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R_sario G. Manasan &

_sarioG. Queruh_ STAFF PAPER # 8_'O{t

P__ne

institute for D_elop_Ent 1986

Studies


1 •0

Introd_tlon

Various Shin,

crOSS.oountry,

1969,

Kelly,

Chelliah,

19,7%;

that •

the tax

tax

comparison

tO GMP

worries

f_saal

downward

trend

last

Talt,

1971_ Gratz

Philippine.

the

deaade,

studles_-.,(Lotz .and

tax

Bahl_

and

as measured

pla-,ners,

,O_ a

is

tax

1_- per

cent

in

_f

perform_mce

of

revenues 197_

indicate

either

by

international

secular•

ev_x_enee

of

from

ratio

or

1957; Baa_. and

1979)

the .tax_effort

i_lex, is low.

the

Chelliah,

Eschengreen,

performance

rat_io or by

in

1971_

Morss,

basis,

what

,..Bperceptib,le to .GNP over

to 9.64

per

_he

cent " in

!984o

An system

evaluation .f_,"Om the

imperat.lVe

perspective

task

responsiveness

of

(I) tax. b._ya, cy

a_

th_

tax

yields

G_P,

increment,

resource

stage.

is defined

inl .tax revenue

income,

of

of

will

the. Philippine mobilization•

Two

%a,x

is

me_eures

of

be _employed._in this

an the

stu_y_

and._.(2) .t_x elasticlty.

Tax-buoyancy change,

the

with

in revenue

to

the

as the

ratio

the percentage revenue

.brought

cha_ges

about-by

of

the

c_a_ge

.peraent_e in aggregate

_in!_lusive

disure_ionary

of

the

fa=tOzs.

• +

Discretionary one

or

the

tax

changes

a c_m_ination r_tes,

of

the

modifications

bases,

and-

of

c011ectien.

tax

in collectlons•may

,slgnificant Tax

followings

be

br.o,ght _about by

statutory

reforms

in the. legal, definition%

changes

in. the

elastlcity_

in

of tax

adminis,_.x_tive •aspeet

. on .the

O_+/_erhand,

is


"2

defined

a.._ the

yields

to-the

(1 )

•factors

base

with

.£he ••rate

._.._5 the

"Y

.is aggi:ega._.e Y°

strUct'are

low}

ZTif_i

and

changes

brackets_ of the of

high

GNP •

tax

enhanceour total

responsiveness a

is

the

of

effects,

of

t%,o oom_ponents-

e.,.as.e. _" ...... _,°, ;....y '_ of

.income;

Which.

the

tax

revenu._-"increases_

product

the.

base . .o

and,

is. ei_st.ic.'.'].ty...o_, the

tax

base,..

fr0_-___x

_f. _:ax cate_o:_:y

of

sensitivity

fur.thor

the

t,_x revenue

is base

analys<s

outof

aggregate

Bi

rate

with

in

(_T_IT:i_ / (/_BilBi),(_-_i,/B i) I(_'_/Y)

'T_e _,. .value

(or

to

change

. ,'_.e ) / T,. i

=

the

in GNP

which

res_,_.ct to

•:_..y

Wher e ' '_ Ii

, is

_lasticit,y

wi't'n

proportionak

siphoned

elasticity

.zespect

yield

the

char_ge

elasticity_ZTy

,.the

(_)

of

proportional

discretionary

Tax

ratio

depends in The

base

to

_ of

tax

of

._ZBY

irx

changes

o_; the

may

(o.r lOw)..,_esponsiven_ss

be

with

GN?.

the

A

respect

en....._he

deoo_ition

carried

to

a high,

to

the

.%he base

rate

bas._,among

.out...to

ts.x e..lastici£y_..

t=a.ced

of

_'_e

depends

w_.l.[ a_.so be.

yield

,of

d!.__t.r_3:;_Itionof

elasticity

elas_.tcity

pro_ressivity

value

anal.ysis_

i_

i,

'on

th_

ca.t_gory

with

"A

:hign

(_)r_ l_w)

base,

or

_espee_.

%0 to


There

are

a

nu_er

elas tic ity/b uuvlancy total

estimated Auditing

in

of

the

G_D,

_o

(now

the

buoyancy

_6f aggregat_

t_axes

for

-

NatiOnal

data,

197_, usi_

She

cleaned

discretionary "crude

"_

revenue

i954

- 197_,

%he

tax

at

by

Trinidad

._e_ies

Of

ba_ed

on _ _n

A_It_

_f:

(198_) the

tax

buoyancy

t_-'be :-! .13

elasticity

tO

i:_8

for

_ 198_,

was

cleane_

simply

subtracting

discretionary Llan%o tO

provide

1,07

¢_a

1970.

IMF

The

tax

elasticity

tax

series.

chan_es Gaffed buoyancy

by

o_

£ax

applying

be

c<a_i_uted .90

for

constant

Manasan

(1981) og

_X!

of_-:tO£_l these

w_k_

betow_:

tax

1960

Diokno tax

" MOB,

daEa "._._

_

of

_leut_. _

r_ _r_

_ _ld_a_.e_

_i_.

:ca_es i_8

_e_l__

bas_._ for

tax

_

on

the

NTRC

discretionary

ra_:e meT_hod.

particul--r

._ the

total,

buoy_n._y_£_

- 197_

and

the

_£'_.{9_'=:for

wer_ _-_. _djusted

the

a_

t_x_

tax b:_oyancy

revenues

elasticity

a=_al

While

Qf

uDing

t_e i_.reve_

etastici-ty

Mission

T_x

and

from

_TR_#

The:teven_e

ne_ _

_:he buoyancy

estimated

to

(1979),

of

1961"1981.

_ evlden_e

_"

yield

measures'

e_tima•te4

for

using ..... GAO

the

e_timates

tax

(198Z_,

be

of

_. _ io_O4

BUdge%&.

total

seEies

__ed

-_at-_:She :__

d_Perio

1977.

_A_4_a

_e_te_..,'

calculated

be

_:.Ge_ez_l

of _":_t_ ,_aQt

appZyln9

Ministry

on

(I_7_),

Research

tax (1971 )

elasticity

seZt_

and

the

1.097

_.31_and Tax

on

Sicat

!_i,ay _

revenue

•changes

method,

be

Co_mis_

covering

1961

periO'd

studies

Philippines,

" _:aX _Uoyancy

Of fi_ce,

earlier

_TRC

(I_85) cat_:_ories,

(197_), analy_ed k_TRC


4

and

Diokno

exO_se

concentrated

taxes

r events

All

and

and

on

elaStiQity tO

the

different

by

b_oyanoy

not

c_parable. from

updates

On

and

the and

prese_ting

variable • is_retionary

the

of

cited the

Caballe_

the

It

should

utilized

elasticity

fifties

most through

improves

on

and

Ministry

effects.

the

of

these

the

Finance

and

that

the

series

and

are

were

in

th_s

method

area

revenue

series a_d

on

paper

computed

revenue

thus

based

This

estimates

the

and

revenue

generated

works

tax

of

noted

studies

adJus_ment adjusting

rate

seventies.

earlier

elas:ticity of

proportional

technique

of

Trinidad

data

estimates

revenue

buoyancy

growth

d_fferent

their

tax

and

be

-f

alternative

computed

of

GNP.

Also,

buoyancy

I!97_-198_

e_pioying

rate

ratio

obtained

relating

hand,

internal those

from

base.

the

of

except

peri_

equations

other

taking

studies

t_e

data

the

grow_% •

regression

income/proxy

Patio,

de

inves_iga_eu

types

studies

estimates of

Gaffud

various

these

Trinidad

specifications aggregate

taxes,

studied•

of

bUOyancy/elasticlty

de

income

while • Manasan

taxes.

caballes

on

the data

by

based by du_y for


5

_,0.

Sa_ient

The

Pe_uree

.:pprpo_se.

.features • of

the Phili_ine 19_5" 198q"

of

_of,_this section

the "Philippine

given,

on:

the

period

197%--

more

tax

198_

important to gain

The

The

Individual

indi'vf_u_l

schedular

_tax.

.gr0S's'•in_

system.

a better tax

Income

Tax

'_come_

ine_'

__:a _i,9 " istep _raduatlon

fromi

income

over

cent

_00,000,

-_:0_ _e

incomes which and

_

..sta_. _ises

_.ther hand,

at ._ Per

cent

%/irough % steps

_q0,_80.

M_dified

com_e..nsat.ion income

respeuti.ve_y,

are

for

Additional

claimed

each

additional

exemptions

60 _er

in 1981_. I_83,

of

cent

Net

_

and

factors

_abl_ 0_R_r

professional

mar_.inal th.. an

of

defined

additional

• _,

_00 ,.

rate s _I0,000

and

income,

and

to ._3 ,_00

t_xpayer. three

as

grqss _

_8, %00, mar_ied ma_

'Pers0nal times

on

over

exemptions.

fe_nilies equal

the

the

in_o_e

le_s

is

a_d

increase_

198_.

of

ce_,t for::net income

income

exemptions

were

the

taxable

income

head

dependent

in

__as&§ at

_40000,

single,•

enacted

_hi,cn . prG_e_es

per on

net

'les.s personal

taxpayers., for

foz %o

,be

ta_ed'.'ior_ .... a-":"mod_ied

b_si_ess

income

.-gros_

eX_p%iO_S

Personal

period_

3% per

are .taxe_ .on a net

will

_descT.%bed, 'as .... a

-rates

_arginal

ithf_ugh

_2,%_)

real-

ela_t!clt_o

tax_:_,' best

"COmpensation

_he

_.p_asi•s

kn0wledge

and

bas:.%s_ at

describe

is to

tax m_asures

-that ..influence tax b_oyancy

.I

l_ys.teln,

Tax

the

during other

be and the

hand,


6

is

defined

includes

as

income

business,

and

include

the

expenses

bad

In

lieu

the

income,

and

._ros_

wizhhol_in9

tax

reSpect_vek_,

and

of

(BP

popularly,

Tax

' Law

13_) (MGIT)

which

in

in

i981,

levied

on

a

_ong

compensation, The

included

professional

in

sale

of

addition

net

tl_e

to

div.<dends

_or

(3)

taxes,

(7)

charitable

practice

(4)

contri-

deduction!' income are

cent

los,.es,

dedu_tlons

u

the

equal

to

_._e

i_t_es•t•

subject

and

//_plementation

known

],981,

introduced

income

from

Fasciae

necessary

tO

I%

a

per

fib%a! •

,cent,

_.

135

and

business

"standar_

_. and

deductions i.e.

ai low_ble

170 _ • ,_er

prior

incQme.

_

income.

However,

1800)

the,s e

_lalm

royalties

and

trades,,

dedie£ions

_expense,

p_ayments,

(whleh

vocations,

Allowable

ope_.'atior_ of

Q_

income

allowable

depreci&,tion

ma_ • instead of

less

interest

• (6)

cent

professions,

(]_) business

in

(2)

fessional

exemptions.

following:

debts,

taxpayer p_r

from etc°)

incurred

butions.

iO

derived

additional

profession,

(_)

buSineSs/pro

commerce,

personal

of

gross

and the

the

Decree

basis.

tax

There

was

of • gross

!ncome commissions,

income,

interest,

dividen4s,

items

etc. that

Allowable are

tax

d,isti_tiOn passive

all • e_braci.g busines_s

royalties, deductions

permissible

(PD

passlve

global

no

was

salaries,

property,

a

On

and

wages,

to

is

XncOme 18004

tax

business/professional

definition

Pambansa

Gr_Ss

withhQldisg income

Betas

Modified

Presidential

final

personal

income

as the

of

at

_, _d gains

covered, present,


7

h_aSiC

[medica.l 'expenses, dependents.,i The •

rate

andlO

s_ruct_e

,'of 3 per

centfor

marginal

" rate•

oo,f oO

rough

tuition

progresses

stee|>ly

net

TO'per

total

Decre 9.

:a_d

1IS6

sChoOl)

gross •income- Of'w_rki_"

cent

tax

divide[,ds

a_.,_.. _8

froms

of

wife.

margin_i

rate

inc¢_/a!:less th_n

_-2,-_O. to., a

fo_

ifl_ome- over

taxable

n_

s eps'.

of

,_, 19_._,,Wlthhoold_ng interestS,

(up 'to high

•,•percentof

_axable of

fees

Sch_2ne for wages

was

instit_t.ed

tO improve

the

and

salaries,

under, Presiden£iai efficle_y

of

tax

_dmlnistra%_o_.

_.2_ _Th,e_ Cozq_ora_e

The •net

inc_me,

cenz of

cOrpOrake _irst

wn_Ae,• ne_

" _ncome

5n

Tax

tax

._ido,000

ir,c0me

3_ .,per.._en_.

income

Is a'_dual

of. net

excess

"N6major

ra£e

of

ihcome

is taxe_: a_ _2& per

_I00,000

changes

ta'x'based _ _-(_n

le'_:leV_%ed.:a,._ax

.Were .intr_uc.ed

in .197_:.-

-i 98S.

2.

lo_al.ly

p__d_ced

go@ds.

_.ariff "._.ncl_sive landed .(_CV)

plu's, 10 percent

.other,_/qha_s., domestically Exports.

The.tax;base cost of

(i. e, HCV

,ei.... xc_t_ ,. f_:ight , manufacture!

goods

subject

"home

pius and

goods :o specific

for

_rte

co,$_t._on

postage?

gross _ax,

the

'.va_ue

c@_ission

insurance•)ana , is

iS-

that:

and '_or

:Se,,l-ling price. goOdS

subject

to


8

miller's

tax,

Forces

are

original the

not

sale

port,

to

collected

to

O

and

s_bject

in

according and

firearms

the

the

at

case

cent

ordinary,

sales

the of

"essentiality"â&#x20AC;˘

per

ammunitions tax.

manufacturer's

the

and

the tax

are

Armed

rates

on

or

at

level

differentiated

goods:

_0_

non-essentials,

essentials

to

The

imports,

Of

for

sold

30,

20,

i0

seml-essentials,

agricultural

products

_

I./ respeotively. per

cent

depending

turnover levied

AutOalobiles

on

o_

each

subsequent

processed

and gas,

specific that may sale

are

be of

cent

of

sale other

and

miller_is phys_ica_ly

credited this

at

_0,

displacement.

appgar

or

taxed

of

at

paid

e_m)

raw

like

tax

when

All

materials

in

sales

of

_nd

products.

on

except,

thaÂŁ

intervals

incorporated the

_s

l'_brric_4_@ petrol

regular

a

price

(excludin@ and

a/%d _0

19_5,

except

agricultural tax

40,

selling

areicle

wax

against product,

any

35, Since'

gross

fuels

grease,

magazines,

c_ponents

original

per

Whic_

newspapers,

product

l._

oils

publications

s_ies,

engine

tax

manufactured oil,

on

are

the

and

flnished

due the

,

on

the

finished

!/ product

is

an

agricultural

product.

The

advance

sales

Between 1969 to 1978, non-essential, semi-essential ordinary and essential products were taxed at 70, 40, 7, and per cent, respectively° From 1978 to 1985, the rate structure was 5_, _5, i0 and 5, respectively, based on Presidential Decree 13_8. The classification of Co_m_odities under the different categories was also modified in _1978. The tax credit provision for taxes paid on raw was introduced only in April 1978 _nder PD 13_8, intended to eliminate tax cascading which results are taxed repeatedly as they passed through the stages of production and distribution.

materials Th!_ 'Was if goods diff_94nt


9

on

_!porte_

_tax

due

tax

articles

_

are

as credit

sale

these

imported

_a_

tax

:the _i_al

allowed

oredlt,

is l_ii_ed

of

agalnst

against

the

sales

:_cK>_s.

-on

No

s_seque_t

sale °

Before .Decree

the

i_I

essential

which

_is£em,

impmSed

, _

_cent

were

while

_i_X'_.ed

chai_,

_fas,

_'_ing.

rate.-

a

Bi_k%

on

importe_

were _subject

"price

cent

tax was

agrlcu_tu_al

dcme_

_dsl

_he

pens,

produn_s

gross

I0 per

sel_ing

_ai_pm_, _as

_elev_@io_s,

at

ce_t. sa_es _radua_ed

aS_ .the.,maX_la_".

___ed

pr_essed wr_t£n_

,__f-the

cent

a_ against the base

pe:r

electr±u#

taxed

was' applicable a

- 4_

p_umed

'l-an_dry _oap,

F,r_hermore, _,Wa_

on

and

.at I_

2@_ per

2%" percent

_

medicine.

per

et _3q

-_ r_orae_S,

,,were

with

-_OQ

d_s_ea_ly

to .a flat

versio_s

produced

mannfa_tured;

p_rod_t6°

taxed

fanS_

"f_h,

local

_azed

eleu_ric ta_

were

_ms_ly

IO0

bedS,

wh_le •ofl.lyq percent

domestlcal_y

_FeEe

levied_,On

of

were

.._he

imLu_ed

llke

on

_O pe_

_l_e_-

tax

semi-

rates

instanae,

o_es

"watches.

On

e_inated

articles

_al.i_

rateS

Ta%es

sme-_-essentlal

eta.

while

_0

I:o a sales

Oent

Preeldential

salee_X

Fo_

._p_raphs,

refr_e_a_z_

pm_c_Is

relative

alroonu_r_ioners

oil: s_ves,

me_t_

effee_ve

_je_t

_rted

ones_

tax

and WhiCh

_oods

a_ain__he-_.2Y_r

as

articles

lOcally, manufactured

_pe_ _en_1

of

sal.es tax

cante_pa_ts.

au_a_b_les.,

198%

the

h_her

impoj;_ed

manuf_ured

in O_tOb:_r

unified

'_uld _ent_al

mark-u_

and

issuance

of

price

_X

_he

same was

I per

were

lev£ed

cent

sales

_£-le

pads,

tax

t_at

for on on


Iu

ira.ports _, was

th..9 tariff

inclusive,

landed

cost

p!_s.

a ._ark-up

3/ equal., to. 2_

2.4

per

cent

The

Excise

Specific.

taxes

produced

and

al,_oholi¢

products

saec.b_rine,

and

_o!ume

an

ad.ua[[ore_

..eases,

.rep_aced

specific

tax.

•asphalt,

.diesel

denatured video,

• fermented

unit

was on

and

spirits.=

cigarettes,

nap_ha_

to

a

petroleum

gas

%-hose

f_)r., motiv

and

ad

valorem

and

bunker

fuel

oils

are

_ed

adMglor.._l_ '

produc_s_

tax_

solvents

to

kerQser_e,

9_

regular,

am4

fuel, •

an

unit

• thin_ers

turbo

sub_.ect

_or tax

_%g.ers, petrmle_m,

.cinematograph!G!

gasoline,•

used

in..4_e=_ain

waxe_,;

:aviation

except

be_...._mit

liquors,

greases,

levied

to

and,

petroleu_

coal,

are

us.e4

products

_obaeco

gas,.

• fireworMs.,

Saccharir_e

most,

s_bjee_,

wines,

proce:ssed

liquors,,

...tobaq..oQ,,_...i.a_d

to

c_mp_unded

_re

%_a_ly ".,,, ., _.,

St.art}_._q...September

edde_

liquefied

dQmes ,

fi.._ework_, ._._..1..,

_pe_if.i.c. tax

_ax

matches

oils,.,

petro!eumj

prod_ct.io[_/_&l_so.

fue_. <_i].

alcohol[,

tapes

The

component

_ta_

di_.t.ill_d

ce_ _-__a_.n " • .

c.._,r_ema%ographic. _ilms,

of

and

• on

like

.TD pa_i"_4_eular,

.powe:_

!ub.rica_%.ing

good_

matches,

•1•984,

Tax

.a.re e_ises

,.

on

only_

(Specific)

_ported

tam .b_ased

motive

o.f th.i.m.:to._al value°

.f_.!_s,

OnIM;_ ._remium

_

e, power..!

_and _u_d

i iq_@ f._ed avie_.ion

sub.ject ' ho: Do._n

_!t

tax,

--------------------_ne mark-up was ordinary/essential, articles prior to in March 1983.

_5,

50 and i00 percent, respectiveIy_ for .semi-.essent_,al . and.....no_,.es___l theimplementation of Execu%ive Ofde_83


ii

Like

the

sales

discriminate

between

products

with

rates

tax, imports

_/%e former

than

the

harmonization

the and

being

to

However,

rates

on

imported

imports

is

an

tax

used

domestically

sub__ect

latter.

of

specific

and

produ.ced

hi+__her

in

to

,.unit

.NoMen_.er

local

tax 1983

good.s

%x_k

effect.

T_r_fs r angim_

on

,fro_

are

_ee_

are

taxed

per

at

higher

in cent

comm+-.sslon

and

December

in

March

was

in_reased

2 ;.6

plus

reQuce_ ba_k,

known

_o

to

_ percent

the

items

all

the

and

!0 percent

insurance. percent

198_

cent

in November,

were

first

introduced

tax,

an@

was

la%@r

to 8

in JUne

+in January

home

postage

duty, was then

(TRP)

the

plus

3

rest

Lrate+,from

is.

same

of

1983,

three

Program

base

freight duty

rates

nominal

additional

November

finally

Reform

tax

cent.of

This

and

average

The

except

cent

_ith

percent

1984, and

on

It

finally

198_+

Taxes

import as

Tariff

additional

in

.tO +8 per

- l_port

The

charges

_ percent and

_ per

the

_az

present,

' at

I0 per

an

v_10rem _t

cent.

imports.

1984,

When w_re

cent.

reduced

per

other

all

to

then

28

1982,

on

increased

has

to value

+imposed

per

rates.

1981

consumption

In

+to __

,30 +_items ,are+_axed

initiated 43

_ree

ad

taxes

stabilization

were

in

1970,

J_+pQ.sed

the_ on

the,_


12

following

productsz

coconutcil,

desslcated

and

concentrates,

and

concentrates,

molasses, canaed the

logs,

coconut,

iron

ore

pineapples. tax

was

cement,

petroleum

prawn

Through

the

products

have

decreased, â&#x20AC;˘the

f.o_b, 10gs

8

depending

are at

per

January available cheapening

at

4

up

ad

export

s_gax, and

subject

clinker

shrimps

tax

on

to

o_men%, and

particular

reimposed,,

affected

and per

of for of

rals.ed...or

commoditiesfare_

effect

At

and

in

lake

cent,

dessicated

banana.at

gross

exports

lSper

abaca,

(BOI)

of

_onut

coconut

pineapple

at and

2 per.cent.

a_minis%ere_

industrial

expenditure. a shift _e

onthe

Expenditures

selected

to

at

veneer,

levied

present,

and

Investment

tax

tax

copra

cent,

introduced front

va_orem

cent,

Incentives/Tax

form

1981

the

products

gold,

lift_,

meal/cake

1under

system

viable

the

ore

tobacco,

bananas,

exports,

copra

Board

incentive

an

R0 per

cent,

Tax

The

is

taxable

at

juice

2.7

most

of

cent,

pineapple

include pitch,

on.how

tax

taxed

9 per

%o

years,

chromite

centrifugal

of

ore

market.

export value

llst

copra,

copper

unmanufactured

sporadically

international

the

oil

been

meal/cake,

oil,

1973,.the

portland 8.

fuel

expanded

plywood,

concentrates,

abaca,

In

veneer,

copra

and

bun_er

unmanufactured

export

lurer,

firms

accelerated

from and

activities Betas

is

Pambansa

incentives which

.._ax.

exhibit

depreciation,

39i

which a

%he of are

capital tax

and


13

duty

exemptions

expansion

on

relnves_ent

are

perforD_n=e

oriented

the

t_x

@n

local

credit

â&#x20AC;˘cQnt_t

of

governme_t_,

importation

of

allowance_,

etc.

and

net

value

exp_rt

promotion

e_erpri_es

w_re

earlier

in_entive

packages,

with

the

im_leduentation

In

a ddltion

e.g.

the

minÂąng,

the

National

entities,

Power water

entitled

to

Decrees.

presidential

the

exemptions

private

by

most

have fr_ fiscal

(NPC),

Decree of

_these

tax

analysts.

teeth

_o

under

t_e

t_e

most

all

specific,

the

MARINA

for

package

for

corporation8 (NFA),

Philippine

Airlines

(PAL),

stations, numerous and

government

priveleges

of

Authority

1931

restored

variety

Food

under

,However,

been

net

sector

government

radio/TV

exemptions

enterprises.

exemptions leakage

tax

a wide

more

National

districts,

Qn

benefit

administered

various

Corporation

like

so-cal_ed

eector

Authority,

Mines

e.g.

credit

While

exist

are

Zone

Furthermore,

neutral

provides

firms

which

391.

which

of

tax

f_red

nhere

Processing

Regional

tax

BP

391,

Bureau

etc _,

private

BP

and

export

of

factor

391 _also

most

equipment,

incentives

policies.

the

packages

Export

shipping,

and

to

incentive

BP

to

are

earned

exportso

pioneer

other

which

capital

a since

19_5

of

etc.

were

Presidential 1984

withdrew

corporations

considerable them.

is' considered

and

nu_er The

of

revenue

significant


14

3.0

Methodology

Changes sum

total

in of

structure

revenues

changes

to

effects)_

tax

due

changes

and

changes

responsiveness

of

and

growth

tax

discretionary changes

revenues

to

is

base

a measure

automatic

the

after

of

the

changes

(au_at_c

_he

of

t_e_e

and

b_ses

admifllstratlwe

are

The made

for

attributable

to

changes

in

to

trend

tax

elasticity

economic

Of

measures.

growth

adjusting

measUreS

a measure

of

for

responsiveness

in

tax

rateS

tax

and

of _ the

aggregate

degree

Thus,

changes

is

statutory

the

the

tax

adjustments

reflects

efficiency.

revenue

the

after

economic

administrative

effects

sMstem

discretionary

changes in

on

buoyancy

the

18

activity

Tax

in

periOd

responsiveness

discretionary

in

changes

constitute in

based

tax

given

to

Modifications

efficiency

to

the

extraordinary

the

a

economic

due

effects),

changes.

to in

(discretionary

two

during

which

is

discretionar

of

_ax

activity

M

revenues and

tax

administration.

3.1

Estimation

of

Tax

Buoyancy [

Tax

buoyancy

econometrically

by

receipts

on

following

forms

:

=

+

Tt or

in

regressing

aggregate

ao

bo

this

Yt

income

study actual or

GNP,

is or in

estimated

unadjusted either

_ _a:x of

ÂŁ_e

(i)


15

log Tt

= so + Sol°g

where

T t

is

the

of

it

is

Tax

buoyancy,

tax

impact

at

time

t

is

GNP

is

derivative

actual

tax

is

revenue

the change

in

n

,

of

time

of

used,

revenue

of

dis_retionary_

tax

the

measures

t.

aggregate the

tax

when

the

tax

rate.

It

respect

yield

be

income

marginal

with

may

inclusive

, and

at

coefficient

specification

(2)

revenue

Y t

b,

Yt

per

derived

to

unit

GNP,

b

is

the

dT/dY,

change

from

linear

An

by

the

i.e. income°

following

adj us_nent:

•\ % Tax

buoyancy

when

linear

regression

on

values

the

buoyancy and

T

in

year, plugged

and

the

from

is

in

at

means,

the

period

coefficient

and

equation

are

estimation

equation

the

variable

T used

estimation

of in

Y

evaluated

the

n,

equation

of

is

calculated

its

i.e.,

Y

tax

values

or n

at

a

depends

Usually,

mean

utilized;

period,

value

(3).

i.e.

of

of

the

and

T

Y

end n

are

(3).

i

The specification, buoyancy. that

coefficient equation Implicit

tax

estimation

80

buoyancy period.

of

(2), in is

the

the

is by use

constant

double

itself of

(2) or

an is

logarithmic estimate the

invariable

of

tax

assumption in

the


16

3.2

Estimation

TO respect â&#x20AC;˘yield

estimate

the

to

it

GNP,

series

for

methodologies of

of

discretionary

Chand

of

is

3.2.1

to

discretionary

Bahl

draw

elasticity

necessary

cleaning

and

Elasticity

built-in

effects

(1974)

v_hat follows

Tax

and

well

deal

Cleaxting

the

the

tax

expounded

Tax

actual

tax

various series

Chelliah The

these

Series

with

revenue

in

(1972).

from

tax

The

historical

L_helliah

a great

adjust

a

effects.

the are

of

and

exposition

papers.

of

Discretionary

Effects

There historical

are

tax

discretionary structure dummy

per

tax

variable

measures,

reference

the

distribution

(or

(commodity

that

the

same

structure

depends

on

per

income

year

and

the

using

of

(commodity

dietribution

of

rate

as

the

across

the

data

rate on

grouping) taxable

an_

tax

for

other

a tax

rate chosen

to

e_e

Income

receipt

effective

The method

tax

the

to

series

year.

structure

income

(3)

years

reference

for

rate

structure

(values)

constant

avail_bility

bracket the

the

method

effective

all

of

constant

applied

i.e.

series,

impact

are

in

tax

of

rates

groupings)

"cleaned"

feasibility

the

income

the

rate

(I)

grouping)

these

generate has

of

adjusting

revenue

constant

commodity

taxable

to

adjustment

The

then

the

namely:

calculation

and of

for

proportional

bracket year

brackets

(2)

approaches

series

technique.

requires income

major

receipts

method,

method

three

rates

reference

(values)

b M


17 income

(commodity)

period. is

While

not,

series

former

is

especially

if

one

long

enough

for

the

constant

approaches

effects

to

are

Primarily

for

the

Unlike two

groupings

less

for

each

readily is

rate

the

estimation

accessible,

;_he

latter

with

building

method,

the

a

work°

structure

the

tax

demanding

in

terms

reason,

this

this

of

concerned

econometric

cleaning

year

series of

study

of

discretionary

data

uses

other

requirements.

the" t_o

remaining

methods.

3,2 °1 •1

The usually

to

Adj ustment

adjustment

Prest

(1962:) °

(197 _.)

and

that

the

Prest

procedure

which

is

equal

to

demonstrated element

proportional

at_rlb_ted

Chel liah

Proportional

of

correspondi,_

element

Chelliah

in

the

and

method

Chand yields

a

.bY

Sahota

computed

from

the

by

equal.

The

data

adjustment revenue

technique effect

of

are each

The two-step

process

The multiplier reference year.

of

Thus,

series

needed the

and to

the

actual

tax

discretionary

proportional

adjustment

is

T

,

the

the

tax

have each

of an

the

approach

series

the yield

series

tax

an_

the

measures.

method

tax

are

proportional

tax

historical

actual

elasticities

Sahota

apply

year's

adjusting

and

,'

(196i). Prest

series

multiple

_enerated

is

Bahl

( 1974 )

/

developed

(PAM)

However,

a constant

series

Method

involves series

yield

.in

a for

t/%e


18

discretionary

effects.

discretionary

tax

receipt

in

year

2

the

to

years

year

are

receipts

the

actual

preceeding

year

rates

in

receipts

that

year's

be

actual

Ti, j

be

j'th

year Dj

be

tax

if series

f_lows -

year

I

years

receipts actual

year

t stated

in

receipts

the

year in

year

ratesâ&#x20AC;˘

e.g.

i,

by

in

j'th

adjusted

the my

year

t

in

the

the

In

3

ill

obtained

receipts.

receipts

revenue j'th

is

based

in

_.e,

yield

changes, as

tax

s_e_

ratio

of

reference

symbols,

le_

year to

the

i'_h

rates,

the Then

tax

Tj

re_erence

a

actual

rates,

the

l.rates,

Of

enacted,

1

Second,

t-

_he

is

year

annual

effect

from

measure to

the

year

year's

to

the

etc.

to

revenue

eliminated

which

"adjusted"

tax

the

converted

converted

the

is

2 rates,

expressed

less

in

are

year

multiplying

I,

measure

receipts

receipts

First,

effect

the

discretionary

action

xn

year

chosen

on

of

as

the

reference

proportional

year

adjustment

the method

Cleaned is

â&#x20AC;˘

T1 ,1 = T1 TI,2

= T2

TI,3

= TI,2

- D2 +

(T3

- D3

- T2 )

TI,2 T2

or

T1,3

= T1,2

-

T2)

" T2

w

TI,j

= TI,j-1

+

(Tj

-

Dj

-

Tj_

1).

TI.j-1 T_. .

(4)

as


19 or ,]

,j-i

-i,3 T 3-1

TI,2

= _2

- D2

TI, 3 = _i,2+

|T3 - D 3 - T 2)

TI,__2 T2

or

31,3=

+

- T2)

IL2, T2

TI

= 11,

+

(T] - D]

)

(4)

or

T]-I T1

Step

,j = T 1 ,_}-1

1

of

the

T2°3,

,

se_ie_

Tl,l,

+

(T] -1,3

procedure ],

Tj. I, TI,2,

pareRthesis

mn

nond_scret_ary

last;

year

ChellA_h

and

m_It_pl@

_ Tn,_

=

the

Tn_ I,

n

While

TI, j

, TI, n

ser£ee step

Note

expreselon

for

change

_n revenue

between

of

the

Chand

the

T!, ]

=

ATI,2

where k

generates

also

Tn T1 °n

derived

per_c_,

(1974) serles

t_e

year

shQwed tO

{4' )

T1,3_ I,, __ T3_ 1

the

Pres_ the

- Tj - 1}

n,

that Wit,

TI, I,

_ generates

the

y_rs

cleane_

_n

_s ]-I

the and

serxes

reference

the Tn°j

the

expression

T 1 _j

as

TI, 2 ,

serles

w_th year is

a


_U

Given applying may

the

then

on

GNP

. interpret_

buoyancy.

. i_.

If

series

the

is

the

Ab o

series. is

the

employed

linear

._

s_milar

fa_hlon

or

_,

_y,_

._

-

elas_iclty

series

of

tax

_auble

Io_

r__reSs_o_s_ay to

is

,

tax

the

these

specification

that

used

of

tax

i%.,.j

[Wi_.the.

that

()) rate

equal

oF the

to

other

Tn, j

series,

_ (dT 1 ,j/dYj

relationship

On

the

this

from

tax

is

multipllcative

c$_ed â&#x20AC;˘- .

Y9

marginal

which

is

method,

coefficients

such

TI,j= -as

that

regressing

either

linear

initially

then,

b_

using The

series

adjustment

estimated

specification. be

tax

proportional

be

receipts

a

betweea

hand,

if

)

the

the

.d Tn,j_.]d_. :,,,"

because

of

Ti# j and

double

lOg

%he

_heTn, j

epeci_i_tlon

_.t_.,..::_. th_!

log TI. j

=

_c_ * _c: Yj

(6)

then., . .Y

=

_'T

_TI,3 These

results

.Y n,3

_,ggests

-'- _o" that

is

adjusted

method

of

_r_;.po-_t!.e._;._!. _.djustment the

reference

a cjiven

the

Series

tr.anelate

to

once

analysis

is

discretionary i.e.

year'S

.in

terms

in

the

._

structure

then of_

it

_"_

iS_a

any

__s ._he

Dr_e_[_

other

_ 'tO

year

as

year.

Inherent

method

historica_

that

the

assumption measure

discretionary

proportionai

that

grows

in

"the

revenue

proportion

measures

'ad_,_t_ent

alter

effect to

the

_O_al level

-OÂŁ,.'_'.any revenue, (_;;,_Ae_d


21

but

do

not

and

Chand,

i8

measured

ohange 19_4). is

dlf fere_t

(R) base

Th_s

implies

••the average

where •rate

(I)

tares,

elas_iC_y! _e

that

the

tax

the

Lax

elastic_tF'

eit/%eE

t:S

method

is

.income

,e_!

with

d_B(_ret_._r_

action

or

system"

an

_.he

of

rate not

one

appl_ed

taxes,

to

the

es t J_aat.ion

a_e

commodity

.is a_s=med

that

appzopEiate

measures

respect

(Cl_elliah

elastlcity

_dur ing

_/%e• discretionary

on

such

that

cha,ges, to

in

and

affect

• the

o•f the: E_.

3.2.1°

2

The

du_y

reel;hod

discletionau_

revenue

Suppose

that

_a,¢

affecEed: _he

the

existed

the

econometric

_nd

of

of

that

Nevertheless,

cases

%_e

elasticity

s_ructures

period.

flat

the

the

eq_at_om

:_hen

. .,_,e

effects

(.1)

ary

levels _ _ummy

!_eChnique:

(DVT)

and

esi_imating

period change of

the

from

and may

_X year'

oocured

revenue

variable

t_..-indicate

£s

iS

_d_j-_s_,in_j

simulta_mously

estimation

._Ot_t:_he

TechniqUe

variable

variable of

••a_":d_,_,:_..Q_.

system_

Dummy

in

be

_hange

,_or

elas¢ic.ity. I,

2_..°,

year

the

an

k,

n

which

elasti

intrOd._e in.. struct

wi_%

Iog

%

-

_I

+ _i

log

Yt

+ YI D_

+

_I

Dt

D._.... = .0.'for:. . ._ = 1,2,...k-l, (period = 1 for t = k, k + l,...n(periOd

_I

Yt

t

where

The

iog

elasticity while

o_

the

system

t/%e elasticity

of

given the

;.the _atter

i) 2)

e_rli.e_.. S_r_c_.re system

is

(_I "

is ),


22

the

change

it_

discretionary elasticity, the

the

parameters

level

.71

revenue

work

_rit.h the

will

be

after

,

:that the

of

of

and

61

the

for

linear

is

_

in

is

is

the

in

the

marginal

marginal

level

of

tax

tax tax

estimation

if tOOk

plaoe

(8 )

may

during be

variables. oft_,n,

rate,

ray

more the

However.

insufficient

investigated

.variables.

the

affected

the

the

tax

one

would,.

the

of

System.

dummy

_r._%her

.v-_riable

ae

foli.o_s,_

the

period

period 2,

to

than

one

to

and

the

constaDt.

i while

(b I +

c I is

the

period.

discretionary

action

t_X,, action

' equations

include

(7) .and

additional chan@es

with

)

change

discretlo.ary,

discretionary

dI

a.tm_ny

oco_red,

too

problel,

of

that

tax

the

'observations.

adjusted

•changed

• the

(8)

_..s confronted

Chelliah series

in

testing

equation

_ate

if

on._

in

due

ized

the

t

estimation

general

ther,,

in

receipts

th.) _r.,,_','gi:;:.:_i,.

ho].ding

has

of

then

to

signif±cance to

reasons,

the

rate

the

Change

elasticity

due

a change

equivalent

specification

incorporated

for

Testing

discretionary and

yield

adjusting

= a_. I + b I Yt + ClDt + dlDt.Y

bI

revenue

tax'system.

If

Tt

level

.char_oe of

hypotheses

the

by for

by.

the

and

proportional

evidence

discretionary

i.e.

Chand

,that action

(1974)

suggested

adjustment the by

tax

method elasticity

introducing

may

be. was

dummy


23

Tl,t

and

= al + bl _t

+ dl

Dt

(Yt " Yk }

log T1, j = d I + bI log

¥t+61

(9)

Dr(log

¥t

" log

¥k ) (I0)

w_Ee D'_ = 0 for

t = 1,2,...k

= 1 fo

t = k,

Statistical3

raw

data

k + 1,...n

applyln9

"¢leaned"

.a_ series b.=a,_se of

dls=retlo_r_

Tax

ele._ticity

the

ra_

yiel#

with

'elas%Sai% M, tO GNP.

_T_B

ma_

rece£pt_ regress in_

one

variable

efficlent

degree

may

be

elas%i¢ity,

i.e.

be _

of Tax

respect

_J.S

i

dummy

of

than

teQhnlque applying

freedom

save_

it foe

to to eamh

actiOn.

:<:_De_,.,_posi_.ion

(I:

the

is more the

m

- 1

to

_%e

tax base

i.e.

the

fEom

eetlmated tax

partitioned

base

the

tax base,

elasticity

iS seen

Ela_£ult¥

the

into

elastlClty B

of %he

,

o, GNP.

and

tax base

fau%_zs: of

(_)

the the

wi_h

tax ba6e

respect

fol1_wimgz

ecoaometricaIly while

%_

BiY

by may

regressing be

_tained

tax by

"


4.0

The

Da_a

The ,data on 197_

.to

I_8_

tax

receipts

of

were.obtained

the. National,

from

%he

Ministry

(MOF).

IThe.,MOF t.,_;.+ser_e$is .on a =ash

remlt_ed

,+by _ authorized

Treasury. headingel

(I)

,trade ,._e_. tax+ and

domestic

llce_Se_.+an_.otheE,

imports_ d_ties

and

Estimates

of

measures

in

provided

by.the

presented

,.in

the

,i,s

est_

the

from

and

Economic and

year

these

Appendix

I, the

_l%e

two

._, d_LVi_t_tal

major

income

latter

taxes

includes

discretionary

tax

introduced

were

were

_(NTRC) and

Center

The

availability

impl ementat._on

method.

_!8

National

_nternatlonal

The

of

Research

_

revenue

duties..

actions

Table

i.e.,

ta_.es., sales

taxes.,

impact

.-Tothe first

. method

on

aggregate

a_d

exports

income

....

authors'

are

of

these

of

the

knowledge

one

'P,.O

in

_a!culating

,emplo_

the tax

or

GNP

as well

as most

+of

,

variables

gross

value

National

Statistical

Tax

e_cise

Finance

the

(2)

for

"

base

the

revenue

ad Ju_uent

',:••

income,

the

of

in.to

of. the

expoEt+

the

study

data

tax

..taxes,and

and.

%a_e$

.National

propo_E_omal

The

based

domesti=

.a_justment

p_esemt

elastio_ty.

ala_slfied

tax+

es_senh_al

propOr-tional

the

income

to

are

.._e ,,,former=onsls%s

the..uo_pora_e

basis,,

collectlnq..banks

.,Tax, re_elpts

Government

Bulletin.

added

Income

Development values

like

personal in

Accounts

Authority were

from

inc_cBe,,

Variou_

sectors

Staff (NEDA). the

coz_orate

of

were

the

taken

NatiOnal

•Data On + _ports

Central

Bank

(CB)


.0

Anal ys is

in Of

this

section,

var!ous

types

methodology the as

tax

of

changes

that in

form

from

not

took

p_ace

Section

2.

specification

when

also

empirically

significant and

Income

Income

and

close

wlt_

.98.

imply

tax

is

infer, influence aggregate

elastic

of

the the

these

present

goodness

period

are

loqari_ic using

this

para2aeters

paper

of

fit

there of

but ia

the

no

linear

equations.

the

_te

taxes

than

income

show

that

personal the

one

buoyancy

and

taxes

on

income at

R

are

while

the tax

elasticity income,

the

tax_ and

.97

The

profits

and

statistic

taxes

latter

compGne_ts_ income

on

income

that

two

two

corporate

corresponding

that will

of

the

less

the

therefore, on

of

still

below

of

the

of

presented

convenience

composed

taxand

respectively,

discussion

the

are

double

study

â&#x20AC;˘light

that _f_)llows

the

regression

elasticity

but

These

that

the

estimation

discussion

of

to

in

are

income

buoyancy

the

in

On

Taxes

taxes

individual

the

the

estimates

b_sed

analyzed

during In

wants

in

iogarit?snic

g.l

are

one

difference

double

3 are

equations of

elasticity

groupings

estimates

because

because

and

tax

Section

regression

only

and

in

buoyancy/elasticity

obtained

buoyancy

taxes

outlined

highlighted

the

t_e

of

.81, 497

inelastic. corporate

is

not,

exerted estimates l_._

The income O_e

a

per[cent

and

_y

stronger of of

the the


26

historical effects

growth

The individual

buoyancy

is

tax

below

for

197%

actions

to per

-

the

from

discretionary

to

pensonal

d_a_e,

estimates in

while

per

cent

is of

the

-_,,_ilt-ln iS

discretionary

r'eceipts

Obtained

The

;_.ethod

of

tax

the

1.

adjustment

of

figure

Table

t_L,_,', av_-._e9_i

contribution

growth

of

is

by

percentage

large

at

taking _atio

t_e of

the

buoyancy,

tax the

e_as_qity_y_elas '91

.81

The

This

i_me

_t

presented

examination

_h:a_ge_.

stand

are

historical

the

A_

elastzclty

,the proportional

frola I00

elaS_ielty

Tax

and

at

1985.

cent.

difference

l_t

rise

Income

UDity

,,-,baeed...,on,

elasticity

o%he_

Individual

income

b_oyancM,,

44.4/

revenue

°

6, I. 1

.4_

in

of

whether

syst_m

in

introduction

the

1981 of

which

the

a _es_%tive result.

While

_a#,

-

_ÂŁhe person_l

1981

taz

of

includes

MGIT

has

the _n_

affected

i_s_

Pre - 19_el_sti_ity

elasticA_y'_

income

re form

.has

is

'_i_7.

become

In

,the

_e,_veven_e

inelastic.

The aad the

base NAS

e_astici%y

elasticity

elasticities as

proxy of

tax

t_ base

â&#x20AC;˘4_

for

197,_ -

then

using

base,

the

l_w

is

It

personal

the is

personal

observed

income

elasticity_ 198_.

partiaioned

The_'e

tax

into

income that

a

rate

series

from

t/%e low

income

_.-;,-_._"_"J_utabl.e to

q'te _;_-.",? .... /!._t!_ity is

4ts

the

averaged

_r%_,_,,_-._c :,..'e_uctlon in

the


27

Table

I.

Buoyancy

andElastlclty

Income

TaX,

1975

197_-198% _---_

_

SuOyanc

.....................

y

: _

:_

of

the

- 198_

indivldual

/

1975-1980 _

19_l-lgSg _" '

.' _

_

_:_.- '._ ,'I ....." r

0.81

(o.ss) Total

Elasticity

0.45

O. 9!

0.,17 ..

(0.s4) Rate

Elasticity

0.42

0 BT) _)__:'., _

'0. i&

(o.87) Base

Elasticity

1.0_

(:. _i_ ,:.:

I..09

(0..99).

The elasticity est:i.m_tes pre_,,..7_.t.e:.: _ ;e be.sed On..._he I_pAM_,. The regression equations Y_ase4 on the 3VT did no.t yle_d statistically significant results f;.,r th-.z 19_ _, Oh_,. Th_s " ' should not be â&#x20AC;˘con'sidered a proble_ rsineo,' " On theoretical grounds, the former approach. is preferred to the. latter for eff_.ciency " considera tion,_ ... The nui_eEs in pa=enthesis indicated

the

are the R2 .coefficients

Statistic&., are s_gnificant

Unless _theZw_Se. at 5 p'er cent.


29

to

sources

amounting

between

c_npensation

the

marginal

a

't_tal_ _f

and

_6.0_ 0_0

divided

b_-_il_e_s, income.; will

)=ate_= c_f I[_ ._v_d

1_ _

be

equally

t_xed

re_;.:ectively,

at

for

the

/

compensation tQ

a marginal

purely per 48

and

derived cent

if

.income

top

of

from

coI_Ipensation

is

:_Larginal

of

i_

the

income•

ig

bracket

shown

that

nominal the

per

the

rates

base

bracket

feature

revenue

is

not

Fourth,

etc.

is

This

move

tax

compliance

as

it

reporting

in

the

should

be

_under

will

_t _f base, city.

some

aspects

this This

is

to

tend

not

to

of

the

pe_:

b,_,/that

has

qone

e!imin,_te$ ca_e

the

of

poin%e_ i_81 i_

coileczions

the

o_

_het

change

in

the

top

to

S....t,n ..e

1981.

improving of

income

income,

ao_''_ •=•"_,,._ougs the.

impa_t

r_.fo___ pa,ck_,;_!e:_._o_'- the _-=u_ e_ti;zates

",:b;.e f_ct

sh,_t

3_.

dividenas,

by

possibility

passive

the

frc_n 48

tax

has

in

on

.[9.,,_ "_ i_:tere st

tax

for

(IS84)

reduction

do%,n

for

._:___:elpts is

BI_

of

a

to,the

c,,,,2___::_

_in _ax

tT_is,

Deen

p_z ....;.ent

_.ff,_•c•,.._eh_;,x_ate

increase

from

3'_

_'efor,_.,_

of

has

a

which

applicable

fin_,2,•w_.,thho_d_......

a

the

to

loss

income

reflecte,_

arises

A

incom_

passive

subjected

cent 60

of

the

compensation

.

per

there

rates

is

to

Oi_d s.vs_e:_ ur_der

ta_

i_n_act

as

_;,t_sines_ or

T_ird,

compen_atec_

definition of

Cent

70

this

_;_te o,:f 3_)

e mar@inal from

the

income.

this

to

sourced

and

professional/busines_ from

or

marginal from

Compare

:i,f,1=h_._ ,:_:,:ab_ieincome

.im_wossible.

income

expected

cent

i,_ate under

nominal

compensation

per

completely

splitting

lowering

_......... _. .... _..,_,_,, ....... ,::_v,_

rate

it

per.. Cent

bu&i__es_

of

h as_

_=.,b.,. = per sona,_,

_x

elastiincOme


30

data

which:_-is

tax

base

ba_

is .tO _e

income the

•tax.has

a _.otal

greater

over

•i als0,

g.rea..ter than

unity,

._ea_s

concl_de

us

_:

that•perSonal

Of

i-s

exhib_te_

_r_9[%te _C_m_.ring cent t_

the

likewise

of

income */%_se the

_%_ two

qrow_:h

npnetheless, change_.

the

bas_

i_

not

it

:in corporate

its

rate iS

_hould

the is

eva_io._%• ihave been

case

be

.._the_.

inefficient

growing_.

the.• cQrpo_te_i_cc_e_.

.::_ .i_ i_6.

•.Ji_t.s :;elas.tic_i%_.

at.l.O._._ prow![_g

e_ective.

•(_ive_.

elasticity

administration

unity

os• the.

•_nity,

.theoretically

•-that this

measures,

no

major

sphere tested

_me

r ate_

i_div!duai

tota ! elasticity

buoyancy

an

exem_

_naffect_

;_•e

below.

exa_ine_,,•

than

of

_utom.at!_

_that..t_e s._abillser..,!

i_',, C::_:_,,;-:_,;ved.t_at .19,0_ income

tax

reven_eS

pe K

.is ...d_e.

m_asures.

Although tax

taxes

i_

the

i3

that

Since

tax

ta_

hi.@hest

..greater

discretionary

corporate

that

major

find

tax,

1.

fact

_ncome

the

the

•then

.The

legal

bb_/"_-_'•effective

elasticity

than

the

._i_<_former

elasticity

to

of

_han

rate:• ela:_t_.c._:2-•ba_ed_

base

tax

nature

is

• mpirigally

the

_

to

higher

surprising

progressive

elasticity

•transferee

.while

is

_,a__- ie_b_oa_!!er

inc],usi.on

to•

proxy.base

Xt

•tax

_e

_o_soq_ently,

qhQ_gn

_nd

a_",proxy

beaause.,o_

tory. t_x _nd,

used

in

the

change period

• empirically

estimation

.was

period

under if

is

instituted

_.he

i._._ the

stud_,,

it

elasticity

arbitrarily

_ivided

was has in


31

the-

middle.

from

1980

.Period to

198_.

statistically Table

cover,_ Both

The

corporate

manifested

periods.

an

Period

Is

[._.I based

.77

and

income

PAM..

The

'it

i.49

is

ratherlow

is

mirrored

in

base

over

observed the

regard

th_z only

(see

tax

head_g the

'_',<"_._.._-_.; 'Lhat of DVT

is

yielded

_.th,between

.sÂŁ

in

_he

two

period,_.

estima%es

a E.e

added

in' the

NAS'.

The proxy

relationship

i&

from

in

the

but wi_h

it

The

.77

GNP°

_Con<:i

averaged

the

base

elastielty

the

total

_!asticity

elasticity. to

from

I.S2

.73

based

tO

from

The

tax

on

PAM

_..04), 1.0_

[_eriod.

The

in But

;_roX5; ba_._._ l_._id'!;_grOSS secÂŁor

3.ncome was

rate

its

the this

eno.',_gh re: :._.t.c.:_:_c" " "'_he_. _[_prowement.

nonagricultural

corpora*:e

in

conside_:abl_'

not

elasticity.

base

the

into

elasticity

while

(DoVT e_timates

development rate

in

increased

i ,to..62

rate

movement

decreased to

in the

The

"elasticity

the

period

movement

periods

period

total

that

whole

at' .72,

two

negative

as

is

elasticity

first

this

corresponding

the

elasticity

' the

base

DVT

2

i.?.3.

components,

to

is

elastic ms

period

_:_/_?,, Cne

tax

increased

partitioning

a }_igh

PA_

?'!_79 and

est._mate_'_ [!_._

! elasticity

on

!97'_ -

the

signifi_-_anr,

2).

which

]

series

later

itl current from

dropped

_AS

was

because

prices aiso of

its

val_e from tested weak


32

Table

_,.

Buoyancy

and

IrJcome

Elasticity

Tax.

1975

-

1975--i_8_

Buoyancy .. Total

_:_ _e 19_'_

l._.:i_"_ _-._ 9/_I

_lasticity

(0.97) 0.77

(0.98) 1. _.3 (O.98)

Elasticity

PA_

I.49

O.v?

(0.96) DVT

Base

1980-198_

1. _.6 (0.98)

DVT

Rate

Corporate

Elasticity

The numbers coefficients are

0.73

0.7_ (0.99)

in parenthe_i_: all signific_)nt

I .0_

are at

_..82 (0.97) 2 ._4 (0.97) 0.6_ (0.99)

_h,: E _,_ati_tics. 5 per ce_ level.

The


33

The unexpected

in

the

there

been

no

since

structure

of

because

the

the

years

improvement

corporate

income

either

it

is

be_.ween

the

bracket

because

of

BOI

that

two

the

depreciation, income

fiscal

and

types

of

!i_ilities.

regard_

to

individual Thus. of

BP

the

195S

income 391. may

1984

corporations

other

increase also

efficiency

on of be over

tow_rds

content

f" ;" tax

the

_ccelerated e

credit

the

proxy

ha_..e

Furthermore,

tax

tax, the. tax

explained time.

on

Da&e by

The is

rate

of

While

later,

stuck.

ne t allb.

the

improw=-ment._

all

PD

government

some lifting

_.he second in

th_

Ic._31 and

<3_

the

of

_.h.e

,D:_ this

",?_.._ _ .... _ _'"

positive. in

of

elasticity

impl ication

ela.sticity

wlt_

_p1_,.'ÂŁies here.

PD

exemptio_'_s

reinstated

to

a higher

enterprise_.

collections

tax

reduced

"FI..__._ s_..._:_ _ .ii._,.';_..at discussed

and

top

ch;:._.r..._._:_._ble against

income

has

taxable

ir,centives

c e inve.s tme'._,': ,_.>_ _owance .[>rov.tsion2

the

Wh'[.ch.repeal..s

like

with

been

the

base

rate

over of

1983

is

However:,

altered

replaced,

be.ass0ciated

exemptions

development

may

tax

w.ithd_ew

had

19_:_.

shifted

incentives

local!

and.pi'ivate

exemptions

been

the

broad_ _..n..... _...__,_f _ ....... _..._ ..... ...._.<_=0_-_u_,ase

the

corporate of

net

-

39]. Of

tax

with.

earned

1975

in

distribution

BP

statutory

value

change

has

infl at._.o ' ..... _,

etc0

tax

that

el a_,t:[city

major

not

brackets

expansion

tax.,

in

have

likely

administered

erode

tax

brackets

income,

the

has

r_.t,._

the

period

ad_inistrative


35

The of

rate

co_m_odities

a_%er_ have

in

across

1978.

affected

Total

ooeffi_ient

tha_

than

used

is

one

at

198_. in

period

declined

be

and

Val_e Both

the

elasticity

1 to

.84

in

41

per

cent

Table

3).

The

lower

rate

to

tax

the

in tax

the

197_

-

that

elMtlclt!_e The

to b_se

and -

1977

the

I..95 in

_,_riod

5n

the

are

in

"ba_e

_o

a/_d

1978

.cent

b&se

tax

' i,t is

prox_ase

I

GNP

from

1.18

elastlcity to

t_i_ second

_ales_

the

_ec_or

the

2 while

_his

in

base

b_' '!_{; per

in

an_

elasticity

dro_ped

the â&#x20AC;˘ reduction

1977

non-agricultural

elasticity

peZiOdS.

â&#x20AC;˘total

1975

from

oh_geS

_wo

from

between

period

these

in

respectively.

added

(see

asczlbed_

the

and

.72,

a_aslification

that

different

rate

_ate

by 2

of

deteriorated

The

period

.88

prices.

elasticities

sugqesz_

Decomposing

the

the

_ _: : _ .....

I.;$9 between

.6.

both

gross

current

elasticity

of

wel:i 'a_

"-,_

statistically

period

less

_s

evidence

averaged

_iS

observed

the

The

the

elasticity

r_/_aln_g

structure

rates

_6_

iB

peri_

may

as

well /

as

the

Although in

expansion some

_98_,

covered

upward

these An

the

of

the

tax

adjustments

changes

analysis,

are

cr_.dit in

the

t.oo recent

pl'ovislon _ia_es to

nave be

_n

_78,

ocourred adequately


35

Table

3.

Buoyancy on

and

Elasticity

Domestic

of

Goods,

License

1975

1975--198%

-

and

Sal_s

Tazes

19_%

i 97 :_.i977

1978-1985

Buoyancy

0.91 (0.9_)

Total

0.77 (0,93)

_ _39

0.60 (0,96)

.Elas_icity

b/ Rate

Elasticity

0.88 (0.96)

i _ 18

FI.84 (0.97)

Base

E1aeticity

O. 7_. (0.99)

1.05

0_6_ (0_99)

The,

elasticity

estimates

al The results significant. statistics. cent level

of

'the applic_tion The numbers

All unless

prese_ted of in

DVT were parenthesis

a%

bas_d not

coefficients are significant otherwise iDdicated.

b/ Significant

are

I0

per

cent

[e_el.

on _.PAM.

statiscally are the _Rg. a_. the

% per


37

&,2.2

Excise

Excise tO

198_o on

from

zero

00!5. taxes DVT

PAM

other

and

reason h ign

arbitrary

in

estimates

to

divide one

not

thins for

the

since

R

Table

pa_cticular 1975

single

i,_'_ l_ 2n

the

a

sense,

is

and

period

the

i980

at

-

exdise _-e

h_hly %_n_t

Change

in

198%,

1979/198Q

discret_..onary

at

Of

and in

c_.se

- 1975%

_xes

applicabil_ty

4).

197_

diffeE_t.

Change_

s tat.is t Ic

estimation no

the

in

excise

eoef_._.c_nL

frequent

2

(see

for"

i.0_

significantly

doubt :R

0:_

a buOyancy

very to

_oods

estimate

is

hand,

the

captures

buoyancy

decision

elasticity

coefficients

DVT

Domestic

correspondi__g

a Prior_ of

on

d.ls_._ayed

-0.18

the

significant

the

is

its

on give

total

while

Âąnspite

the

taxes

The

based

T%_xeS

_e _S

measure

.Sta_

ou_,.

2 'Fhe well

as

th_

discretionary leads

statistic

measures fall

elasticity

of

the

taxes

the

is

R

inadequacy

a

available

to

low

back exc:t_e

volume

statistics,

for

the

DVT

in

r.he face

ca_rie;_

out

in

t:_e e.,-:.cisetax

on

i_;.ultive

of

the

so_e

tax_ of it

_ne

produc_on is

the

PAM

regresmi_m;, o_

as

i n_

,_a].vsi_.

arena of

the

_!_taZ.ut<_y L_._._._ __f e.xei_e 0,_ _oss_

a-,., i va.[ue

the added

_ea_%y in

_e


38

Table

4, Excise

Buoyancy Taxes,

and 197_

Elasticity -

1985_

oz

/

:....b

i975-198%

Buoyancy

1975-1979

.............

1980*198_

i._

Co.9_) Tot_l_Ela_icity PAM

-0.18 N.S. (0.15)

N;S.

,zo_

DVT

Rate

0.16

-_}._6 N,S. (0°3_) z.0e. (o.97)

Elasti_ity PAM

0.50

C_6

DVT

N.S.

-3.36

N.S,

(0.16)

(o_o_} 7o53

"

-7._7

(o.9_) Base

E1a_¢luiCy

-0.3_

(o.82)

_}.2(_

-O.I0

(o,8s)

_a/ The numb ers in parentheses Unless otherwise indicated, signiZicant a_ 5 per cent level. N,S.

no_

s tatist_.cally

significant,

are the R statistics. all the coefficients are


39

manufacture

of

constant the

•beverages,

prices

legal

(GVABTPK)

base.

excise

tax

if

rate£,

dista'ibution

of

if

series

the

then

tax

the

will: be of

goods

to

by

of

may

is

by

.O3

.18

These

then

GVABTPK

averaged

in

whil, e fJ.gures

growth

the

rate

be

rats

fc:c

19E_,

in of

calclulated

of

volume

which

by

_jrowt,_ ra<,e of

197=_ -

are

ta_

t_e

the

constant,

series

i.e., effe_'ts,

excise

taxes

,of production turn

'_t

i_

GVABTP;',_.

dividing q<_P.

the

that

£,isc_e-tionary

of

growth

the

that

of

in

assuming

remain

"cleaned"

t<_ excise!

subject

elasticity rate

the

a_,d

in

approximates

modifications

commodities

the

products

<-_sely

no

1°,75

"cleaned"

of

_troleum

most

were

since

rate

approximated

there

is

and

that

excisab],e

growth equal

tobacco

Total

the

gro_.h

!"o': !. ,_?, ast_city

I_,_ ,_<.!,m_rte ih]r _,97._ -

[980

-

clo_e.r, to

198 _

uhe

i._ -_(_7

(see

1979

Table

P_!',_e,,_t.im:_,tes than

_).

to

e/_e

4

DVT

estimates

concluded

in

Tab te 4.

-¢_at

portion

in

from

discussed

first better

_ _ " "_

for

changed

to

by

it a

value

it

account the

which that

low

positive

value

partitioning

se_.'<_nd.

the

a

will

ODserved

the

be

for

i_

in

Can

nietor•iCal,•_h

a p<:,.Lntt,D

from

a negative

understood

ai,_ o_

taxes,

F,arthermore,

has

period

i,f _ot

excise

later,

elasticity

_-.h,_ _ _:_ ,_,id, ence,

discret_.onary

significant revenue

Given

the

be _otal

_,

the

Th,_s':may•,b e

total

elas%iOi_y

estimates.

The the

ratio

exclusive in

GVABTPK.

tax

of of

the

to

bas_-

percentage

discretionary Recall

elasticity

that

change

effects the

is

rate

to of

computed in

the growth

tax

Dv

',, ol _,ectlo_s

percentage of

taki_

_ha,_e

"cleaned"


4O

Tabl_:, g,

Elas.t.-ici_y ef

Ex<:_,_e T_:_.e_ CCimputed

Ba_ed

of

Tobacco

,E

on

R_e

Gr,owt-h of

a_%d Petroleum

m

in

GVA

in

Constant

B_erages, Terms

r_

--

i._7_.i-. _.9B5

%

_i--

%

din

GVA_I"PK GNP

-

0.4e ],7.92

"

i_75._-1979

1979-198_

:3.11

(1.23)

17.49

ETY'

_).03

_'i. 1 ,_

ETB

.L

l

EBY

0 ,rl3

0 _ii _:_

18o_,? -0.07 ] ,-0 107


41

revenues

from

GVABTPK to

so

excis,- _ taxes

that

aggregate

the

rate

declining

Of

_he

the

base

period. ascribed in

tax,

the

i.eo;

as

be

the

excise

The

•base

;,he ratio "

of

expla._,_ed %ax

by

of

GNP

and

is

The

lOW

add

estJ,mate.

may

in

p,_:<J.Oa3,

gro_:,,h rate

elasticity

growth

the

specific ion volus_e

is based

_o

i;hat ps,ic_; adju3*c'.F,_.'_,"._:, _,:_ !0_,,_: :;.d_/.uded in

and

by

the

In

turn _

to

the

total

all

.__ calcu!ated _'"

to

elasti.city

production

_.o i .in

equal

GVABTPK

the

base

apprcCx:;.i,,,_• •• :'-;,:the

elasticity

of

tO

identical

of

is

income

growth

nature

ETB

is

the

second

con trac_tlon tile

of

G'::ABTP<

_;qe

may

decres,,s:-d co:;,_'ru_ti,_.n<,', p...... toleum pex._,od,

perti

second

.... C%/ABTP_ '- L. ":

i.O_

cr_Dt_ac%

in

be

prod_:c:ts

cu1_:r:_.y ,:I_,, _,:: _-,bereCesS!o_

of

1983--1985,

The -

1985.

Consequent/y,

government per role

..... _,,.,_........... ; _ 9 _:aX i_ ' -:.1,97,_j .::a,_w_.; 0:.[_.: f;:s,:::_;_

excise

tax

cent

in

in

this

inelastic,

revenue

1985.

in

is

effective

as

much

perhaps

198g

(in

to

_3

pl_._,_,yed a major

more

surpr_,s!n,9

Znherently is

the

v.;'.!u_-, <,,; ....... _ o_,e_-

time

adjustments

are

more

what

would

Warranted

true

197_

t,._,Z,is

[,_oss_ble be

0

in

natio_a_

thi_

made

especially

in

as

measures

is

.47

cent

measure,s

even

%a.x rates

:::_ ;c:tal

per

tax

than

to

]3

.29

to and

1975

ifrom

from

_his

in

rose

,,_h, ar _

Discretionary

growth

What

increasing

iA:s

In

:_n

effect, in ky Ig7_

dise r,_tionary t_:'.::' .,':'a_:_._

inflation -

19:79

WhiCh a_one. and

Computed as the ratio o_ una&:_usted ,:;.:;(cise tax receipts gross value added in manufaccure cf bew_rages, tomato petroleum products as measured J:_ cur,:,-ent prices,


42

1983

-

pointed

I_8_

.out

products of

been

,i983

reliance,

of tax

society

1984.

may

ease

and

_.3.

TaXes

taxes

imports taken low cent

" export

.4_

t_

t.rade

I_port discretionary

-: 1985

averaged..78..

D_scretio_a historical

.ry.; effects increment

in

are

'to _/%e

dz, shr._Du'" ' " _" ...... __r.," but

not

buoyancy

'O_

%ariffs

from

on

and

elasticity

is 37

during

these

taxes

thi_5

to

is

37

per

source.

s

C_._P

b-_:_._?,ai_,uy ,_or

even 197%

l._%w¢_..'_" at .49.

pc.:," cent tnxs

on

_iasticity

Import

even

and

taxes)

contrJ2s, ut_._

responsive

included

revenu_

of

]=9a¢_._

Taxes

very

of

,:_nd other

,revenue

contributed in

,excise, taxes

measu;re_;

Other

are

Total

visible co&t,s

19". -_=,-

in

and

effects

relative.

a highly

are. COmp_:sed

tax

are

the

•narrow

TFade

The

growth

taxes

a

that. the

income

excise

.72

Tariffs

on

;h'_creasing on,

by

,from

economic

well.

dutie_

historical

_.3.1

if

on

taxes

Discretionary

the

tax

rely

sales,

averaged

managers

been

petroleum

the

observed

explained

on •International

• toge_,.er at

to

as

(advance

and

the

suggests

only

efficiency

In.t_rn_ional other

be

et. al

not

_._xi'_, 'Z

fiscal

only

197}4) how ._ ,..,,

taxed

of "extracting

_.effects

inflation

et.._l

Thus,

,_i_s prosp,ensity

detrimental

[.>a:_tJ,.,._,_.L,_._ k, it has

•(Lamberre,

•Lamberte.

of

in

government's

:,which

.base,.,

6).

increasingly -

the

adminis-trati_e, tax

Table

elsewhere

,have

crisis

ba_ed

(see

to

..period.

the The


43

Table

6.

Comparative Ra_;es of Growth of Unadj_:_ted ' Revenu_ fr_u Excise Taxes an_ ]:mplÂącit .... Price index" in :the Ma_aCture of Beverages, Tobacco and Petroleum pc.:_d_ct_, 197_ '- ,198_.

A in

Excise

Tax

R.euen_._

"_:. in

PriCe,

1975-1985

22.8

16 _6

197 _- 1979

32 .8

1.0,. 7

1979-1983 !,983-198_

7.6

17.3

36.5

27.1

of

BTP


4_

elasticity its

of

proxy

base,

elastici-£y taxes

import is

is

is,

very

high

at

in. fact,

The

taxes

introduction

Both

total

elasticity

°82

to

based

periods ,09 on

The

period,_2

DAM,

provision DVT

that

taxes

government additional i_creased adequately

yields

highe;_ * e_t.",mate

:• of

local

the

and

De

(I)

arid tariff

through corrected

the

only

i,32

and

1 to

rar.e

well rates,

as

the

the

_ove

applie,:_fL)).e to

t_._.,es_t.__ati_._,_.% .!:.,.f _,he m_rk

[in ¢g._e=se_..:-¢,:_,f0 _}_xiod..._,..eiative fact

tha*a

,">_,_,,_ ....made

"., a_,;_ov_.,_. _,_. [!:_:,i.z_ ,..:,fthe

exemption

and

w_"_:!,.ie e_ne i._'_:m.;,_. _-?:._-!: have i:k_:.e.

_p.

o:: i_.'-_._,...i,_t"t_.¢.. The

.... _..,.,,_su ....... g:-_r{_%impo_.,,_ ii-ro.,_ 1982

for

in

,ei_!st_cit_ . . y

_t.t_ _..u.... _ _,,.,_u:_;' to

19.81 as tax

pc'clod

aL, i _..c _'_ .... " ,_ ,m *'_,__t.'."?"_a_,:.i_ .... ';_s.. end

1984

O_

en_[,c:%_-ed _:,_ _.,_"""'/ ....:.............. _:<'-_"_,..,,,_=_'" _" number

corporati_)n_ import

to

in

a._cr.;_be_ -_.(_ the

the

84

trend,

t'>,e _a..1.,es tax

est:a._te

PA2_ may for

of

between

period.

be

sales

which

:.n_-.._.r_e second

total

in

of

.tax base

,93

may

TR[_

pre_ucts

elasticity of

both

periods

igSl.

from

a similar

from

JJ_port

t,_x headi,_gSo

in

dec._eased

.

GNP

e_!.,_7.,ti<:i.ty: dr opp::_d from

the

two

in the

adjustments from

Total

of

of

........ _ declined ela_t _........ '.5

DVT

reduction

ela,_ticity

to

_.!.-',i_:o_i.,._ _-_o:s_aa:,, ' (TRP).

The

Table

imports,

taxbase

a.[l-the

Tariff

rate

7) .

and

the

total

W_-_s.divided

elastJ,c{ty -_

.,the.harmonizer:ion

imports

to

and

.(see

implementation

.I_ whale

a'nonq

the

improved

b etwee_-.'.. the

higher

of

elasticity

The

towards:

highe_at

rate

being

base

to

T_,e base

investigated_

while

difference

at

respect

_st_i.,._ation period

the

two

low i,_5.

the

marks

Zhe

with

of

{ 2)

the

which been


45

Table

7.

Buoyancy Other

and

Taxes

Zlas1_J,c_ :./ <;:fTariffs On

1975_-198

Buoyancy

Total

Import:_,

_

a_d

1975-ig85

1975-!

980

198i-1985

0,78 (0.96)

Elasticity PAM

0.49

0.82

O, Q9

(0.Sl) DVT

(_.93) .... 0.62 "N.S.

O. 92

(0.96) Rate

Elasticity

PAM

O. l_. (0.81)

0.84

DVT

0.0_ (o.:9_)

O. 89

O .41

(o._S)

b_/ Base

Elasticity

1.2% (0.96)

0.93

The numbers i[_ parenthese._ a_:e :__h e Unless otherwise Bpecified, all coe2fi._.Lenhs at the _ per cent level.

b_/ Significant N.S,

not

at

i0

statistically

per

cenu

level.

significant

1.32' (O.99)

R are

statistics. signlfi_a_t


46

The may

high

explain

the

govermnent of

elasticity _ttractiveness

finance

the

managers

estimation

period

constituted

the

the_ .na_iQnal

9overnment.

at

the • macro

from

import

tke

increase

have

level taxes

resulted

GNP

the

is

rates

si_]ce

°3 .. 2

The ta_es statis%.i_ between (see

_RlyJ.Dg

Table

tendency export

taxes

dependin

_rom

a buoyancy

Only

are

over

revenues

the two

of

policy

veer.

away

other

hand.

in

the

of

_np_:_

relative

to

of

lowering

of

elasticity

the

fit

be

an

and

aggregate

periods

may

Thus,

exports

growth

in

of

.96

and

an

elasticity

to

aggregate

_nity

indicatic_s

at that

1.06 the

_ield tax

and

t

_elationship

th e _

are

reve_ues

R

export

In..o_e/exports

discretionary

the

base

iow

by

suspend

how

for

erratic

expl_ined

decrease, 9 on

by

and

of

the

estimates

chez'acterized

_,arket_

percent

neas_ring

and

Thi_._ _ay

in _ ease,

35

taxes

t D_tles

poor

to

for

import

to

On

a consequence

_..ax r_ce_pts

8).

interr_ational

_here

Ex_o_

of

part

economic

planners

to

early

tax

of

ONP

198L_

genei_ally

g=ow_2_

growth

the

_otal

to

source

from

per!c'_°

elasticity

respect

_n

of

fiscal

second

as

b_oyancy

a_e•

revenue

this

reorientation

_'the faster

expected

of

cent)

caused

base

with

co.[factions

per A

.in the

imports

particularly

when

(30

has

from

which

tariff

bulk.

in

of

as of

government's

rei_pcse

_

faring

in

elasticity,

%3_e

mea_ur_.s

account

me}; be

_leaned

.66.

income a high

etc.

R

eXasticity statistic. bot'_

ta_

to


47

Table

8,

Buoyancy

and

Elasticity

of

Export

Taxes,

a! 1975

.- 1985

197_-1985

1978__9e_

0.96

Buoyancy

Total

197_-1977

(o.28) 0.66 (o.13)

Elasticity

Rate

Elasticity

_.S.

0.15

-1.86

-I._7

1.42 (0._6) 1.39

(o.21) Base

The otherwise

Elast_city

1.O6 (0.97)

1.09

nu_ers in parenthesis are the indicated, the cOefficients

R

1.19 (0.97)

N,S.

statistiC. Unles_ are signlfi_an%_&t 5

per cent level. The elasticity est.%mates presented arelbased on PAM. The coefficients of the DVT regressions were: not statistically significant and were not presented here.

Significant N.S.

NOt

at

10

significant.

per

cent

level0


48

base and tax to c_P, to

the

_ncreased

high/er expor_

ove_

and

_ÂŁme

premium

.

d_ties

__L

_

imposed

b_

_ue

start_

_n

19sO.

s.4_ _ai T_tal

Tax Revenues of the National S,::ivernmen*..

_axes

elas,tic_ty

Of

e_h_bited ,2S

dis_e_i0nary

effect_

the

growth, in

tOtal

low

suggesting

the b_il%-In

The .62

headir_e

_x

%O,tal

._Of _.e_t

1975

-

foe of

fo)r a high

of

,Ii in

._ne _e_r_ase cor_0rate

The

end

_plying .,', .

,

71 per

that

will

in that

:

_ent

elas_Iclty

alteratlons

the

e_a_ticity I_79.%,O

!98_

revenues.

%.he need

,3.f_ .88

b_o_ancy

accounted

elas_iclty

in .Z97_-

refleetio_

for

a

_ -s

.of very

increase

sys,t_o

aggregate 1_80 in the

income

-1985.

taxee

deellned iThls: is

,.elastlci_y of

fr_s but

most

tax _and exp@rt_taxes.

a tax


49

6.0

Conclusions

The

buoyancy

exception the

of

been

change

with

tariff

value

of tax

the

that

impac_

TRP.

on

tax

are

below

is

ironic

major

revenue

is but

the

revenue

only

the. general

This

Philippine

tax

increasing

The

is

with

This

at

year.

negative

the

headings

income

aimed

after

the

tax

1975-1985.

undertook

under

all

_corporate

measures

year

consciously

indications

for

1 fOE

a projected

rates

poorly

and

enacted

government

one

tax

which

the

reduction

in

of

the

system

is

provide

an

even

sadder

posited

an

elasticity

for

aggregate

_k%ny

parrying

o

The

elasticity

only

the

over

I and

is

very due

(1)

estimates

numerous

have

Recommendations

excise

critical

because

be

and

the

tax

corporate

low

to

at

any

°_5.

tax

apply

the

to

progressive

lagged

excise

taxes

Empirically, tax

income

or

of

_he

income

tax

of thei_

equal

to

be base

the

he

sales

Only

explained

license

and

is and

by true sales

taxes

low

the

_ollowing'fSc_t_rs¢

terms

elaS%i_i%_

taxes,

reason

impo-t one

and

i_port

not

°

The

and

taxes,

the on

elasticities

the the only taxes

low

ad the are

elasticity

f_ rst for

(3)

does

taxes

ha:_,

may

(_)_the

:_f growth

first

theoretical

one.

story

on

all

the

and

taxes

,story_ estimate

of

diffe:_!nt

G_ _ in

sale_<,

that

may

and

of

administrati_,

implies than

of

benin@

characteristic

greater

p_i:_ciple,

s[rue_ure

nature

valorem

In

the

o_' _ combination

underlying

inefficient

tax

elasticity

One

have

income

income

average

bases

other,

estimates

_he

a_d

a%

of

argument. corporate that,

in


5O

_he us

second to

large

hal,f

argue_

_hat

,• e_te_•t

:Or/

O_ the:_:_s.t_mation: _e' poor

tax

during

estimation

the

the

admini@tratlo_.

the

evidence

of

Table

9.). tax

income, every A

The

other

detail

_n

zeliance

indirect

taxes

,i_

analysts

not

nature _o

b_t

not

argued

,_ th_i

buoyancy income'

while

_ low

_axes _econd,

a_

in ._7

major

ks

elasticity

are

is

this

contribution.

tax)

of

may

_or

,indirect

,not be

than direct

Firmer, that

of

taxes

export b_n

fiscal

regr_sslve and

in

as

such

writers

have

away

f_.om

leas ib!e the

direct

buoyancy

indirect

_

is

to

given

s_udy' ,(i.e.

tazes

provides

equal

frc_.

am_Ong

both

£_,Xes

Appendix

have

shift

However,

respect.

higher

to

O._ growth

revenues

Some

°

cat,hates and

an_

are

of

elaf;tici%y

dlsto/tionary

desirable

taxation,

_his

taxes

the

that

ar.d ._,e

concern

efficiency

_it,

oZ

_

on

_yatem

ind_-.rect

and of

(see

_or

a

deteriorated

based

vacied

of

to

buoyancy

_iec_'in,_d

cause

they

elasticity

_profits

indica_i_s

the

e_O_ic

a_ _n_

of

because

to_. _irect:

very

.a

&.

e_4_rib_"

excepti_

estimates

are

leads

•_as

_2_e corporate

t'his

.T_ese

performance

observable

section

because

pra_ote

indirect_ their

also

than

_or

heavy

only

is

the

the

h._a_ing

trer,d

reasons

in

With

be

both

revenue

buoya,'cy

tax

similar

The

_!_cusse_

the

1_.jor

that

generating

period.

categories

_axe_.

in

may

from

suggests

syste_n

corporat_

rates

of

_ tax

estimates,

Philippine

only,

!,1ow_'%ax elastici.ty

Furthermore, elasticity

period

hopeful of

direct at

.81

and

.81. is


51

greater the

than

that

est imat±on

better

of

iedire_t

period,

performance

197_-1985. highly

responsive

nature

of

dlreet

_/_e base to

the

These

of

Third,

and

which

two

the

Given

to

a revei'_al

indire_%

in

estimation

ihs

petite,

potential. but by

the

Ail

The

charg._s

_hat

(1)

A

%o

as

approach

The

top

the

wail

for

.

hal_

• .

Of,

the

_bZli_ation

t_

is

not

o_ly

erosion

oZ

the

tax

exemptions

revenue

a_id

the

special

iarger

performance

of

_ugge_ts

the

section

global

be

between will

implemented

also the

_ourc.es" schedules is

system

different

of

different two

the

the

should

possibility

(2)

_r_ed

role

of

dlfferen_ following

return

Well

income

•tax

future.

previous

measure

the

the

the

taxation as

of

the• second item•revenue

corporate

augur

of

recommendations

Improve

iplicity these

in

in

well'despJ.te

analysis in

to

the as

mult

taxation

taxes

o_g_,t

elastic

prlvi'leges. direct

elasticity

__'inally:

buoyant base

rate

is

in

_

drop

in

p=ogEeSslve

,

_-ne

the

tax

'improvements

itf the

•in

_ _x_

inoOme

inherently

tax,

1,36

confirm

individual

the

income

averaged

measures

relative of

GNP.

personal

administratJ.on

taxes

which

•groups

"first .taxed is

individual

to promote

ir_-crease

being

of

of

equ_,ty

at

inherent

within

taxpayers:,

revenues slabs

income

of the

s_nc_ income

bottom[

under-the

r_teS

T_i8 the ._ of

sche4u],ar

eliminated.

rates

of

the

individual

income

tax

e_ould

be


52

adjusted lost

.so

upwards

when

these

as

ra_es

The

recommendation

Tax

Reform

recoup

were

is

P_ogram

to

in

to

some

of

by

BP

reduced

contrast

further

to slash

the

revenue

391

in

that

of

the

rates

1981.

the

1986

of

top

b rackets.

(3)

Measures

should

aDus lye

use,

individual o_es.

be

Of

instituted

_eGuction

income The

has

cei!ing-s hand

on in

hand

administration. of

prof_ss-_.onal

_4)

To the.

._p_e

-w_A%_ol_,_n_.

i_e_esÂŁ,

be

This

will

at

income

raised

to

Sin_

_ere

i:nc_e

_n

%axl rate

RO

percent

of

and

3_ percent

tax

improve

claim

it

as

to

aS

also

avoid

basis, should

the suggested

baeis

,system,

_f

.ta-,_e@

_t

on

taxpayers

.c_ed,lt, ,a_ainst %indue

burden

on

r_tes

should

be

by

NTRC.

.for,,, ._ax_g

a-'_uniform be

revenues.,

equitable

a

the

business/

increase

.reta_me_[

Furthermore; as

in

tax_ on

'a,more

should,_ be

so

go

characteristic

is _nO "economic

a qradua%ed

only

also

tax

taxpayers.

not

for

however,

improvements

will

the

legitimate

should,,

but

to

corporate

regarding

Fixing

income

source"

by

usiness

deductions

personal

compliance

allowed

personal

(5)

the

and, ,royalties

should

small

with

the

as

studies

deductions

income

_tax

well

income.

allowable

progres:sivity

a_

standardized

business/profess.tonal

the

prof es_ ional/b

conducted

. using

of

preventminimize

by

taxpayers

NTRC

possibility

_o

_oor_a_e,

imposed.

c_rporate income


53

(6)

A

review

of

corporations sources

special as

of

rates

well

as

corporate

granted

to

special

rates

income

be

selected

on

selected

reviewed,

and

rationalized.

(7)

The

turnover

goods

pass

Which

through should

efficiency.

In

be

extends

at

under

to

suggests

will

feasible

within

accOuntin

per

of

The

extension

require

To

more

simplify

efficiency, should NTRC

a

be has

classification

covered

VAT

up

to

tax _ould

to

the

three

5,445

a

study

years

(_84) level

given

available

the

large

wholesale

trade

to

as

effectively

IMF

are

VAT

that

leo!

78

eetab_a_ents. retail

eta_e

may

study.

administration

the

rate

of

stage

more

recent

tax

and

schedule by

previously

retail

added

to

of

simplified

or

value

taxation

sample

and

general

eCOmQmic

escapes

two

the,

promote

and

revenues

records

time

to

as

produotion

increase

9

of

of

taxatlon

should

A

general

adequate

a

be

Scheme. a

stages

abolished

move

present a

cumulative

wholesale

which

that

cent

the

sector

such

to

place,

This

trade

extent

be

its

instituted.

the

is

up

leads

successive

distribution

that

(8)

tax

of

reducing

the the

recommended

commodities

improve

under

sales number

and

by

each

collect_on _ax Qf

system rates

revi_wlm_i rategx_ir_.

as the


(9)

The

approprlateness

per

_ent

in

_e_

_n

view

of

the

elem_n_

(IQ) The

in

between tax,

for

distinguishing

is

not

well Xn

re_ent

_OdS in

E_il

of

replaee_ excise

imposing

an

should

rates be

impor_eEs

the basle

and

o_rt_i_ies

traders foe

W_k

sal_s

tax

up _% zates an_..

ta_

the

ad

sumptuary

the

reviewed

iS An the

=ares

on

_i_ht

some

di_e_tion the

TO carry! this

dev_l_0ment

to

its

slmplify

•t_e

be. _bolished rates

for

valor_n

£reatment the

ad valorem

of

to further•

This

of

as

elasltiei%y

ad valorem

even

_Tk-up

the b_ilt-in

with

fully _he

The

a_d

tax

•;_tes,•should

Furth_more,

(12)

of

•tax

tax.

in as m_,h

the

is reeommende_,•

tax_ _s.tem,

•speci_

and

per cent

adv,anUe

tax

protective

_t_X

a _aiform

the

_.q

studied.

2_

offeEs

words,

improving

_ex_en._.

the

of

sales

the

be

direct

• •subjec•t to,excise

exeise:

to

and

foe both

tre_d

terms

sho_id

up

advance

the eOmpensati_

between

ta_

the

eliminated

o_%er

based .... on, (I0)

The

be

mark

eliminate

!. e.

defined

c_npe_ating

tax

a

of

to

sales

should

ev_.

(II)

need

t_e

sales

provision

imp0sing

camputation

_fference

advanUe

of

of

ra_es

local

s_oul_

nat,re

of

excise

tax

given

goods

will

and be

this

on

equity,

so

the

a!_ther

all

rates

system,

and

•sabje_t

l_kewise

im_rted set •as

to

lead goods.

to •ref•le_t

tax.

petroleum

products

efficiency

and


inflationary

(13}

A

considerations.

review

of

charges,

taxes

rental

licenses

on

on

s

and

municipal

the

view

of

the

monopoly

the

n_tural

resources

royal

f_shing

ties

on

should

gover_aent the

.forest

mineral

be

capturing

ren_.s-f_m

e;_.

i_nds.

undertaMen a fair

exploitation

with

share

of

of

natural

_.sources.

(14)

All

_.ax ex_o_f._ns/inc_,-_%ives

•.,

(15) _ The

co_er,_,ge

_eviewad

,

o_

O_ts::.de

L

_i%,e BO_

esp_uiaily

4

4'

"

_he

B_I

my_

in,cer_,hive

sl,__;#nu _h0U_,_

be

wi_n'

regard

the • incet_tiq_

to

de_l

adequately

to

floraes_.l__.!n_us_ries, (16)

To

end)Is

and

tax

the

BIR

to

eVa-_ ion,

the

Bank

wiuh

Secrecy

tax Act

avoidance sho_!d

be

amended,

(19)

More

resources,

support,

should

underrepo=ting Of

'

b'e given of

of long

income

personne3,

B:R/SOC and

at

t_

and _ C_Mp_iter

enable":_It

times

out._Ight

t_i_!gi%t :_v_S:ion

taxes°

Recommendations are

financial,

already 1986. term

['I), (3),

incorporated However, goals

and

in this

their

the

progrm_

(_}, _,). (8), (9) a_d (i_) so

called views

implementation

Tax (1), are

Reform (6) sti_1

Mirog'ram

and,(8) as pending.


Roy W,,

Bahl,

"A__%eSsion

Appro_ch_to

Tax E'f_r-t

"ann Tax

and _Rajah _• J; .Chel lia_, _A lte, na._ive:•: |_ethods - four:_.aX Reserve Forecastin_ in Developing :Countries :

-_

.to ,r Caballes,

,

.

...............

Aide Zague'r,re , "A Study o_ 'Phil!pp:h%e' T_x P_rformance_. Unpublsihed _ast_ral Thes'[_ i_: EcOnomics. t_iV_rsity- _f the Phili}2pines, !975.

Ch_:L!£ah, Rajah J., "_Trends in. Taxation in DeVe:iOpl'_ COuntries", International Monetary F_ind,-:Stef_ P_:pe_-.No.-: .18.

u19; z971: ....................

an_ Sheetal K.. Chana:, "2, No%e Dn •Techniques of ...... Ad_u_£inq Tax RevenUe Serxes _for•D_ so_i0nary Changes_ I_terP_ational _.... ,......... . .....: Moneta_ :_ F_/md. August 14, 1974. Dickno,

_en_amln E._ "Revenue !_obilization and E_::._on_v_ness of Philippine •Income TaXes: _lications foi" Fiscal PolI_y , Philippine Institu£e for Deveicpment Studies. March 1986.

Gaf:fud, Adolfo B. '=Income Elasticity and B_oyanCy Estimates of Selected , Excise Taxes in the Philippines, CY !955-i976 '_ A paper submitted to the Program in Development Economics, university 05 the Philippines School of Economics. International 1975.

Monetary

Fund.

Tax

an_

Tax

Reform

in the

Ph£1:ippines.

Lam_)erte, et'al., "Review and Apprai_sal of the Government Monetary and _iscal Policy. Response to the !983-198_ Balance of Payment Crisis". Philippine Institute for Development Stud'ies, Monograph Series No. _ 1985. Lot_-, Jorgen Ro and Elliott _. Morss, "Measuring Tax Developing Countries", Inte=matlonal!M_nOtary Staff Papersx 1967. Manasan,

Effort Fund

in

Rosario G., "Survey and Review of F0re_asting Models in I_ternal Government Revenues", Philippine Institute for Development Studies No. 81-13, Mar_h, 1981.


Prest,

A. R. "The Tax in the Vol. LXXI!

Sahota,

Sensitivity of the Yiel_ of Personal income United Kingdom _ , The Economic J0_urna! (1962), pp. 576-96.

G. S., Indian Tax Structure and Economic (Asia Pubifshing Hbuse,-London, i-9-61).

Sicat,

Gerardo P. "Aspects of The Ph_!i_p2ine EconqmAc

Sinay,

Cream. "Buoyancy and _lasticity of the Philippine Tax System, CY 1961-71 '_. A paper submitted to the Program in De ve!opment Economics, University of the Philippines School of Economics ....

Tart,

Philippine Journal,

DevelQpment

Public FinanCe" Volume X, No. i, 1971.

Alan A., Wilfred L. M. G_atz, and Barry J. _rChe_green, "International Comparisons of Taxation for Selected DevelcDinq Couutries_ 1972-76" international Monetary â&#x20AC;˘Fund Staff _apere 1979 4

Trinidad

s Emman_e_. and Sy!v_a de of Revenue _ , Journal of vol. VIIi, Nos. 1 an_

'

PerÂąo. "Buoyancy and Elast.clty Philippine Develg_/menttn 198_.


Revenue Performance of National Government Taxes, 1975-1985