THE CROWN AFFAIR OF 2012

On May 22 embattled Corona took the witness stand to present his case. Instead of submitting himself to direct and cross examination under oath, he spent about three hours narrating his biography in the vernacular as the oppressed by the relatives of his wife, as well as the victim of a vindictive president using all the powers of government to abuse, insult and humiliate him. He presented himself to the people, using the Impeachment Court for his rostrum, as an object of pity. I suspect that he spoke in the vernacular in order to obviate any analysis and commentary from the international audience which is definitely monitoring the historic impeachment drama in the Philippines.

He could have limited his presentation to the enumeration of the oppression and indignities inflicted on him. But in order to further identify himself with the rest of the people, he spoke about his personal life style. He should not have continued.

As Ms Patricia Evangelista of the Philippine Daily Inquirer observed in her column of May 27, “it is in the small matters that he makes mistakes, in questions not of legality but of simple honesty. He lives, he said, a simple life. ‘Our lives and home are simple. We don’t even use the air conditioner because we become easily ill in the cold. The food we eat in our home is simple. Believe it or not, we do not have maids at home.’ In 43 years, he said, he ‘has never purchased large properties or expensive properties.’

I have earlier written my observation about his statement “walang katulong” (no maid). I asked Tess, our own katulong who had served the Coronas before, what the situation was when she was there although as a server for Ms Corona’s canteen. She said that there were three maids for the household – a cook, a laundress, and a cleaner.

Assuming that the present is different from the past situation, and the Coronas do really have no maid, having a simple life style could be a different matter. As a Chief Justice of the Supreme Court of the Philippines, he would not live like any ordinary citizen in cramped quarters in a cramped neighborhood. I may not have seen his present residence but from what my maid, Tess, told me he has an expansive garden with two houses and surrounded by high walls. If they truly do not have a maid, who cooks, who launders, who cleans the living quarters and who tends the garden? His children are already married and are practicing professionals; they would not be available to service the home even during weekends. Does Mrs Corona use washing/drying machine to launder? This is not a sign of simple living. Does Mrs Corona use vacuum cleaner to tidy the living quarters? This is not simple living. If Mrs Corona only cooks for breakfast (which is simple to do), do they have caterers, or do they eat outside for their other heavy meals?

Again, Ms Evangelista wrote that “his defense team has admitted to Corona’s ownership of five high-end properties—in Bellagio, Bonifacio Ridge, The Columns, Xavierville and Burgundy Condominiums—an admission that Corona himself supported last Tuesday. Perhaps the Chief Justice has a different definition of what counts as expensive, and it is a definition that he does not share with the rest of the Philippine population. Yet even if the properties are ignored, this same simple man with a simple life also spends more than P15,362.37 for a meal with his wife at Century Tsukiji restaurant, up to P24,000 each for a pair of barong Tagalog purchased at Rustan’s, and a hundred thousand for the purchase of Christmas gifts. A Rappler.com investigative report details these purchases, as well as the fact that all of these and many others were reimbursed by the Supreme Court. It is difficult to construe a shirt that costs more than a semester’s college tuition as simple, but perhaps the Chief Justice was merely attempting to uphold the image of the Supreme Court in his choice of atelier.”

My nagging question is: why did Corona have to make that irrelevant statement about being a simple man with simple needs when it is not expected for his defense in the impeachment trial? To lie under oath is more damaging than presenting “honest oversights and failures” for failing to include certain items in his Statement of Assets, Liabilities and Net Worth. Such indicator, “trivial” perhaps, may be considered a Freudian slip-of-the-tongue.

And yet, I cannot accept the excuse that it was a slip-of-the-tongue because Corona read from a (perhaps) week-long prepared script for delivery on that Tuesday trial. He must have been used to telling “small lies” that like the scorpion that stung a helpful frog to death because it is its nature to sting, that lying is in his nature to lie.

I wonder how our senator-judges can see the fitness of Corona to stay as chief justice of the Supreme Court, when he seems to bend the law to suit his purposes. For instance, he interprets (as supreme court justice?) the bank secrecy law as excluding his dollar assets from being declared. “It is an odd reason,” according to Ms Evangelista, “and one that subverts the purpose of the statement of assets, liabilities and net worth, whose purpose is to compare a public official’s property against what he can legitimately acquire within his declared income.”

If I am asked, I cannot consider Corona as fit to be Chief Justice of the Supreme Court.

FAIRNESS, ETCETERA

In my earlier article, I wrote that “I am concerned about fairness” in the imposition of the “unitary” taxes on cigarettes as proposed in House Bill 5727.

Historically, the taxing authorities have recognized that there are four gradations of cigarette qualities, and past tax schemes were designed to adapt the rates to the spending capacity of consumers. The previous system of classifying cigarettes into four, namely, Low, Medium, High, and Premium, did not serve to discourage smoking. Even as the rate of production (being equated to consumption) declined, expectedly the amount of taxes collected continued to increase. The experiences must have encouraged the tax designers to come up with more repressive rates in order to reduce consumption while at the same time expecting to truly raise revenues to record highs. And to further simplify tax assessments and collection the proposed bill of Rep. Abaya actually places all types of cigarettes under one class by the Third Year of its implementation.

Under HB 5727, the repressive rates that are expected to raise P30 billion in revenues become more burdensome to the consumers of the low quality cigarettes as the increase in taxes amounts to more than a thousand percent, while those being imposed on the high quality cigarettes amount to a mere hundred and fifty percent.

This is where my concern is focused – the disparity in treatment.

I happen to be familiar with a principle in taxation that says equity must be observed in imposing taxes. The taxes being imposed must equally burden all those who are being taxed under similar economic situations. In the case of cigarettes, the poor consumer is being oppressively burdened.

Therefore, in principle it should stand to reason that taxes imposed on the different classes of cigarettes must be in proportion to their qualities. I am sure that this imposition is observed in the process of manufacture, particularly in the matter of computing the Value Added Taxes on the different components and stages of producing the cigarettes. (I have assumed that VAT and profits are not part of the net retail price.)

The reasoning of HB 5727 is that all the types of cigarettes are being taxed equally by the Third Year at P30 per pack. There is apparent equality in the amount proposed. On the other hand, as far as I am concerned, taxes must be based on the value or quality of a good. If an item being taxed is cheap, the tax must be low. If the item taxed is luxurious, the tax must be high. A wedding ring with a quartz stone is taxed much lower than a diamond wedding ring. A jeep is taxed lower than a BMW or a Porsche. The principle is as simple as that.

At this point I shall veer off momentarily from the matter of appropriate tax valuations and take on a stated objective in the Manifesto – that is, to discourage smoking.

I am of the opinion that as a sin product, we ought not to consider cigarettes, or tobacco for that matter, as a “good” that deserves to be taxed according to their qualities and values. The tax bill must be honest enough to assert that the P30 being imposed on all types of cigarettes is not a tax but a penalty.

All smokers, regardless of the quality of their cigarettes, must be penalized for smoking because not only do they harm their health (which they do not think should matter at all to others) but they pollute the environment and hasten climate change. In so doing, we also send the message that any investment engaging in the manufacture and importation of cigarettes is not welcome.

Perhaps, we should label the imposition in HB 5727 as an environment and health tax. Thus, we can truly equalize the amount imposed on all to, say, P40 to make it worth P2 per stick. Or even more. Everybody who smokes, whether President or street sweeper, must pay the penalty. Since we cannot have the police look for, arrest and charge smokers for polluting the environment and endangering the health of the community, the penalty tax is already embedded in the price paid for the cigarettes they consume.

I admit that the penalty tax rate I indicated, that is, P40 per pack applied equally to all types of cigarettes will practically eradicate the industry and erase as well prospects of collecting revenues. There is still the matter of raising funds for purposes of adjusting certain elements of the industry during the transition to its “total elimination”. I still appreciate the idea of killing the industry softly and profit from its slow demise. Keeping it alive may yet impede the growth of smuggling and clandestine manufacture of the sin product which our authorities have extreme difficulty in detecting and curbing.

Thus, I could accept the proposed tax bill but with a recommendation to lower the tax rate of the Low priced brands to P8 instead of the P14 for the First Year. This way, the brands will continue to be produced and survive until the Third Year. Nonetheless, even with the adjustment I made in my computed simulation I still maintain that revenue collections will not reach the P30 billion estimated by the proponents of the bill.

As well, the decrease in production and legal consumption will still encourage clandestine operations of supplying the commodity to those who cannot drop the habit of smoking.





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A QUESTION OF FAIRNESS

From the blog of Ms Ellen Tordesillas, I came upon her strongly urging support for a manifesto on House Bill 5727 posted in Facebook. According to her blog, she wrote: “The manifesto explains the financial advantage to the government and to the Filipino of higher taxes for alcohol and cigarettes. It says, ‘On the first year of implementation, the government is expected to raise additional revenues worth P60 billion, of which, P30 billion is from cigarettes, P11 from distilled spirits and P19 billion is from beer.’”

I checked the manifesto posted in Facebook, and indeed there is the claim of P30 billion that can be generated by HB 5727. If you consider the past collections from cigarettes, this claim is not gargantuan. The records I managed to get, which were in 2010, said that the total collections amounted to more than P31 billion. On the other hand, I tend to wonder how, with the unitary tax system proposed, and supported even by experts in the Finance Department, would have resulted in the claimed amount. On the surface, P30 billion (compared with the P31 billion collected in 2010) may not be impossible to achieve. However, if economic “laws” are to be followed, there is such a thing as “elasticity” that comes into play.

In another article, I read that the economic analysts consider the elasticity factor to be 0.8, debunking the other values as inapplicable to our situation. (By the way, elasticity is always negative in value. Thus computations will have to consider that elasticity tends to reduce expected values.) I tried using the “accepted” value of -0.8, and my results are all negative. In other words, we cannot expect any production of cigarettes. Naturally, my computations are unbelievable and impossible. There will always be some cigarettes to be produced; demand for legally and taxable cigarettes may be reduced, but we have to cope with the influx of smuggled brands that will satisfy those who cannot avoid smoking. It is unfortunate we have no statistics on smuggling, particularly cigarettes, so that we cannot truly estimate with conviction how much any situation will tend to encourage or discourage the illegal activities.

(The Prohibition in the United States during the early part of the last century totally outlawed liquor, but bootlegging and smuggling flourished. In Wikipedia, it says “The lack of a solid popular consensus for the ban resulted in the growth of vast criminal organizations, including the modern American Mafia, and various other criminal cliques. Widespread disrespect of the law also generated rampant corruption among politicians and within police forces.”

(In the same manner, we cannot expect to outlaw smoking. We cannot expect “solid popular consensus” for the ban even if we issue manifestos left and right. All the health threats have been thrown into the matter and we still have cigarette smoking proliferating in the streets. The police find it absurd and useless to arrest and imprison the sellers of sticks – not packs – of cigarettes that roam the streets. Possibly, the itinerant vendors may be picked up for jaywalking but not for selling sticks of Marlboros to jeepney drivers.)

In order to come up with some figures on expected cigarette production, I adopted the elasticity value of -0.5 mentioned by the American Lung Association, and came up with the following results for the First Year of applicability:
(I still included the results obtained using the elasticity value of -0.8). Under this condition, all Low and Medium-priced brands produced negative values; they are taken out of the market. Only the High-priced brands survive. After all, the difference between the present tax rate and the proposed amounts can be afforded by the rich. On the other hand, the increase in tax rates is an oppressive burden to the “poor”. Taxation under HB 5727 is inequitable; the poor are levied heavier tax rates than the rich. (If you compute the tax per stick imposed by the third year, the Low-priced brands absorb 1000 per cent, compared to the High-priced brands that are assessed ten times less.)

Where is the P30 billion to come from under this unitary tax of Rep Abaya?

Truly, there is a need to come up with a system that will erode the practice of smoking while at the same time give the government something to collect in order to cope with the deleterious effects of smoking. After all, we cannot eradicate the use of tobacco. If we cannot eliminate a vice, we might as well profit from it, just like lotto.

I understand that there is an alternative system proposed by a House subcommittee that improves on RA 9334, but is not as oppressive as HB 5727. On the other hand, HB 5727 is being pushed by a foreign cigarette maker, finding it conducive to its purposes without truly entailing high costs in production but expanding its market in the Philippines. If the bill intends to encourage foreign investment in the tobacco industry, it is contrary to the effort of government to discourage smoking altogether. I could even dare say (without proof) that that foreign investment is a Trojan horse that would be a vehicle for smuggling “high quality” brands at cheaper prices.

I am a non-smoker and ought not to bother and protect the interests of tobacco farmers and manufacturers and users. I know they can take care of themselves. However, I am concerned about fairness in the imposition of taxes. Make heavy the sin taxes, but equalize the tax loads of our “sinful” citizens. For instance, if the net price of a Low brand is P10; then tax it double or P20. If a net price of a High brand is P30, tax it P60. The tax burdens of both the poor and the rich are 200 per cent.

I am aware of other unfair tax laws, but cannot comment on them because of lack of data to support my contentions.