Seeking virtue in 'sin taxes'

Raul C. Pangalangan Philippine Daily Inquirer Asia News Network Manila

Faces with a gaping budget deficit of almost 200 billion pesos this year, the government is boldly seeking to revive its plan to impose "sin taxes" on alcohol, tobacco, and -- quite audaciously -- cellular-phone text messaging. While excise taxes have been levied traditionally to discourage the use of certain commodities, an unnamed finance department official says that it can be levied as well on "texting."

It is not a necessity, he argues, especially the "texting" of jokes, and it needlessly "clogs the system and encroaches on what are supposed to be productive working hours." The Philippines is the "texting capital of the world," with an estimated 10 million messages sent daily by 14 million cellular phone users, all Olympic medalists in using what they call abroad "SMS" or "Short Message System."

The plan was first hatched by former secretary of finance Jose Isidro Camacho, who proposed a 0.10-peso levy on each one-peso text message, arguing that this tax was easy to collect and difficult to evade, because the cellular service provider itself would serve as the collecting agent. Congress aborted the plan however amid portents of a massive thumbs-down from 14 million expert thumb users.

Not surprisingly, the telecommunications giants protest. Philippine Long Distance Telephone Co. says the tax penalizes an industry that has contributed to an economy perennially gasping for breath.

The telecom companies are among the biggest spenders on advertising, with Globe Telecom and Smart Communications ranking seventh and eighth among the top advertisers.

Globe says a tax on text messaging is "double taxation" because the excise tax is imposed on top of a 10-percent value- added tax (VAT) already levied. Not quite right, since there is double taxation only when the same tax is levied on the same party for the same purpose.

The excise tax is different from the VAT and, for that matter, from the corporate income taxes already being paid by the telecommunications companies.

Senator Manuel Villar Jr., chairman of the Senate Committee on Finance, has declared war on the "sin taxes." He blames finance officials for "finding convenient and easy means of raising ... revenue" without having to clean up their act, and has urged them instead to just improve tax collection. A consumer group has vowed "to slay this monster once and for all."

On the other hand, the unnamed finance department official has argued that it is the "government's inherent right to impose taxes." That is a nice legal argument, totally correct but also totally useless. It is a fundamental principle of law that the power to tax inheres in the power of sovereignty. Nobody contests that.

But the argument by itself cannot save the day for a proposed tax measure. Just listen to the dissenting justices in Tolentino v. Secretary of Finance, who acknowledged that principle but nonetheless voted against the majority who upheld the VAT law.

With rising fuel prices, this is the worst time for new taxes. But given that government is in dire straits and seems hell-bent on the plan, how can government make sin taxes more palatable?

First, sin taxes must be earmarked for specific social justice measures. For starters, all taxes collected from text messaging must be dedicated by law to augment -- not replace -- the budget for public education.

The government expects to earn 365 million pesos for every 0.01 peso of tax on text messaging every year. Blame me for counting the chickens before they hatch, but at 0.10 peso per text message, that would be an additional 365 million pesos in fresh money.

Think of what 365 replenishable millions of pesos could do for the next generation. (Similarly, new taxes on alcohol and tobacco should go straight to public health programs.) To those who have long bartered their souls to the devil, this is their golden chance to buy them back.

The Constitution already provides for special levies, but there remains an even more formidable hurdle: Winning the people's trust.

How sure are we that the 365 million pesos will actually go to the children, and will not be pocketed by public officers in cahoots with the contractors? I have been advised that an education levy will flounder in Congress because it does not provide enough opportunities for kickbacks and payoffs, since, apart from building classrooms, education does not yield enough rent-seeking "billable moments."

The next step therefore is to ensure utmost transparency and accountability in the spending of the special fund. Sure the Constitution contains built-in checks-and-balances, but "built- in" equals "in-bred." Who is fool enough to believe that these checks will suddenly work with the 365 million pesos?

Rather we must enlist a respected board of private citizens as the government's overseer for the special fund. It will take an honest government to collect taxes well, I agree. But our conditions are too desperate for us to wait for that distant time when we will have a government of angels.

While we await the promise of a new millennium, earmarked levies should provide for the least of our brethren, help to tide them over until the next paycheck; and their children, until the next tuition fee installment. In doing so, we do not merely help them keep body and soul together. We nourish their dreams, and give them hope in a future that belongs to all of God's children -- including their own.