A tool for Financial Reforms in the Philippines Essay

Taxation is regarded as one among fiscal policies in governance. It plays a vital role in the development of a country. The ability to collect taxes is a core functions of an effective state. Taxes, if used properly, can promote economic growth and lessen income inequalities. For a country like the Philippines, it begins with the actuality that it provides the revenue needed to finance government activities. Thus, the traditional tax reform programs are premised mainly in generating more revenues to finance public expenditures1 Initiating tax reforms, however, are often difficult.

Taxation is often referred to as a classic case of a collective action problem. While government provisions of public goods can benefit everyone, the greater majority of the citizens would rather enjoy the benefits of public goods without contributing to the cost of providing them through taxes. This is the reason why there is no consistency for tax reforms, and there are very few lawmakers or legislators who would champion increasing taxes.

Moreover, the coercive nature of taxation and perceptions of corruption in government lead to little confidence by citizens that taxes that they pay are translated into public services.

Nonetheless, recent studies have shown that engaging citizens to tax debates and bargaining can be a more effective tax reform strategy. This role for taxation as a catalyst for more responsive and accountable governments and for expanding the state-citizens relations. However, is often overlooked. Contemporary study on taxation and development has found that taxation can strengthen state-society relationships with positive consequences for state and the extent to which governments are responsive and accountable top their citizens2.

In other words, taxation has the potential not just to increase revenue but to contribute to broad improvements in governance, by encouraging taxpayers to engage directly with the government to demand public services and responsibilities in return for tax compliance. This referred to the state-building approach to tax reforms. Several types of taxes have been evolved based on the existing provisions of the law related to revenue collections. Travel tax is one among those types which the government imposed and mandates in every tourists who leave the country.

Travel tax reforms have been changed from the time the administration also changed. Today, amendments, alterations and passing the bills on tourism protection in order to raise revenue for the settlement of debts and borrowings and for government investments purposes. Significance of the Study and Problem Statement The purpose of the research study is to review and analyse the pending Senate Bill No. 2018 “An Act Allocating the Travel Tax Collection to the Philippine Tourism Authority, Amending thereby Presidential Decree 1183, as Amended, and the Republic Act No. 7722, and For Other Purposes otherwise known as “The Travel Tax Reform Act of 2013 authored by the Hon. Senator Jinggoy Ejercito Estrada3. It seeks to give a clear view of the elements in passing this bill as part of tax reforms and serves as guiding principles for future tax reforms in the Philippines, eventually, propose specific tax reforms strategies whether this would be applicable to better governance emphasizing the values of accountability, responsiveness, transparency and a democratic government. How can travel tax reforms can be modified to take more account of government and state-building objectives?

This research study will serve as guide on applying the principles of Fiscal administration, its principles, policies and functions and be able to relate our views not only for the academe, actors in the public administration but for the public administration practitioners. The output of this study is to provide adequate information on travel tax reforms in the country for convenience for revenue purposes. The main focus of the analysis is to test whether this pending bill is a necessity for the country’s development. Objectives of the Study

The researcher, in particular, intends to come up with the following objective: 1. Present a comprehensive details and review of the pending bill whether this is applicable to the massive development of our economy. 2. Evaluate the Philippines’ experience in travel tax reforms based on specific framework. 3. Determine and examine the existing rules, policies, provisions of the law and how this can be reformed to increase state accountability and increase tax morale. 4. Provide policy recommendations that can be adopted for future travel tax reforms and to give stand on the matter whether this bill shall be passed or not.

Fiscal Policy in the Philippine Fiscal Administration In economics and political science, fiscal policy is the use of government revenue collection, also known as taxation. The two main instruments of fiscal policy are changes in the level and composition of taxation and government spending in various sectors. These changes can affect the following macroeconomic variable in the economy: Aggregate demand, distribution of income, allocation of scarce resources, expenditures, debt – borrowings and spending. Development and growth in the economy may vary on the fiscal policy of the government.

Fiscal policy refers to the use of the government budget to influence economic activity. It also refers to the “measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocation of taxes and government expenditures. Fiscal measuresare frequently used to tandem with monetary policy tom achieve certain goals. In the Philippines, this is characterized by continuous and increasing levels of debt and budget deficits, though there have been improvements in the last few years.

The Philippines government’s main source of revenue are taxes, with some non-tax revenue also being collected. To finance fiscal deficit and debt, the Philippines relies on both domestic and external sources. Fiscal policy during Marcos regime inherited a large fiscal deficit from the previous administration, but managed to reduce fiscal imbalance and improve tax collection through the introduction of the 1986 Tax Reform Program and the value added tax. The Ramos Administration experienced budget surpluses due to substantial gains from massive sales of government assets and strong foreign investments in its early years.

However, the implementation of the 1997 Comprehensive Tax Reform and the onset of the Asian financial crisis resulted to a deteriorating fiscal position in the succeeding years and administrations. The Estrada Administration faced a large fiscal deficit due to the decrease in tax effort and the repayment of the Ramos Administration’s debt to contractors and suppliers. During Arroyo Administration, the Expanded Value Added Tax Law was enacted, national debt-to-GDP ratio peaked, and the underspending on public infrastructure and other capital expenditures was observed.

During the First Regular Session of the 16th Congress of the Philippines, Senate Bill No. 2018 was introduced by the Hon. Senator Jingoy Ejercito Estrada4. The Bill entitled: “ An Act Allocating the Travel Tax Collection to the Philippine Tourism Authority, Amending Thereby Presidential Decree 1183, and Republic Act 7722, and For Other Purposes: As explained by the Senator, he gives the vital role of tourism industry in boosting the country’s economy. Based on its mantra “ It’s More Fun in the Philippines, the Department of Tourism (DOT) recorded 2. 38 million visitors or an 11.08% increase from various last year’s arrivals, for the first half of 2013 alone. In addition to this, the National Statistical Coordination Board (NCSB) revealed on November 2012 that according to the latest results of the Philippine Tourism Satellite (PTSA), the contribution of tourism in the economy in 2011 was 5. 9%, based on the share of tourism direct gross value added (TDGV) to total gross domestic product. PTSA further revealed that “share of tourism employment to the total employment in the country slightly increased at 10. 3 percent estimated at 3. 8 million in 2011, higher by 3. 5 percent from last year’s 3. 7 million. 5

Under section 3 of the Senate Bill “Allocation of Travel Tax Collection to the Philippine Tourism Authority. Pursuant to the aforecited state policy, all proceeds of the travel tax shall be utilized exclusively for the tourism projects of the Philippine Tourism Authority. According to Mr. Julian Misolas Jr6. , The Philippine Tourism Agency is the sole agency responsible for the collection of Travel taxes either a Filipino citizens or a Foreigner leaving the country. The other provisions of the bill stated the restriction of the accredited collection agency, there Remittances of the Travel tax Collection and Submission of reports, Traveltax exemptions, the Travel tax refund, and civil remedies. Under the remedies, there are two options in order to cope up with the circumstances: a) Distraint of Personal property and b) Levy on Real Estate Property. What is Travel Tax? Travel Tax is a levy imposed by the Philippine government on the following individuals who are leaving the country irrespective of the place where their air ticket is issued and the form or place or payment, as provided for by Presidential Decree 1183. “Under presidential Decree (PD) 1183, as amended by PD 1205, Batas Pambansa 38.

And Executive Order 283, Filipinos and other nationals traveling to the other countries are required to pay travel tax before departure from the Philippines, irrespective where the air ticket is issued and the form of place of payment”. The following individuals are required to pay the travel tax: Filipino nationals, permanent resident aliens, Non-resident aliens who have stayed in the Philippines for more than one (1). There are exemptions to the general rule: The following Filipino citizens are exempted from the payment of travel tax pursuant to Se2.Of PD 1183, as amended): 1) Overseas Filipino Workers, Filipino permanent residents abroad whose stay in the Philippines is less than a year and 3) infants ( 2 years old and below) . Among those exempted from paying the travel taxes, they have to present valid identification documents to certify the authenticity of stay. Upon submission of the documentary documents, citizens are eligible for reduce rate of travel. Under Republic Act 7194 otherwise known as the Balikbayan Law, on November 7, 2002 during the 12th Congress this laws was approved.

“An Act Amending Republic Act 6768, Entitled, “An Act Instituting A Balikabayan Program’ by Providing Additional benefits and Privileges to Balikbayan and For Other Purposes: Sec 1. … A Balikbayan Program is hereby instituted under the administration of the Department of Tourism to attract and encourage Overseas Filipino to come and visit their Motherland… Section 1 encourages Overseas Filipino to come and visit their motherland. This is to recognize their notable contribution to the economy of the country through the foreign exchange inflow and revenue that they generate.

Section 2 gives the definition of Balikbayan which means a Filipino citizen who has been continuously OUT OF THE Philippines for a period at least one (1) year, A Filipino Overseas workers or a former a Filipino citizens and his or her family. The definition of family and the livelihood tools. Under Section 3 enumerated the benefits and privileges of the balikabayan. Among are the followings: a. Tax- exempt from maximum purchase in the amount of One Thousand Five Hundred united States dollars ($ 1,500.00) or its equivalent in Philippine Peso and in foreign currencies at all government-owned and controlled/operated duty-free shops subject to the limitations contained in Section 4 hereof; b. All domestic carriers shall establish a special promotional/incentive program for the balikbayan. c. Visa free entry to the Philippines for a period of one year (1) year for foreign passport holders, with exception of restricted nationals. d. Travel tax exemption as provided under Presidential Decree 1183 and other allied laws e.

Especially designated reception areas at the authorized [ports of entry for the expeditious processing of documents. f. Accredited transportation facilities that will ensure their safe and convenient trips upon arrival. The Department of Tourism and the Department of Transportation and Communication and other concerned government agencies are hereby mandated to implement the program for this particular purpose; and g. Kahayan shopping privilege and additional tax exempt purchase in the maximum amount of Two Thousand United States dollars ( $ 2,000.00) or its equivalent in Philippine peso. h. Limitation have been stipulated in the law and duly approved by the President Gloria Macapagal Arroyo. It has been published in the official gazetteer at least (two) national papers of general circulations, whichever come earlier. Republic Act 9174 provides framework to those person indicated in Section 1 and 2 of this law for the exemption from paying the travel taxes. Other provisions are the restrictions and limitations thereat.

Philippine Tourism Authority (PTA)_has changed its name to Tourism Infrastructure and Enterprise Zone Authority ( TIEZA) under Republic Act 9593 otherwise known as Tourism Act of 2009 duly approved by the president Gloria Macapagal Arroyo in May 11, 2009, during the second regular session of the 14th Congress. The Act Entitled “An Act Declaring a National Policy for Tourism as an Engine of Investment, Employment, Growth and national Development, and Strengthening the Department of Tourism and its Attached Agencies to Effectively, Efficiently implement that Policy and Appropriating Funds Therefor.

TIEZA has the sole authority to collect travel taxes and give benefits and privileges to those qualified Filipinos and those stated in Section 2 of the P. D. 1183. A certification of Compliance has been issued to TIEZA which will serve as the Transparency Seal provisions of the General Appropriation Act of 2013, 2012 and 211. Attached as annex a certification issued to TIEZA. Under section 4 of the Act it defined the following terms used: (a) “Department” refers to the Department of Tourism created pursuant to Presidential Decree No. 189 (1973), as amended.(b) “Secretary” refers to the Secretary of Tourism (c) “Duty Free Philippines (DFP) refers to government agency created out of DFP pursuant to this Act. (d) “Duty Free Philippines Corporation (DFPC) refers to corporate entity created out of DFP pursuant to this Act. (e) “Philippines Conventions and Visitors Corporation (PCVC) refers to the corporate entity created pursuant to presidential Decree No. 86, amended. (f) “Intramuros Administration 9IA) refers to the government agency created pursuant to Presidential Decree No. 1616 (1979), as amended.

(g) “Philippine retirement Authority (PRA) refers to the government agency created pursuant to Executive order No. 1037 (1985). (h) “Tourism Infrastructure and Enterprise Zone Authority (TIEZA)” refers to government agency created pursuant to this Act. (i) “Tourism EEnterprise Zone” (TEZ) refers to tourism (j) “TEZ overseer” refers to any person who shall be appointed by the TIEZA in specific zones to perform such functions as may be delegated by the TIEZA in accordance with law… Other related definitions can refer to Section 4 of this Act. Under Section 72 of this Act provides funding for TIEZA.

The TIEZA shall obtained the funds for itys operations from the following: (a) Fifty percent (50%) of the proceeds from the travel tax collections; (b) A reasonable share from the collections of Office of Tourism resource generation, to be determined by the Department (c) Income from Projects managed by TIEZA (d) Subsidies and grants from local and foreign sources that maybe received by the TIEZA. At least five (5%) from the travel tax collection which shall accrue to the TIEZA shall be earmarked for the development of historic, cultural, religious and heritage sits and prime tourist destinations….{underscoring supplied} Section 73 of this Act state the Collection and Allocation of Travel Taxes. For purposes of this Act, the TIEZA shall the principal agency responsible for the timely collection of travel taxes. Amounts to be collected by the TIEZA shall be distributed in the manner provided for under this Act: Provided, that the national government shall for alternative funding sources for programs funded by the travel tax in the event of a phase out travel tax collection following international agreements.

Pursuant to Section 72 of this Act fifty percent (50%) of the proceeds out of travel tax collections shall accrue to the tIEZA. The government contribution to the Higher Education Development Fund, equivalent to forty (40%) percent from the total gross collections of travel tax, shall be retained: Provided that the Commission on Higher Education (CHED) shall give priority to tourism related educational programs and course.

The ten percent (10%) share of the national Commission for the Culture and the Arts from the total gross collections of the travel tax shall likewise be retained. Public Budgeting Allocation of Budget in Tourism industry especially in the collection and allocation of Travel Taxes has counterpart, with the Department of Budget and Management (DBM), The Department of Finance (DOF), Commission on Audit (COA), Bureau of Internal (BIR), The Commission on Higher Education (CHED) and the National Commission on Culture and the Arts (NCAA) and other concerned agency in tourism industry.

The Appropriation based on the General Appropriation Act of 2013 for the Department of Tourism (DOT). It is a political process because the decision and priorities is determine more valuable to the society and boosting technical and merit with constituents need or demands.

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