Press Release
January 29, 2008

CHIZ SAYS '08 BUDGET HINGES ON PLUGGING TAXES, ANTI-SMUGGLING

The P1.226 trillion national budget this year hinges on the ability of the government to finance it through revenues, a key element of which is "the capture of tax lost to smuggling", Sen. Francis Escudero said today.

"Budget funds can only flow if tax leaks are plugged", Escudero, chairman of the Senate Ways and Means Committee, said.

"Money for projects will not be plucked out of thin air but will be picked from the pockets of taxpayers. In public expenditure, it is easy to spend; it's raising the money that is the hard part", he said.

To finance the P1.226 billion spending measure, Escudero said government must raise the corresponding amount in tax, plus P10 billion more, as the total cash budget of the government for the year is actually P1.236 billion.

The P10 billion is the projected cost of the planned 10% hike in the basic pay of 1.1 million national government workers that will take effect July. This amount, while factored in this year's public expenditures, was not included in the budget. "This means that government must raise an average P3.386 billion daily to finance its operations", Escudero said.

The burden of raising this amount will fall on the two leading revenue agencies: Bureau of Internal Revenue, which has a collection goal of P844.9 billion, or 68.3 % of total, and the Bureau of Customs, whose assigned target of P254.5 billion makes up 20.6 % of overall, or a combined P1.099 trillion.

The rest - P136.8 billion - will be picked up by fees and charges, privatization proceeds and non-other tax revenues (P127.43 billion) and "other taxes" (P9.46 billion).

While the BIR and BOC goals, which collectively form the tax effort or the portion of the Gross Domestic Product that is captured in tax - appear daunting on paper, the tax effort for 2008 is 15.2 % , which is lower than the nearly 17 % posted in 1997, "in the pre- R-VAT days", the neophyte senator added.

For the BIR , the challenge , therefore , is to stem the 68 % tax avoidance rate from non-fixed income earners , the 33 % tax avoidance rate on VAT, and the 38 % tax avoidance rate on corporate taxes, Escudero said.

An estimate made by the National Tax Research Center showed that foregone revenues on the above reached P127 billion a year from 1998 to 2002.

On the Customs front, Escudero said Aduana officials should focus on oil smuggling, "oil being an easy-to-tax commodity", which is evident on the 2.734 billion liters disparity between domestic petroleum products used last year and imports recorded by the BoC.

According to the BOC, domestic removals and importation of oil-based products reached 13.81 billion liters in 2007 while Department of Energy data showed local consumption of 16.54 billion liters.

"At an average four-peso VAT and tariff on a liter of finished petroleum product, the foregone revenue is about P11 billion, "he said.

Escudero said it should not be hard to monitor oil smuggling as they are brought into country in tankers, "some as big as department stores. Hindi naman yan tinatago sa bulsa."

"But oil is just the tip of the iceberg. Tiles, food, garments and many more are wantonly brought into the country, too, "Escudero said.

On electrical and electric equipment alone, one study placed at $1.57 billion dollars the trade leakage incurred every year from 2002 to 2005; plastics at $231 million; vehicles at $289 million.

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