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    Southeast Asia
     Dec 23, '13

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Taxman vs Pacquiao hits
need for Philippines reform

By Bonn Juego

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

Something important is emerging from a high-profile battle between the Filipino boxing icon Manny Pacquiao and the

country's prominent tax reformer, Kim Henares. With typical humor, the local press likes to present it as a fight between the Pacman and the Taxman.

While their altercation has reached a kind of uneasy impasse for the time being - with each side blaming the other - it actually sheds light on much deeper issues of financial probity, transparency and accountability, and therefore the possibilities for much-needed economic reform in the Philippines.

The tax issue came to light when Pacquiao held a press conference on his return to the Philippines a few days after making a successful comeback in his latest fight in November. He made a popular (and populist) promise to help the victims of the catastrophic Super Typhoon Haiyan, but he could not immediately do so because his domestic bank accounts had been frozen by the tax authorities.

The allegations were serious: tax evasion on a huge scale - 2.2 billion pesos (almost US$50 million) according to the Bureau of Internal Revenue (BIR) - on income earned in lucrative fights in the United States in 2008 and 2009 when he was at the pinnacle of his career. (Pacquiao's most recent fight took place in Macau. It was reported that this was to avoid having to pay the tax that would be levied on his winnings were the fight staged in the US. In the event, the pay-to-view income from the Macau tussle was below expectations, and his next fight is being scheduled to take place back in the US, where he has a strong Filipino following.)

Pacquiao is no ordinary celebrity. Besides being considered the best pound-for-pound fighter of his generation, the only man to win world titles in eight weight divisions, the former street kid is also a very wealthy man. Even last year, Forbes magazine listed him as the 14th highest-paid athlete globally.

Pacquiao has also waded into the sometimes murky world of Philippine politics when he was elected member of the House of Representatives, with ambitions of eventually becoming president.

Despite being aligned (for the time being at least) with the ruling administration of Benigno Aquino III, Pacquiao says that the freeze order is "political harassment". In his defense, he says everything is above board.

"I have already paid my taxes in America. Had I not paid the correct taxes they [US authorities] would have come after me and I would not have been able to travel there".

And in a well-aimed dig at the widespread corruption of the political class, Pacquiao asserts that his hard-earned assets come from the blood, sweat, and tears of the tough fight game and are not stolen from the public coffers or acquired through indecent businesses.

For her part, the tax commissioner Kim Henares denies any harassment. She says the tax authorities are simply doing their job in investigating Pacquiao's undocumented tax payments. She shrugs off the letter from Pacquiao's promoter, Top Rank, saying he has paid his taxes in the United States: "This is a mere scrap of paper. Anyone can write that," she says.

A former World Bank senior private sector development specialist and key economic adviser to Aquino's good governance reform agenda, Henares has gained a reputation as a strong-willed tax collector. She has spearheaded a name-and-shame campaign against tax evaders, including movie stars and rich businessmen who flaunt their wealth. Henares has been much lauded, even by credit ratings agencies, for the BIR's unprecedented tax collection efforts over the past three years.

Beyond the headlines the case has spawned, some much bigger issues about the state of the Philippine economy are beginning to resonate. These are essentially about the creation of a critical mass of opinion in favor of much-needed tax and economic reforms.

Filipinos have dared to question the "rule of law" from the point of view of justice and to criticize the rhetoric of "good governance" from the perspective of democracy. If the moment can be seized then the possibilities for a deepening of political democratization and socioeconomic development may come just a step closer.

The current conflict brought about by the Pacquiao-Henares exchanges opens up significant issues for rethinking not only policy changes with regards to the tax regime but also the overall processes of social reform and economic development.

I sketch out here four interrelated problem areas that trace the points of conflict that will frame the struggle for substantive policy reform.
  • First, I unpack the "for whom" question in the political economy of the Philippine taxation structure.
  • Second, I draw attention to the significance of principles behind tax and fiscal policies.
  • Third, I propose that tax reforms and the goal of redistribution must be linked with strategies for the development of the economic mode of production.
  • Lastly, I point out the futility of the "pro- versus anti-Aquino" discursive framing in contemporary policy debates for the formation of a movement towards economic reforms and social change.

    The tax structure
    A deeper political-economic logic underpins the tax woes of Pacquiao, beyond accusations of politicking, the incompetence of his accountants, or the belief in spiritual trials. It is about the very structure of the enduring tax and fiscal system of the Philippines. As is well known, this is patterned after the US system, which puts the tax burden on wage earners while cocooning extreme wealth, property, investments, and corporations.

    The structural logic of taxation has been institutionalized through the country's tax code, which legally accords tremendous powers to the BIR, particularly its commissioner. Thus, if the BIR had really pursued its legal mandate with integrity, it would do the same as Henares is doing now in her pursuit of Pacquiao to come clean (or perhaps be even tougher), no matter who sits in the president's Malacanang Palace. After all, the effective introduction and enforcement of tax rules only require political will on the part of the state.

    The objective of tax reforms should not be limited to meeting and increasing target and collected revenues. It must, in essence, be about altering the prevailing tax structure that has only reinforced injustice, inequality, and poverty in the country.

    The political economy of resource mobilization in the taxation system, which has been brokered by the power elites and sanctioned by the state without the countervailing opposition of labor unions, is effectively disciplining and, to a large extent, punishing rather than rewarding the following identifiable social groups:
  • The poor and middle classes through the expanded value-added tax law (E-VAT), which pushes up consumer prices;
  • The productive workers from contractual and regular employees to freelancers, professionals, and celebrities who pay taxes between 25% and 32% - virtually at the level of income taxes in developed countries including Scandinavian welfare states that have universal state provision of free and decent health care, education, infrastructure, and other public services;
  • The creative enterprises from small and medium-sized enterprises and online entrepreneurs to the hard-working street vendors of the "informal" economy and other wage laborers; and
  • The working class in general, from the service sector to the entertainment profession, who have no "job security" and are subject to exploitation by those who pay them wages and talent fees and by the state which imposes on them onerous taxes.

    If this is the reality, then why does the fiscal policy not impose heavier taxes on other obvious targets:
  • The "useless rich" - the non-creative and non-innovative - among the country's landowning oligarchs, many of whom are elected to Congress and executive offices, whose power and wealth are derived from land and the real estate economy;
  • The FIRE sector - finance, insurance, and real estate - whose wealth comes more from capital gains and not from productive labor; and
  • The rentier capitalists among the rent-seeking monopolists and oligopolists who are regarded as "takers" - rather than "makers" - of the nation's economic wealth, and who extract substantial rents from state resources and institutions?

    In a word, why place the principal burden of mobilizing state resources onto labor but off capital?

    Principles of taxation
    In one of her media interviews, Henares exhorted Pacquiao not to ruin the image of the BIR. In reality, however, it is not the "legally" delinquent Pacquiao who has been eroding the credibility of the reforming BIR under Henares's leadership. It has always been the government and its functionaries themselves that make the bureau and the system of taxation that it enforces look bad.

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