gave birth many years ago, we got receipts for all parts of the event, from the hospital to the doctors, etc. Ditto for a major operation of a staff member just a couple of years ago. And folks covered by insurance will need those receipts, so the more employees are covered by insurance then the system should work for itself. And in the last few years, I have always asked for and always received a receipt from our doctors, without paying an additional “fee”. While I agree that your sister’s doctor SHOULD have given you a receipt, and should NOT have asked for an additional PHP500 (that’s illegal I would think, just as it was absurd to charge clients more for the use of credit card until a few years ago), shouldn’t you also have stood your ground and insisted on an official receipt, knowing that the government would gain much more than PHP500 on a PHP40,000 bill? If we condone the behavior, are we not then part of the problem to begin with?

   Which brings up another interesting tax-related issue… several “small companies” or “sole proprietorships” these days give out “NON-VAT” receipts, which I gather means they either are registered as an entity that only has to pay 3% sales tax on their gross sales AND typically applies to businesses with gross annual receipts of PHP1.9 million OR LESS, last time I checked, and that figure can change with BIR rulings. What that suggests is that, every single business or sole proprietorship with average sales of more that PHP6,121 per DAY, assuming they are open 6 days a week, must actually shift to VAT receipts and payments thereof. Remember that when you eat at your corner carinderia, get a haircut at your not so fancy salon, buy fruits from a vendor in a market, buy fish in a talipapa, buy ribbons or packaging in divisoria, or pasalubong from a dried fish vendor or handicraft store in the provinces, buy from a tiangge with regular vendors, bazaar vendors, bakers and cooks who sell from home… Any business or entity with more than PHP6,121 daily average sales SHOULD BE issuing official VAT receipts. So my question is, why aren’t the vast majority of them doing so? Shouldn’t the BIR follow their own laws and make sure that all such businesses issue the receipts? And that’s only one end of the spectrum, at the complete opposite end of the spectrum with the largest corporations, isn’t it somewhat amusing that the BIR recently admitted they have to take a closer look at the Top 200 corporate taxpayers, as it seems that despite a very robust economy last year (9.2% nominal growth rate), VAT collected from that segment rose only 6%, suggesting a substantial amount of VAT taxes were not paid by the largest companies?

   And I quote the 3 March 2014 Inquirer article, here:

   “Purisima said the foregone revenues from suspected evasion of VAT could be largely accounted for by large corporate taxpayers because the total VAT collection of the BIR, including those remitted by smaller enterprises and individuals, grew at an annualized pace of 9 percent to P250 billion.”
   

   So yes, I agree with you everyone needs to pay their taxes, AND HOPEFULLY, government spends the money wisely…

3. Hi MM, I thank you very much for your reply. I know that I should have stood my ground but P500 was a lot of money to me then, and the receipt was just for our file as we paid for it, and not her health card (not covered, only the consultation. Hence we technically could not afford that doctor but it was her first baby after 7 years, so we didn’t want to take chances). I actually remember that incident precisely because I really wanted that receipt as a matter of principle (hello 40K!), but just couldn’t afford to fight for that principle! I hope that people who do not want to condone that kind behavior always have a choice :( Anyway, I now routinely ask for receipts everywhere, most especially at gas stations where they don’t give unless you ask for it. And for individuals/businesses who do not pay correct taxes, shame on you!

4. I am a numbers kind of person, so here’s more for folks to consider if they are even a wee bit curious about tax collections and expenditures:

   1. Net Tax Revenue as a % of GDP (Some Richest/Largest Economies) 2011/2012 data, from source, here:

   USA 9.74%
   Japan 9.77%
   Switzerland 10.44%
   China 10.48%
   Canada 11.62%
   Germany 11.80%

   Net Tax Revenue as a % of GDP (Southeast Asian Countries, less developed than above)

   Indonesia 11.77%
   Philippines 12.88%
   Singapore 13.78%
   Malaysia 16.11%
   Thailand 17.55%

   So the Philippines lags neighboring developing countries by a bit, but that figure is expected to rise to roughly 14% as of last year. Tax collection as a percentage of GDP is NOT totally way off similar countries, and it’s higher than the developed countries (understandably).

   2. What is spent on PUBLIC EDUCATION?, 2010 data source here:

   Percentage of GNP spent on PUBLIC EDUCATION:

   Philippines 2.7%
   Indonesia 3.1%
   Singapore 3.3%
   Thailand 3.9%
   Malaysia 5.9%

   Average rate of growth in PUBLIC EDUCATION expenditure over the last ll years to 2010:

   Philippines 0.82%
   Thailand 3.04%
   Indonesia 3.09%
   Malaysia 7.03%
   Singapore 9.63%

   Public Education Spending per capita in 2010:

   Philippines $34
   Indonesia $78
   Thailand $162
   Malaysia $477
   Singapore $1,301

   So despite the fact that the Philippines has lower tax yields to GDP, of that lower yield, we ALSO happen to have the lowest expenditure on EDUCATION as a percentage of GNP, the lowest annual growth rate on EDUCATION expenditure over the past 11 years to 2010 AND the lowest per capita expenditure on public school students. Yipes, seriously?

   3. What is the per capita expenditure on HEALTH, source here 2006 data:

   Philippines $17
   Indonesia $20
   Thailand $73
   Malaysia $115
   Singapore $337

   And WHAT PERCENTAGE of TOTAL GOVERNMENT EXPENDITURES are spent on HEALTH?

   Philippines 6.1%
   Indonesia 6.2%
   Singapore 6.7%
   Malaysia 7.0%
   Thailand 11.3%

   So it seems the Philippines spends the smallest amount of its total government budget on health expenditures, and the lowest per capita amount as well.

   If it was easy to find the data, I would have included budget allocations for agriculture, social welfare (which in the Philippines this year includes a tens of billions peso program to give money to the poor to hopefully get them above the poverty line (it hasn’t made much of a dent so far) and even debt servicing, which has actually really improved in the sense that public debt as a percentage of GDP has gone down, a result of many years of low interest rates and better fiscal management.

   4. But wait, one last interesting piece of information. Despite the modernization of the world, the advent of computers and other aids to human productivity, SURPRISE SURPRISE but the government bureaucracy has actually grown faster than the already rapid rate of population growth over the past 50 years (and it is not clear to me if this includes local government officials as well):

   Total Number of Government Employees in 1960 : 360,000
   Total Number of Government Employees in 2010 : 1,312,508
   Growth after 50 years: 264%

   Total Population of the Philippines in 1960 : 27.1 million
   Total Population of the Philippines in 2010 : 92 million (excluding OCW’s, say 87million)
   Growth after 50 years : 240% or 220% excluding OCW’s

   Ratio of Govt. Employee to Private Citizen 1960 – 1:75
   Ratio of Govt. Employee to Private Citizen 2010 – 1:70 or 1:66 (not counting OCW’s abroad)

   Imagine what unemployment numbers would look like if the government trimmed its ranks and dropped down to say 800,000 employees or so?

   My favorite quote today from a government website, here:

   “Expressed in terms of ratio to the total population, the growth in the size of the Philippine government personnel lends some firm basis for the popular perception of a bloated bureaucracy.”
   

   Stuff to think about…

5. MM – I couldn’t agree more on your last point no. 4 about bloated bureaucracy. It is true, and this is the same point which I’ve been harping on in my comments in online newspapers. I should know because I worked for several years in a government department until I could no longer tolerate the rampant corruption and had to go abroad to save whatever is left of my integrity.

   One bureau under our department, for example, was in charge of export promotion. Of course, corruption already started when the relevant publications for exporters were printed (cost bloated at least 10 times and approved with the connivance of COA auditors). When exporters went there for help/support, they could only find empty tables (employees were out having snacks somewhere, or going to movies in nearby cinemas). The few remaining staff were not interested to help and simply dismiss the people they were supposed to serve by saying they could come back another time.

   If you read any government department’s functions and objectives, they are actually good; whether those are properly done and achieved is another matter. My conclusion: the no. of government employees can be reduced to at least 50% of its current no. without any effect on public service. The government should even explore the possibility of privatizing the Bureau of Customs and BIR – the two most notorious government agencies in terms of corruption.

   In a similar vein, the number of public officials (from senatongs up to congress representathieves – pun intended) also grew heavily over the years. In our own small province for example, we used to have only one representative; now, they broke down the province into 3 districts with 3 representatives (done during the administration of Arroyo). Add to that the useless, so-called party-list representatives – and you have hundreds of useless representatives debating and arguing about what should be our national ‘dish’ and similar inanities while draining billions of precious funds from public coffers. One can probably still ignore their uselessness; but their misuse and stealing of public funds make both houses in their present state intolerable. The problem is who could really make any change? These dishonorable people are in charge of the honorable job of legislating our laws. They maybe dumb, but not dumb enough to legislate a law against themselves. So there, we’re still at a dead end…

6. thanks for the research MM! you make it look so easy (just like cooking, flower arrangement, Christmas tree decoration, and all your other talents ;).

   incidentally, it’s technically not illegal for them to charge “extra” for the receipt. after all, the “extra” is precisely going to (have to) be paid as tax. receipts are monitored by the BIR, so once they issue one, it’s that much more difficult to evade tax–and they’ll pass that on to the customer/patient, because it’s not like they’re going to voluntarily dig into their own profits for that, right? so in essence, if the customer/patient REALLY wants “them” to pay the correct taxes, the customer/patient should pay the “extra” cheerfully and willingly.

   it sounds like i’m defending the practice, but i just intend to explain what i know of it and let others form their conclusions if they like.

   frankly–and i’m an employee myself–sometimes it seems the anger over these professionals/self-employed not paying the correct taxes is a form of anger because “if *i* can’t get away with it, neither should you.”

   all in all, though, if we had a better government than this, i’m sure there would be a lot less of that dogged determination to dodge taxes.

7. Tax evaders are tax evaders regardless of their occupation so doctors should not be singled out

8. I used to get mad at other people skirting “the law” and not “paying their fair share” in taxes. But back then I was not very wise about how the world works and was only aware of what was in my immediate vicinity.

   Now, after a more than a decade of being an employee, I can see that it is hard to get mad at another person for not “paying their fair share” in taxes.
   One reason is because you can easily see that what you pay in taxes isn’t used productively; only the corrupt officials are the primary beneficiaries of taxing your hard work.
   Another reason is it is hard to get mad at my suki at the palengke or those selling bric-a-brac at a tiangge or the sari-sari store owner. I consider “poverty” to be quite a handicap; being under privileged is already taxing as it is (yes, pun intended).

   With that said, doctors are another matter. The only reason that they are getting away with not paying the proper tax is because the tax/income reporting laws are not strict enough or not enforced properly.
   Then there’s the matter of bribing. It is not a far stretch of the imagination that you could bribe a BIR official so that they won’t be so thorough in their scrutiny of your tax paperwork.

   If BIR is hurting for “revenue” to fill the government’s coffers, they better clean house first.
   I think the Bible had something to say about that: “And why worry about a speck in your friend’s eye when you have a log in your own?”

   I think that one of the reasons why our broken tax system and corrupt government persists year after year is because we as tax payers are so distracted about others “not paying their fair share of taxes”. We’re quibbling over little details when there are bigger problems to identify and address.

   Maybe we should try “tax transparency” as a first step in fixing the problems plaguing our country?
   https://blogs.telegraph.co.uk/news/danielhannan/100150768/if-tax-transparency-turns-us-into-scandinavians-so-much-the-better/

   One of the reasons corruption persists is because it is hidden; people have an idea that it happens and that it exists but without actual numbers to point to, officials can just dismiss the public’s doubts as unsubstantiated speculation.

9. Oh and another thing about “the law”.
   The law only makes things legal. Not fair or moral. Just legal. So tax loopholes can be written into law which makes plundering legal if you have enough money and the right people to use the law to their advantage.

   I used to get confused and distracted by what’s “legal”. Now I think about what’s fair and moral. The system has been broken for a long time. Why quibble about what is legal or not? Better to put your efforts to enacting change to make what it fair and moral “legal” at the same time, rather than envy your neighbor for skirting the law.

10. Honestly, I am aghast when I see these statistics of people who do not pay their taxes and for those who do, the amount they pay. I am a salaried worker whose tax deductions happen before I even see my payslip. Do I agree with the sweeping vilification of doctors, lawyers and other professions? No.

    If the BIR wants to go after tax evaders, I applaud them wholeheartedly. I just hope they are diligent in this and do not generalize.

    Proper usage of our taxes though is a whole different issue altogether.

11. One thing I am irritated about is that filipinos keep on complaining. When Magellan first landed on Mactan, I am pretty sure the natives started sizing up their advantages and disadvantages. And you know what, we are still complaining today – the BIR, the slow gov’t service response, bloated bureaucracy – truth is we will never be a center forward if we stand 5’4 in an economic or financial basketball game where the smallest global player stands 6’3…so why do we keep complaining is beyond my ability comprehend ! I mean get used to it ! And I mean this in the most reaching out way.

    We are ahead of Nepal but behind Thailand and that says a lot. In research done by Malcolm Gladwell, he theorized that a biblical David beats Goliath by creating his own rules. In other words, our beloved Pinas has been too busy catering to global trends and as a result prompting its very own – you and me – to do the same. Ergo, that’s why we don’t succeed. Because we are too busy following global rules. Case in point is Jollibee. Ok cge…

12. Most have probably already moved on from this post since it is more than a few days old. But I have some other thoughts that need to be put down in words.

    “Proper usage of our taxes though is a whole different issue altogether.”
    Many cannot see the forest for the trees.
    If water were currency and the tax collector is using a leaky bucket to collect 15% of your water, would you comply?

    But then again, I don’t think most people who do not pay their “fair share of taxes according to the law” are actively conscious about how taxes are wasted when they actively avoid paying taxes.

    https://en.wikipedia.org/wiki/Panopticon
    The Panopticon is a type of institutional building designed by the English philosopher and social theorist Jeremy Bentham in the late 18th century. The concept of the design is to allow a single watchman to observe (-opticon) all (pan-) inmates of an institution without them being able to tell whether they are being watched or not. Although it is physically impossible for the single watchman to observe all cells at once, the fact that the inmates cannot know when they are being watched means that all inmates must act as though they are watched at all times, effectively controlling their own behaviour constantly.
    […]
    The Panopticon is an ideal architectural figure of modern disciplinary power. The Panopticon creates a consciousness of permanent visibility as a form of power, where no bars, chains, and heavy locks are necessary for domination any more.

    If it were not for the dissenters that do not blindly follow we would probably have never experienced revolution or even imagined a change to the status quo.

    I too am a salaried employee that has little choice in the matter of taxes. And I envy those who, effectively, are able to vote with their wallets.

13. Have to bookmark this page. Lots of useful information