TO IMPROVE revenue generation in the country, a former government official has voiced her support for an increase in the value-added tax (VAT) rate from 12 percent to 15 percent, an increase in sin tax collection, and an improvement in the business climate to attract more investors.

"I'm for an increase in the VAT (rate to 15 percent), as long as income taxes are reduced," said Solita Monsod, a former director of the National Economic and Development Authority, during the 14th National Press Forum held last June 24 at Diamond Hotel in Manila.

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She said it was better to tax consumption, which is what the VAT does, than to tax earnings, which is what the income tax does, because the rate of avoidance of income taxes by non-wage earners is high and it is easier to monitor consumption.

In 1996, due to tax avoidance, the effective tax collection rate for those earning P500,000 a year and below was 29 percent, but for those earning more than P500,000 a year, it was four percent, she said.

A 'crime'

As for sin taxes, which refer to the taxes on alcohol and tobacco products, Monsod said, "It's a crime how small our sin taxes are."

She said the taxes on cigarettes should be raised.

"Any high tax will stop the young from starting (to smoke). The old are hopeless cases, so tax them, so revenues will go up," she said.

Monsod, a professor at the University of the Philippines School of Economics, said the House of Representatives and the Senate had passed good bills, but a "poison pill provision" was inserted at the bicameral conference, so that the 1996 prices of cigarettes were made the basis for the sin taxes, "except for the newcomers."

The country could also increase tax collection if it had more businesses to tax, but in 2009, the Philippines received only $300 million in net foreign direct investments (FDI).

Partly to blame for this low investment, she said, was the high cost of doing business in the Philippines due to corruption.

A reduction in corruption would not only lead to lower costs of doing business, it would also lead to better quality of infrastructure, which is what businessmen like, she said.

It has been said that contractors use substandard materials on government projects to contain their costs, as they also had to spend on bribes to government officials.


Corruption also drains the government coffers, she said, when "we undertake projects that are not necessary at all because maganda ang kita (the money is good for corrupt officials)."

Asked how the country could get more FDI, she said: "If investors see that there's really a change for the better, you'll be surprised to see that investment will come in."

Monsod said things aren't all bad for the Philippines.

It is no longer the basket case of Asia, but it still has a lot of work and catching up to do.

The economy grew faster during the Arroyo administration than other administrations, but poverty is still around.

From 2001 to the first half of 2009, the gross domestic product (GDP), which refers to the amount of goods and services produced by a country, grew an average of 5.2 percent a year, compared to four percent during the Aquino years, 3.8 percent during the Ramos years and 2.9 percent during the Estrada years, she said.

Poverty incidence was 30.1 percent in 1991 under Corazon Aquino, 20.5 percent in 1997 under Fidel V. Ramos, 22.3 percent in 2000 under Joseph Estrada, and 22.1 percent in 2006 under Gloria Arroyo.

But while the Philippines boasted of economic growth of 7.3 percent in the first quarter of this year, its neighbors Singapore and Thailand did much better, growing at 15 percent and 12 percent respectively, in the same period.

Monsod said that in 1965, the income of the average Filipino was 10 percent more than that of the average Thai. But in 2008, the average Thai earned 2.19 times more than the average Filipino.

This developed, she said, after Thailand's GDP grew much faster than that of the Philippines, coupled with the Thai population growing slower than that of the Philippines.

According to the Asian Development Bank, the Philippines and Thailand had about the same population in 1970, with 36.6

million for the Philippines and 35.7 million for Thailand.

But United Nations Children's Fund statistics show that by 2008, with a better population management program, Thailand had 67.4 million people, while the Philippines had 90.3 million.

Unicef said Thailand's population grew one percent annually from 1990 to 2008. Its GDP per capita grew at an average of three percent yearly during this period.

On the other hand, the Philippine population grew at a faster average of 2.2 percent yearly from 1990-2000, and 1.9 percent yearly from 2000-2008. GDP per capita grew at a slower average of 1.9 percent yearly from 1990-2008.