Beyond Taxes

The second of two parts on Tax policy and public revenue generation. This article was originally published in the Manila Bulletin on 24 April 2005, after the passage to the Revised Value Added Tax bill in the Senate, and prior to its submission to the joint legislative committee of the House and the Senate. The Senate version incorporated many of the recommendations of the first article in this series.


Consumers' Post
Ethel Timbol

The government fund drive

BEYOND TAXES. It's April 24, a week after the Annual Deadline for Tax Payments. I hope everyone filed their proper taxes and didn't try too hard to exploit loopholes.

Kudos to the Senate for retaining the existing VAT rate and focussing on removing exemptions.
As we've said before, the VAT system is a chain, whose integrity must be assured to be effective. Raising the rates in a system full of loopholes merely increases the rate of tax avoidance.

And enough with those investors threatening to leave the country if they don?t get tax exemptions. If they can't run a viable business like the 99.999% of the economy that isn?t tax exempt, perhaps it?s better they left. Hasta la Vista, Bobo!

The Executive says it still needs an estimated R60Bln to bridge the budget gap. With such a huge and troublesome deficit, it should look beyond taxes into other sources of substantial revenue.

Are there other ways for the government to raise revenues outside taxes?

Radio Spectrums, Transportation Franchises, and Government Lands are all part of the national patrimony, entrusted to government by the Constitution.

Like any good company, it is the govern-ment's duty to manage these assets to maximum advantage for its coffers.

Radio spectrums are used by both government and private entities for broadcasting and communications. AM & FM Radio, broadcast TV, Two-way radio, and cellular phones all use parts of the radio spectrum.

In the Philippines, use of these parts of the radio spectrum are awarded through a system of congressional franchises. Under this system, the right to use a part of the radio spectrum is granted through a congressional bill.

While government does not get any money from the granting of the right, one wonders how much "persuasion" it takes to approve a franchise.

Compare this to other countries where parts of the radio spectrum are auctioned off to the highest bidder.

No lobbying, no backroom deals, it?s simply he who gives the most money directly to the government treasury gets the right to put up a radio station.

Perhaps the government should consider auctioning off new broadcast radio frequencies to generate funds.

There is certainly no technical reason why we can?t have more radio stations in the AM & FM band, for example, since other cities have many more stations than we do in Metro Manila.
Same too with communications bands. When the Europeans opened up the 3G cellular bands, the auctions generated billions of dollars for the governments.

BILLIONS of dollars!

That?s how much companies are willing to pay for the right to run 3G cellular services, and that?s enough to wipe out a significant portion of our foreign debt.

Another potential money maker is transportation franchises.

In modern cities, such as New York, London, Hong Kong, and Singapore, taxis are authorized not by a franchise, but through a medallion system. A number of medallions, determined by market need, are auctioned by the regulators each year.

As a result, the government gets higher revenues. A side bonus is that with medallions costing more than the vehicle itself, operators ensure that their drivers are disciplined and follow the rules lest the regulators confiscate their costly medallions.

Another bonus is that there are more routes, and that the routes are up to date, not holdovers from the pre-WWII era.

In other countries, regulators annually review the bus and minibus route network. Whenever it is determined that a new route is required, the government, you guessed it, auctions off the right to operate these routes to the highest bidders.

There is a check and balance here, because if the authorities create a useless route, no operator will bid for it, and the government won?t get any money.

If you?ve been to Hong Kong, or Singapore, or London, you?ve probably admired the marvelous road system of elevated highways, flyovers, loading bays, and so on.

An interesting tidbit about these road systems is that taxpayer?s money is not used for the development of these advanced roads.

Taxes are used for education, police services, and the running of government, but not for the construction of freeways. The road network is financed in other ways, as it is their view that the cost of road construction should not be bourne by non-road users.

A road user?s tax is a component of road financing, but the primary component, quite interestingly, is REAL ESTATE. Whenever the governments in these countries build a highway, it makes sure it owns much of the land through which the highway passes.

Once the highway is built, it then auctions off the land to the highest bidder, usually a property developer who can add the most value to the property, because it also increases the value of remaining lands the government still owns.

Through this cycle of building highways, selling alienable land to the highest bidder, these governments are able to build extensive road networks that enhance the productivity of their economies.

By managing the sale of property assets, governments are also able to manage urban development, encouraging development in areas with greatest need, and stabilizing property prices (much to the relief of banks) by releasing more land when prices are high.

Like it or not, the nation is in an extraordinary crisis. There is a massive public sector deficit that needs to be addressed.

Extraordinary problems require extraordinary solutions beyond taxes.

Perhaps the national government should look at examples set by Local Government Units. Because LGUs tax powers are limited by law, LGUs have been creative in finding alternative means to raise revenues.

Parking fees, event rentals (e.g. city stadiums), and co-development projects (commercial areas and low-cost housing on LGU land) help LGUs generate funds for services to its constituents.
Taxes are like toll fees, there is only so much one can charge before people start looking for alternative routes (i.e. tax evasion).

The examples cited earlier are just some of the potential revenue earners the National Government has at its disposal. There are others, but government needs to think outside the box and expand beyond "toll collection."

Like any well managed company, the National Government should generate operating revenues from wise management of assets, so that it taxes less, yet obtains the resources it needs to provide services to its people.

by ALEX S. TIMBOL, president of Maccess Corporation, a management consulting firm that helps companies think outside the box.