Franchise tax on telecom firms eyed

Instead of imposing a new tax on text messages, legislators want the restoration of the franchise tax on telecommunication companies instead of the value-added tax on telecom services.

The Department of Finance (DOF) said it met with legislators last week to discuss the controversial tax on text messages, exploring its chances of ever making it through either house of Congress.

Finance Secretary Juanita Amatong, however, said legislators were opposing the tax on text messages considering the huge public outcry that the proposal has generated so far and would generate as debates heated.

"We just called the meeting as a kind of informal consultation," Amatong said. "If the executive is going to push for this in Congress, we have to know what its chances are."

Amatong said that based on the initial feedback, legislators would rather revive the franchise tax and increase the rate rather than legislate the text tax.

Amatong explained that the franchise tax was the duty paid by telecommunication companies and other holders of franchises on top of the usual corporate income tax.

The tax rate when it was applicable was five percent of the total gross sales of the franchise holder. When this tax was replaced by the value-added tax, the tax rate was raised to 10 percent.

Amatong said legislators were more inclined to replace the VAT with the franchise tax and just raise the rate from five percent to whatever level would help generate the commensurate amount of revenues.

The franchise tax, however, was less efficient than the VAT.

Since the government has already conceded to remove the VAT on financial transaction and restore the gross receipts tax (GRT), Amatong said there were opinions that the same could be done for the telecommunication sector.

Regardless of form, however, Amatong said the Arroyo administration would have to increase its tax revenues through a new tax package that would include the controversial new tax on text messages.

Text messages using the short messaging system (SMS) are already lumped together with other telecommunication services provided by service providers and are covered by a uniform 10 percent VAT.

Since SMS messages are already covered by the VAT, sources said the proposed tax on text messages are currently classified as a possible excise tax, a form of taxation intended to discourage the use of certain commodities such as alcohol and tobacco.

The telecommunication industry has been the fastest growing industry in the last five years and the country’s creditors including the International Monetary Fund (IMF) have been urging government to cash in on this growth through new taxes.