Tax Reform or Eradication of Corruption?

tax reform

This week the political beat centered around the question of tax reform. The Arroyo administration wants to increase tax measures in order to reduce the fiscal deficit of the government.

In any normal operation, one has to increase income in order to avoid bankruptcy. But the Philippine government is anything but normal. It has a deep credibility and legitimacy crisis. It is riddled with problems, with inefficiencies, lack of focus and vision, and most of all, plagued with corruption. Would you willingly give more money to somebody knowing that you will never be fully served and that money will only go to more and the same corruption?

Just this week, BusinessWorld reported that the Department of Budget and Management calculated that almost P400 billion pesos of the budget government budget is lost through corruption. Almost half of the government budget is lost through corruption. So unless the government radically addresses the problem of corruption, then we should expect almost half of the income generated by the new tax measures to be lost to corruption.

Just think of the now so familiar stories. Customs officials pocketing a large share of customs duties. I know. They tried to squeeze blood money from me. That is, until I showed them the true custom duties for the goods I was importing by citing the appropriate law.

Or just think of your newly constructed highway. After a few years and close to a billion pesos later, half of the road is destroyed because contractors did not follow the technical specifications for the road. Instead they paid a share of the budget to a key government official whose signature would mean money for them.

Through these and other similar stories, our country has earned the dubious distinction of being one of the most corrupt countries in the world, number 11, to be exact. Yet, this is only part of the picture.

Many corporations are not paying their taxes. Estimates range to a low 40% to a high 68% of corporations not paying their taxes satisfactorily. This means that the tax burden is shouldered mostly by the middle and upper lower class through direct taxation like value added taxes or VAT.

In the end, what is needed is not tax reform. What is needed first is a radical anti-corruption campaign to stop the bleeding away of the financial lifeblood of the government. Then and only then, with corruption under control, can there be a meaningful discussion about tax reform. Absent this necessary pre-requisite, tax reform will simple become another source of illegal money for corrupt government officials, money obtained from the sweat and tears of honest Filipino workers.