MANILA,  December 29, 2003  (STAR) By Des Ferriols - Government has had little success with past tax amnesty programs, collecting no more than P1 billion worth of back taxes from delinquent taxpayers who agreed to surface and avail themselves of the program.

This was the initial finding of the Department of Finance (DOF) which expressed skepticism over the congressional initiative to grant amnesty to tax evaders to encourage them to settle their back taxes.

The DOF said previous tax amnesty programs had little success in generating the revenues that government had hoped for because the target individuals and businesses do not avail of the program.

DOF sources said that tax evaders have had little incentive to come forward and begin paying their taxes, because the government was never serious about going after tax evaders in the past.

"It’s not just a matter of offering them amnesty as an incentive to come forward and start paying the right taxes from thereon," said an official of the DOF. "It’s also a matter of making it painful to them if they don’t come forward and avail of the amnesty."

"Naturally, between paying taxes and not paying taxes, they would rather not pay taxes since they suffer no consequences anyway," the official added.

The official said Congress should address not just the problem of ferreting out tax evaders, but also the issue of discouraging tax evasion in the first place. "It should be a carrot and stick approach. If you offer them a carrot, of course they’d go for the steak, unless they know they’ll be whacked with a stick if they do," the official said.

The International Monetary Fund has already warned the Arroyo administration not to cave in to proposals for new tax amnesties, saying that similar programs in the past have had a harmful impact on revenues.

The IMF has just concluded its post-program monitoring (PPM) review and made policy recommendations even as it expressed satisfaction about the government’s efforts to contain its fiscal crisis.

"This reflects significant efforts to strengthen tax and customs administration but also substantial expenditure restraint," the IMF said in its report.

The near-term challenge, however, was to deepen fiscal consolidation in 2004, the IMF said.

"Front-loading fiscal consolidation next year would help the government adhere to its plan to balance the budget by 2009," said IMF chief of mission Masahiko Takeda. "This will require continued vigilance on tax administration and spending."

While struggling to get Congress to pass its key revenue measures, Takeda said the government should resist proposals for new tax amnesties "given the harmful impact that repeated amnesties have on incentives for taxpayer compliance."

"The IMF is generally cautious about amnesties and our recommendation was based on this basic caution," Takeda said.

According to Takeda, tax amnesty programs have pre-requisite infrastructures, particularly in the generation and organization of information. "Unless carefully designed and supported with strong information infrastructure, tax amnesty programs could give rise to disincentives to taxpayers," he said.

"One can make a case that it will strengthen tax administration and I am sure that this is possible under the administration of [internal revenue commissioner Guillermo] Parayno," Takeda said. "But at this point, it is still unclear how the adverse effects could be prevented."

Even within the Arroyo administration, officials are at loggerheads over how to implement the amnesty program amid loud and aggressive lobbying by business interest groups, particularly the Filipino-Chinese community.

Despite the reservations of the Department of Finance, Malacañang certified the proposed tax amnesty bill as an urgent measure as the Arroyo administration added more sweeteners into its reelection bid in the 2004 presidential elections.

Reported by: Sol Jose Vanzi

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