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    Wealth tax — cross country analysis and implications for the Philippines
    (2023-01-10) Domingo, Gelli A.; Magboo, Jaaziel Ann C.; Solon, Orville Jose C.
    Wealth tax has been used as one of the policy tools in reducing the deep-rooted problem of wealth inequality. Recently, there has been a renewed interest for its implementation in various countries worldwide, including the Philippines. In this study, we assessed the feasibility of implementing a wealth tax in the country in two parts. First, we conducted a cross country review on the wealth tax experiences of twenty countries in order to look into the factors that are crucial to the success or failure of wealth tax implementation and how they apply to the Philippines. Our key findings showed that it would be difficult for the Philippines to attain the necessary standards for an effective wealth tax implementation, given its current conditions with respect to institutional and political factors. Primarily, strict and reliable enforcement practices (on tax reporting, assessment, collection, anti-avoidance, and anti-evasion) are imperative, but such would be hard to administer in the Philippines, with the observed inefficiencies in our institutions. Another main reason is the political climate in the country, wherein the wealthy have a strong influence in politics and have the tendency to use this influence in pursuing their personal interests. Second, using the available data from the Family Income and Expenditure Survey (FIES) and from the Forbes Magazine, we generated estimates of potential wealth tax revenues, along with respective tax thresholds. We found that the FIES would not be a sufficient data basis for operationalizing a wealth tax in the country because it underestimates the wealth concentration at the higher end. Moreover, wealth estimation can be improved by collecting direct wealth stock information in addition to the flow variables from the FIES. Ultimately, more accurate and reliable information about wealth is essential to better assess the appropriate wealth tax system for the Philippines.
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    The impact of suspending fuel taxes on welfare
    (2023-01-10) Regala, Christine Venice E.; Remigio, Raphael Gavin G.; Solon, Orville Jose C.
    Fuel is a vital commodity that is used in almost all transportation services around the world. Thus, increases in its price produce inflationary effects on the economy. A big part of this price is the 12% VAT tax and, depending on the type of fuel type, excise taxes, which have been increased further by the TRAIN law. This paper utilized the Extended Linear Expenditure System to compute the demand elasticities of fuel. Simultaneous equations were employed to instantaneously regress the expenses on different goods with respect to each other. The study found that a suspension in fuel taxes, which would lower the overall price of fuel and increase the disposable income of households, would reduce the quantity demanded for fuel products as households reallocate their income to other commodities, which would increase their utilities more. We observed that an increase in fuel prices would lower households' income so much that they would forgo buying other goods in favor of more fuel. Moreover, families were found opting to buy other substitutes than fuel if it is available. Both of these effects are more felt by poorer households because of their greater relative magnitude compared to other income groups, which implies that a suspension of reduction tax would be helpful to them the most. The paper suggests that policymakers opt for discriminatory taxing schemes to balance extending help to the poor while still generating revenue from the rich.
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    Aspects of the tax treatment in the renewable energy sector in the Philippines
    (2017-12-20) Lamadrid, Jan Louise ; Pagulong, Julianne ; Reside, Renato Jr. E.
    This study aims to evaluate the efficiency of granting incentives in the renewable energy sector in the country. The study would first determine the benefits of renewable energy in the Philippines and describe the law supporting the promotion of these emergent technologies. Next, it would evaluate the different tax treatments in the renewable energy sector in the country such as the zero- rate VAT and the income tax holiday. Under the zero- rate VAT system, the study would evaluate the efficiency by looking at the refund mechanism and the ratio of input VAT to the total expenses of the firms. As for the income tax holiday, the study would compute for the foregone government revenue by granting this incentive and then compare these costs to the benefits of RE to the country to see if these costs are worth it. Lastly, this study compares the profitability indicators of the firms with their WACCs and get their economic rent to see if they still need incentives to continue their operations or they are already doing well on their own. Considering that the government has been very active in promoting emergent technologies in our energy sector, the results of this study would give us an idea about the effectiveness of the incentives granted to the sector.
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    TRAIN or no TRAIN: A forecasted scenario examining tax measures
    (2019) Chan, Kyle Terrence ; Mastrili, Paulo Israel
    This paper compares the Comprehensive tax reform program, also known as TRAIN law as Republic act No. 10963, to a forecasted scenario, using regression models with ARIMA errors, where the TRAIN law did not occur and continued on with the same tax regime to the years prior to gain an insight on the effectivity of the tax reform in attaining additional revenues. The regression models with ARIMA errors used for forecasting is achieved by comparing target revenues projected ex ante by policy makers to actual revenues earned. The study will also look into the tax buoyancies, a measure of total response of tax revenue to its corresponding tax base, and tax elasticities, which measures total response of tax revenue to the base while holding discretionary changes constant, of the previous regime from 1998-2017 to evaluate its performance. Tax elasticities play an important role in constructing accurate forecasting and policy recommendations. The purpose of the research is to justify a need for a tax reform and to determine whether the tax reform was successful in raising additional revenues. Our findings reveal that the tax reforms introduced in the TRAIN law has increased tax revenue collections in the Philippines.
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    Cutting down on salt: The potential impact of a tax on processed meat to reduce salt intake to the recommended level
    (2015-12) Maderazo, Sarah Mishael S.; Timbol, Jan Hannah B.; Solon, Orville Jose C.
    Should processed meat be taxed in order to reduce salt intake? And if so, by how much? Salt is needed by our bodies to function properly (Chen, Zieve, & Ogilvie, 2014). But if taken excessively, it can lead to high blood pressure (American Heart Association, 2015). According to the World Health Organization, the recommended level of salt intake is 5 grams a day. However, food products such as processed meats which use salt as a preservative contribute to a person’s excessive salt intake. Consumption of such products drastically increases one Filipino’s salt intake to 15 grams a day (Ong, 2014). Processed meats are said to contribute much to a person’s daily salt intake because of their growing popularity and convenience (Centers for Disease Control and Prevention, 2012). The study of Micha, Michas, and Mozaffarian (2012) shows that processed meats are 400% higher in salt content than unprocessed meats. The consumption of processed meats increases the risks of coronary heart disease (CHDs) and type 2 diabetes. The amount of salt in processed meats accounts for two-thirds of the risk difference. Using the 2013 Annual Poverty Indicator Survey data, we want to test the hypothesis that imposing a tax would decrease per capita processed meat consumption and in turn reduce salt intake to the recommended level. We begin our estimates by using a standard demand model for processed meat with income, own price, and prices of its potential substitutes and complements. Then, we test for alternative model specifications by controlling for other factors such as household features and characteristics of the household head which may affect consumption of processed meat. Our study estimates both the own-price and cross-price elasticity with respect to an increase in the price of processed meat. By simulating price increase levels, we find that imposing a 58% tax on processed meat leads to the 10-gram target reduction in one’s daily salt intake. Our results provide evidence that a policy like food taxation can be an effective mechanism to reduce excessive salt intake of Filipinos and address the health problems associated with it.
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    The equity considerations of the comprehensive tax reform package (CTRP)
    (1998-03) Aquino, Carlo Antonio S.; Calo, Claudine Ann L.; Mehta, Nimai