One headline-grabbing but otherwise alarming piece of news courtesy of the Taxman is the recent arraignment of the Pacman for contempt due to his failure to submit tax documents relating to his assets and income. Headline-grabbing because Pacman is a national treasure and one of the biggest individual taxpayers of this country and alarming because what they have done to the Pacman they can very well do unto you and me for as long as you and me are earning money.
The tax suit can only be fittingly described as scandalous and unconscionable, one that qualifies only as being more immoral than the crime it purports to foil. With the Taxman's desperate creativity, it can surely find legal basis for its action but that legal basis stands on loose moral grounds. Here is why.
The Pacman was born in this country dirt poor to parents struggling to survive every hungry day. Despite all the hardships, he boxed his way out of poverty and getting all the physical punishments in return while doing odd jobs in between that formed the early foundations of the Pacman's legendary status. With Divine Providence or not, Pacman fought to survive and survive he did plus a lot more than anybody in this country had ever done before. When he was poor and struggling, not a shadow of government support was ever extended to him because he was then an insignificant nobody, unworthy of any attention that the government and his Taxman now so lavishly but unduly giving him these days. But now, the Taxman suddenly sounds like a long lost relative who salivates after the Pacman's riches.
Pacman's story echoes on the multitude of individuals in this country who managed to survive and became successful despite the absence of government assistance or lack thereof when it was most needed. The same is true with start-up businesses that do not enjoy any government-sponsored perks and privileges such as those in ecozones but were otherwise taken advantage of and made doing business difficult by government factotums down to the Barangay level. But when they become big and successful, expect the Taxman to bully them for the government's much "undeserved" share of the income pie.
The point dear Brutus is that government does not have any moral basis to grab part of your hard-earned income and claim it as its own. Income taxes (and VAT) are despicably loathsome form of government extortion and must be disemboweled from its system of raising revenues.
It is fairly understandable to worry about how government would be able to continue financing and sustaining its various economic and social agenda if income taxes and VAT were abolished. With income taxes and VAT accounting for about 30% to 40% of government revenue, the loss from the abolition of income taxes and VAT will certainly render government ineffective if not irrelevant. Of course, this is not the objective. The objective is to make taxation equitable and voluntary. Is this possible? Let us rethink taxation.
In lieu of income taxes and VAT, the government must levy only Final Production Taxes and Final Consumption Taxes. Final Production Tax means that those manufacturers producing intermediate outputs shall not be levied a tax and only manufacturers that produce the final output that are not further processed, transformed, or converted into another output shall be taxed whether such final output is used for industrial, commercial, or personal consumption. The rationale for this is that if we look at one assembly line composed of different processes that is owned by the same entity, only the final output is taxed. Now, if these different processes are owned by different entities the same principle must be applied for these different entities though operating separately are actually part of one assembly line. As for the Final Consumption Tax this means that you will not be paying a tax for something that you will be using to further process, transform, or convert into goods. Only those that will be consumed without further processing shall be taxed.
Now how will these compensate for the loss in income taxes and VAT? And how will this be equitable and voluntary? The second question is easy. It is equitable and voluntary because you simply produce and consume those goods and services that you are willing and capable of paying for. If you do not want to pay the tax, you simply do otherwise. Easy right? Not only that. The bonus is that this will result to the efficient allocation of resources as households and individuals shall have better control of their income as well as their future.
The second question is difficult but certainly doable. Firstly, we have to determine an input-output matrix and then determine which of these final output shall be levied higher tax rates. The same with Final Consumption Tax. We have to determine which of the final goods and services shall be levied higher tax rates. Theoretically, if the demand for and supply of final goods and services are not sensitive to higher prices, then these goods and services shall be levied higher consumption and production tax rates. Then there is the multiplier effect arising from higher personal disposable income as well as lower production cost coming into the picture (see previous blogpost). If we do the math right, we shall be having a better economy and well-being in this country as well as a stock market that will be soaring higher than ever. But of course, first thing first. The government and its people have to have the political will to make this happen.
In lieu of income taxes and VAT, the government must levy only Final Production Taxes and Final Consumption Taxes. Final Production Tax means that those manufacturers producing intermediate outputs shall not be levied a tax and only manufacturers that produce the final output that are not further processed, transformed, or converted into another output shall be taxed whether such final output is used for industrial, commercial, or personal consumption. The rationale for this is that if we look at one assembly line composed of different processes that is owned by the same entity, only the final output is taxed. Now, if these different processes are owned by different entities the same principle must be applied for these different entities though operating separately are actually part of one assembly line. As for the Final Consumption Tax this means that you will not be paying a tax for something that you will be using to further process, transform, or convert into goods. Only those that will be consumed without further processing shall be taxed.
Now how will these compensate for the loss in income taxes and VAT? And how will this be equitable and voluntary? The second question is easy. It is equitable and voluntary because you simply produce and consume those goods and services that you are willing and capable of paying for. If you do not want to pay the tax, you simply do otherwise. Easy right? Not only that. The bonus is that this will result to the efficient allocation of resources as households and individuals shall have better control of their income as well as their future.
The second question is difficult but certainly doable. Firstly, we have to determine an input-output matrix and then determine which of these final output shall be levied higher tax rates. The same with Final Consumption Tax. We have to determine which of the final goods and services shall be levied higher tax rates. Theoretically, if the demand for and supply of final goods and services are not sensitive to higher prices, then these goods and services shall be levied higher consumption and production tax rates. Then there is the multiplier effect arising from higher personal disposable income as well as lower production cost coming into the picture (see previous blogpost). If we do the math right, we shall be having a better economy and well-being in this country as well as a stock market that will be soaring higher than ever. But of course, first thing first. The government and its people have to have the political will to make this happen.
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