Soak the rich?

The privileged one percent need not lose sleep over proposals to impose a wealth tax.

The incestuous marriage of family wealth and politics in this country guarantees that any such measure will be DOA, dead on arrival, at just the committee level at the House of Representatives, where even party-list representation has been taken over by the uber-rich.

In the unlikely event that a wealth tax hurdles the Congress obstacle course, the Formula One-loving multibillionaire jetsetter at Malacañang is unlikely to put up with it.

Oxfam International, during last month’s World Economic Forum in Switzerland, urged governments to impose a wealth tax on the richest one percent of their respective populations to narrow the yawning income gap in many countries.

Good luck taxing the segment that can also afford the world’s most expensive accountants.

Many of the world’s one percent know enough to park their wealth in offshore tax havens, exploiting gray areas in international finance that can make the practice legit if challenged.

You can check out the Panama Papers of 2016 and Pandora Papers in 2021, put together by the non-profit International Collaboration of Investigative Journalists with local groups (in our case, the Philippine Center for Investigative Journalism), for the Filipinos with such offshore accounts.

Those hoping to get the super wealthy to share more of their money with lesser mortals should just push the Bureau of Internal Revenue (BIR) to do a better job of collecting the proper taxes, from personal income to corporate to estate.

For riches sourced from corruption and other criminal activities, the BIR can intensify its collaboration with the Anti-Money Laundering Council (AMLC) to go after unexplained wealth.

Much of unexplained wealth in this country, however, can be traced to politics, so this effort can be carried out only if professionals in the BIR and AMLC can withstand political pressure.

Wealth tax proponents are realistic enough to manage their own expectations, and are instead pushing for a tax on luxury goods, on top of existing value-added and other taxes.

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To simplify the definition of a luxury item, the proponents have set retail price ceilings beyond which a commodity or service will be covered by the luxury classification. Nope, you naughty folks, onions, sugar and eggs are excluded.

Classifying luxury is easy for certain categories such as motor vehicles (priced above P5 million), residential properties sold for over P100 million, traded artwork costing over P100,000, private jets, fragrances and wristwatches. The proposed tax will be on top of a 20 percent tax on non-essential items such as jewelry, perfumes, yachts and other vehicles meant for sports or pleasure.

But classifying luxury can be tricky for other items. For beverages, for example, one bottle costing over P20,000 will constitute luxe under the proposal. That means you can still enjoy, luxury-tax-free, certain bottles of Dom Perignon (lowest price online as of yesterday, P15,900 for Vintages 2006 and 2010) plus many of the Moet & Chandon champagnes, but not Joseph Estrada’s favorite red wine, Petrus (from P29,800 to P379,000 a bottle).

For leather goods, the proposal will require more detailed itemization. The reports say only items priced above P50,000 will be classified as luxe. Definitely, Hermes Birkin handbags will be covered, and it will make sense; anyone who can afford to splurge on a handbag costing from $10,000 to $43,500 (one was sold for $400,000) can surely afford to pay a wealth tax.

But what about designer shoes costing up to P49,000 a pair? That’s quadruple the monthly entry pay of a nurse in many private hospitals. And if shoes priced at P90,000 go on sale for 50 percent – a common promo for upscale designer items in this country – will the luxury tax still apply?

Will non-essential services also be covered, such as cosmetic surgical and injectable enhancements? What about P6,000 haircuts?

Albay Rep. Joey Salceda is projecting P12.4 billion in additional annual revenue from the luxury tax.

Business groups have warned that it could reduce the country’s appeal as a travel destination. Shopping is among the top considerations when tourists pick the places they intend to visit.

Among the government’s answers to this, I guess, is to approve VAT refunds for tourists, to be claimed at the airport departure area. Such refunds have been around for a long time in several countries; the efficiency of the process varies. If this plan pushes through, let’s hope the claim process will be seamless, instead of being added to the list of minuses for Philippine airports.

But even with the VAT exemption, there will still be that luxury tax. In this age of globalized trade, those who can afford an original Birkin or Balenciaga handbag will likely just buy it when they travel to a country where the tax is lower and the item comes out cheaper.

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Economic analysts have stressed that more important than progressive taxation is a progressive fiscal system, under which tax is collected efficiently and used judiciously.

How our taxes are spent – the efficient utilization of public funds through good governance – can narrow income gaps.

For example, instead of constant gerrymandering to create new provinces and government positions that can be packed with beneficiaries of political patronage, bloating the bureaucracy and Congress, state funds should be redirected to sectors that need them most, among them public health care, education and agriculture.

The creation of a new province means building a new capitol with hundreds or even thousands of new officials and employees from the governor down to the janitorial staff (plus the congressional representative). The building contractor is often politically well-connected.

Consider the cost of setting up a new capitol, and then the monthly maintenance and other operating expenses for the office plus that of the new province’s congressional representation. How many public school classrooms can be built with that money, how many additional health services can be funded instead?

Sadly for our country, bloating the bureaucracy is our officials’ idea of job generation. When they redistribute wealth, they source it not from their own pocket, but from whatever is squeezed out mostly automatically, through VAT and withholding tax, from people who can’t afford top-tier accountants.