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| | | | | Republic of the Philippines | DEPARTMENT OF FINANCE | Roxas Boulevard Corner Pablo Ocampo, Sr. Street | Manila 1004 |
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Chopping the Elephant Piece by Piece |
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Jose Isidro N. Camacho |
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Private Sector Participation in Revenue Reforms |
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2003
| October 30, Manila -- Ladies and Gentlemen of the Management Association of the
Philippines:
First, I thank all of you for hosting today’s forum on “Challenging Business to be Proactive in Revenue Reforms”. Thank you, too, for serving public servants like us a delicious lunch (and if I may add) without asking for a favor in return. I would recommend that you savor the entire meal before you course by course, piece by piece, bit by bit. I understand some ladies are attracted to gentlemen who drive fast but eat slowly. Swallowing the entire dish can be fatal but taking in chewable cuts makes for an enjoyable and healthy meal - very much like crafting solutions to a wide menu of governance problems in both the public and private sectors.
Some commentators have described corruption in the Philippines as being aspirational and inspirational: that we, as a people, envy the glamour and power that corrupt money brings, instead of finding ways to eradicate it. Whether this is true or not, we do seem to have this uncanny ability to pretend that endemic institutional corruption does not harm us. We resign ourselves to the seemingly inescapable fact that is just the way business is conducted in these islands. And so we carry on with the daily pretension that nobody gets hurt if a peso that should rightfully go to government does not – either because of tax evasion by the taxpayer; or corruption by individual government officers; or corruption by both government officer and taxpayer.
But you, as sensible corporate leaders, know that corruption is bad for business. You know that what is bad for Philippine business is bad for Philippine society. Every peso government loses to tax evasion and to corruption in our revenue-generating agencies represents a peso we need to borrow. Every time we borrow, we pay interest. Each peso of interest we pay our creditors is a peso we take away from government’s poverty alleviation programs, from basic education for our public schoolchildren, from affordable shelter for lower income families, from infrastructure and communication, and from the battle for peace and order. These are the main building blocks of what we call a strong republic, a healthy and robust society, where each Filipino can fully realize his dignity and self-worth.
Only in four of the last eighteen years did our annual revenues exceed our annual expenditures. And it happened only because we auctioned off government properties. We are going to end this year with another deficit. While likely lower than last year’s figure, it is still about PhP 200 billion or about 4.7% of GDP. Two years ago, we estimated that we are losing a maximum of PhP 242 billion annually in uncollected taxes1. In the past two years, very little has changed to lower that estimate. What that estimate simply tells us is that if we are able to plug the leaks in revenue generation – leaks brought about by tax evasion and corruption - we would not be burdened as much today by deficit problems.
The Development Budget Coordinating Committee is committed to cut the budget deficit to zero by 2009. But that is not our end goal. Targeting zero deficit only means that we are aiming to be able to raise revenues to fund a belt-tightened budget without having to borrow. But for us to really eradicate extreme poverty; for us to provide all the classrooms, books and teachers for our public school children; for us to build the roads and bridges that our economy needs to grow; and for us to buy peace and order – we need to raise at least thrice the amount of revenues we are able to raise today.
The actual solutions in revenue generation and utilization encompass not only issues of transparency but tax and international trade policies as well. The correct approach is not to swallow the entire problem because it will choke us. But rather, to chop this elephant of a problem piece by piece. Inadequate revenue generation is a problem that has been passed on from administration to administration. But today, we have taken concrete steps to grab the elephant of a problem by its trunk…and to chop it piece by piece, bit by bit, into manageable portions.
Some examples: in a recent research piece, the Philippine Institute of Development Studies (PIDS), indicated that: “On the average, BoC tax effort dipped by 0.33 percentage point of GDP every year between 1997 and 2001 due to the planned reduction in tariff rates” (Manasan, 2002). Thus, we are now rethinking our tariff policy without retreating from our international commitments such WTO and AFTA. Similarly, PIDS pointed out that of the 2.3 percentage point decline in BIR tax effort between 1997-2001, 7% was attributable to changes in economic structures and 46% attributable to changes in tax policy. To address this the DOF has been persistent in its advocacy in Congress for the passage of a bill seeking the Indexation of so-called “sin” products. This initiative alone is expected to bring in around PhP 13 billion annually in new revenues. Congress recently passed the law rationalizing automobile excise taxes. As many of you are aware, the DOF and the BIR have been consistently issuing revenue regulations to implement provisions of the Comprehensive Tax Reform Program. We have also seeded initiatives that aim to rationalize fiscal incentives.
We need to rethink the incentives that we should give away in order to gain more economic benefits in the medium and long term. These are some of our modest initiatives that require more work to be done to bring them to fruition.
However, the same PIDS study revealed that 46% of the decline in BIR tax effort between 1997-2001 was due to increased tax evasion. I believe this trend continues today.
Allow me to momentarily wax philosophical: we cannot divorce ourselves from government because we, the people, are government. We elect its leaders, we pay the taxes that enable the State to function, we can uphold it if it suits us, and sometimes we bring it down if it
embarrasses us. That has been our love-hate affair with this entity called Government.
And so, the issue of revenue generation is not just a government job. Its success rests on the shoulders of the private sector, in equal measure as it does on your elected and appointed officials. Nowhere is this more relevant than in the area of reducing the prevalence of tax evasion and corruption in revenue generation.
The issues of tax evasion and corruption are both rooted in transparency. From the side of government, we are re-engineering the processes of tax and customs administration so that there will be less discretion on the part of BIR and Customs officials. The National Revenue Authority (NRA) bill now in the House of Representatives is part of this strategic view. It advocates for the establishment of a performance-based, semi-autonomous, accountable agency. But for this approach to work, the DOF needs the cooperation of taxpayers to promote transparency in their own ranks. Corruption in our revenue generating agencies happens because it makes financial sense to taxpayers to tolerate it and because some rotten eggs in the revenue agencies think nobody is going to catch them.
The “lifestyle” checks being conducted by the Department of Finance, in cooperation with the Ombudsman, have shaken this equilibrium. We have sent a strong message to corrupt revenue officials that we will hunt them down. We do not intend to postpone the solution. But these efforts must be sustained. We at the DOF are laying the foundations to institutionalize this initiative. Deterrence, through
investigation and prosecution of corrupt officials, will be the most valuable weapon in our arsenal to protect the revenues of government.
We must beef up this arsenal.
Transparency and corruption are flipsides of the same coin. Corruption thrives in an opaque environment. And when the de facto rules in doing business are not the same as those legislated, there are bound to be no winners - only big losers and small losers.
If business demands government to be accountable, then business must be itself accountable. If business wants corruption in the revenue agencies eliminated, then business must clean its own house. Unfortunately, as in many aspects of life, we cannot have our cake and
eat it too. But if, together, we chop the elephant into pieces, it will work.
The public-private sector initiative that I envision entails a commitment. Commitments are backed up by more than just an “I do”. A commitment entails putting something on the table – equity as it were, that is representative of one’s stake in any new and exciting venture. And what better way to measure the extent of your commitment than by putting up a private sector fund to combat corruption in the revenue agencies? Like any other partner in a partnership, government is ready,
willing and able to stake its own equity. I have recently proposed to the President the creation by executive order of a group within the Department of Finance to be called the “Revenue Integrity Protection Service” or R-I-P-S, which shall act as the investigative arm of the DOF
over matters that involve specific acts of corruption within the BIR and BoC. Recently, the Department of Budget and Management committed to release an initial amount of PhP 10 million for this initiative. The budget will cover the expenses of some specialized investigative
services, forensic accountants, and hotshot lawyers to match the enemies’ own hotshot lawyers. We are engaged in battle and are gearing up for the fight ahead. We want you to be with us in this fight.
Help government be of help. In the end, working with government to promote transparency and accountability makes good business sense. The Honorable Ombudsman Simeon Marcelo, Commissioners Willy Parayno and Tony Bernardo, and Assistant Secretary Noel Bonoan are with me today to provide us the details of how government has facedup to the challenge ahead. They will share their insights, their solutions, as well as the difficulties that they face in achieving our goal of clean and accountable government. They will provide the details of how to chop the issue of protecting government revenues into chewable solutions.
Thank you.
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