Tax leaks

During the heated discussions on TRAINS 1 and 2, many were saying the government should concentrate on plugging tax leaks before imposing new taxes.

To be fair, both TRAINS are not solely about increased taxes. The more important objectives have to do with reforming the tax system to make it more effective and equitable.

For instance, the tax system was made somewhat less regressive. Lower wage earners now get larger deductions and even exemption from paying any income tax.

The so-called bracket creep caused by rising inflation that is not reflected in the amount of income tax we have to pay was somewhat addressed.

Also addressed was the inheritance tax that was decreased to a flat rate of six percent. The previous higher rate made it difficult for those with ordinary means who are inheriting from deceased parents to transfer ownership of the family home, among others.

But the effect of TRAIN 1 on fuel prices produced the greatest outcry. It was bad timing.

The increase was contemplated when world oil prices were going down. But the law took time to pass and by the time it became effective, world oil prices were on an upswing. A double whammy was felt by ordinary consumers.

Taxing fuel is the easiest way for government to collect taxes. That explains why past and present administrations like it. But it is not fool proof.

Fuel smuggling is rampant. An estimated P60 billion in taxes are lost to fuel smugglers.

The response of government is to introduce fuel dyes, supposedly to make it easier to catch fuel smugglers. But they are introducing the dyes through the major oil companies which are not prone to smuggling and are already so closely monitored by tax collection agencies.

If DOF is serious about collecting the taxes they are missing, they should first mark the fuel that passes through the known smuggling havens such as Subic, Phividec, and private tank farms and terminals, as well as other free ports. Otherwise, the fuel dye project will not produce the lost revenues due to smuggling.

Then there is something else that we learned late last week. A government taskforce found out that some P22 billion in income taxes are not being collected from foreigners working at Philippine offshore gaming operations or POGO in the country.

According to GMA News, an inter-agency taskforce composed of the Department of Labor and Employment, Bureau of Immigration, and PAGCOR discovered the tax leak. I have raised this question before. I wondered if the POGO workers are paying income taxes.

I heard that establishments catering to the Chinese POGO workers are using Internet-based payment platforms to pay for goods and services. These include WeChat Pay and AliPay based in China. These establishments are also being paid in China, and most likely are not paying proper taxes here.

It is easy to assume the workers are paid through their accounts in China and are probably given a modest allowance in pesos. I remember raising this question to a high government official and was assured they are able to collect proper taxes.

In an exchange with a high ranking DOF official in one of my Viber groups, I asked: “Isn’t it automatic for employers to withhold tax due? Why were the POGO operators not doing it? And since they are so visible, why didn’t the BIR notice?”

The official responded: “Because they hide in ecozones where it is tax free. And ecozones include some 500 buildings.”

I replied: "Are employees of ecozone companies tax free? I don’t think so."

The official replied: “Nope. Harder to catch if the firms don’t register and hide in ecozone.”

I didn’t buy that response: “But all POGO companies are registered by Pagcor which I believe is a government agency reporting to Malacañang. Is it wrong to assume that the BIR and Pagcor should be working together as a team?”

The official gave a response I don’t understand: “I don’t think all are. They are that’s why the news of full of them now.”

So I responded: “I don’t understand. POGOs register and pay Pagcor for the privilege of operating here. Pagcor is their regulator. Unless the law says their payment to Pagcor is in lieu of taxes, Pagcor and the BIR are duty bound to collect income and other taxes.”

I got no more response. End of conversation.

It is clear to me that the official couldn’t give a reasonable excuse for this failure to collect income tax from the POGO workers. I don’t want to assume they turned a blind eye as part of the Duterte administration’s hospitality to everything China.

But why are they so strict with Filipinos who religiously pay taxes and let oil smugglers and POGO workers go tax free?

Question is, what will they do now. Will they collect back taxes? Will they penalize the POGO operators for failure to withhold taxes? We know the BIR is merciless with Philippine companies in similar situation.

Government has no valid excuse for this failure to collect income taxes. POGO is big and the increasing number of Chinese workers is very visible. Indeed, the government taskforce found out that POGO companies employ over 76,000.

More than 82 percent of the workers are foreigners, over 56,000 of these workers are Chinese.

Pathetic quote from the labor secretary which betrays how much government ignored the situation:

“That’s what we want to find out. Who are these foreign nationals and what have they been doing,” Labor Secretary Silvestre Bello said.

“If they've been working, were they provided AEP (alien employment permit)?” he asked.

According to the DOF, the BIR found out that the Chinese POGO workers earn 10,000 yuan or P78,000 monthly. The government agencies are still trying to find out how foreign POGO workers had been able to avoid paying taxes.

Hay naku!

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter@boochanco