Instead of the 20% Bank Tax, Why Not Focus on REMOVING Excessive FDI Restrictions Instead?

There's a need for taxes. However, there's such a thing as being overtaxed. I would like to talk about that, as a taxpayer, the rule is ridiculous. Ralph Recto's proposal may not be for the best, as some may think. As I think about it, the National Bureau of Economic Research also gives this thought:

Fisman and Wei were interested in fleshing out a widely-held notion --that higher tax rates will encourage greater evasion - with a study that could assess the magnitude of the effect. So they decided to examine detailed statistics on a range of goods exported from Hong Kong to China, paying specific attention to the value and quantity reported by Hong Kong versus what was reported by China.

For those 1990s children in the Philippines, why do you think that buying pirated video games was the thing? It's because the original copies are that expensive. Why do you think pirated DVD sales are hard to combat? It's because the original DVDs cost much more. May I remind people that even if the late Benigno Simeon "Noynoy" C. Aquino III may have an economic legacy, however, there was still much work to be done. I often ask if six years was even enough. Just think that the late Lee Kuan Yew took 31 years to build a strong Singapore. Mahathir Mohamad reigned from 1981 to 2003 as Malaysia's prime minister. Do you think six years was enough to really stabilize the Philippines for the long term? 

Now, we have the 20% bank tax. What's the aim of the bank tax? If the aim was to develop more revenue, this is getting more ridiculous. The Philippines isn't even investment-friendly. Now, it's becoming even more non-investment-friendly with this ridiculous new law. Sadly, this is nothing more than short-term thinking. 

Mary Ann LL. Reyes of the Philippine Star gives this detail, which was most likely ignored:

The Management Association of the Philippines (MAP) has already warned that the proposed bill will penalize responsible financial planning and discourage the accumulation of generational wealth. The group has sent a letter to President Marcos seeking a moratorium on new tax increases until a comprehensive audit of government expenditures is conducted alongside a substantial reduction in the state’s expenses.

The rates of donor’s and estate taxes were earlier reduced by Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN), which took effect in 2018. The reduction in estate tax rates was aimed at helping Filipinos settle their estate tax obligations and free properties for development, while the donor’s tax was reduced to simplify and avoid arbitrage.

Why increase it now? It’s because raising taxes is the easiest way to increase revenues in the short term, without regard to its detrimental effect on the people and the economy in the long term.

Malaysia, Indonesia and Singapore do not impose estate or inheritance taxes or donor’s taxes. There are also no CGT in Singapore, which abolished estate duty for deaths occurring on or after Feb. 15, 2008. It also does not impose a gift tax.

As it is right now, individual taxpayers are already being penalized with an income tax rate of 35 percent, which is much higher than that imposed on corporations at 25 percent. Imposing higher inheritance taxes will definitely be an additional burden.

Acclime Singapore, in an article, noted that Singapore stands out from many other economies for not having a traditional CGT system – a distinction which creates a significant advantage for investors and entrepreneurs.

CGT is imposed on profits from the sale of capital assets like investment property, stocks, bonds and real estate. However, the gains may be considered taxable income if the main purpose of buying and selling these capital assets is to make a profit.

Singapore also has a safe harbor rule that exempts companies from CGT on the sale of ordinary shares, provided they meet specific criteria such as holding a minimum percentage of shares for a certain period.

Other countries that have no capital gains taxes include Switzerland, the Cayman Islands, Monaco, New Zealand, Belize and Hong Kong, making these countries attractive to investors and entrepreneurs.

Meanwhile, countries with no inheritance tax are Brunei, China (transfer fee is owed when transferring real estate on death), India, United Arab Emirates, Qatar, Saudi Arabia, Kuwait, Hong Kong, Taiwan (there may be an estate tax of 10 percent for assets over TWD 12 million), Macao, Israel, Singapore, New Zealand, Mexico, South Korea, Canada and Australia, to name a few.

Those without gift taxes include Argentina, Australia, Austria, Canada, Cyprus and New Zealand.

They all believe that not taxing their people so much means more money in the pockets of citizens, which can be spent to buy more local goods and services.

In the Philippines, gratuity comes at a cost.

Why our government continues to burden its people by increasing taxes just to raise revenues escapes me.

If we can just improve our tax collection efficiency, reduce tax leakages, impose and collect the correct duties, reduce unnecessary government expenses and require public servants to lead modest lives, then maybe we do not need to increase taxes or create new ones. Maybe MAP is on the right track in suggesting a comprehensive audit of government expenses.

Speaking of which, the countries that were just mentioned from the Philippine Star article are mostly FDI-friendly countries. Indeed, the Philippines doesn't prohibit FDI. However, ridiculous ownership restrictions are problematic (read here). Even worse, when economic protectionism is put within the constitution rather than through legislation, it becomes more difficult to adjust when one should go protectionist and when one should relax certain restrictions.  

I'm afraid that Recto's plan might backfire on his face. People may no longer be interested in the not-so-risky investments such as bonds (which loan money to certain companies, such as SM or Aboitiz), which is a good starting point for those who've just begun investing! Why focus on short-term gains? Speaking of a short-term gains mindset, do you ever wonder why Filipinos are prone to gambling over investing (read here)? Why do you think more people prefer to do day-trading over long-term investment in the stock market? It's because they want instant gratification. 

If they want more taxes, why not get rid of ridiculous FDI restrictions? Even better, why not get rid of all the economic restrictions within Article XII of the 1987 Constitution of the Philippines? The Constitution of the Philippines is like software. If you want your software to be better, it would be best to correct any errors found within the system. Why do you think the American Constitution has amendments every now and then? Japan's constitution may be older, but it's actually silent on economic restrictions, plus it sets the parliamentary system, which is better than the presidential system. 

If we had more FDI, it would mean more taxes to collect. Removing the idiotic 60-40 policy is one as the practice is giving overpriced rent (read here). However, the Philippines may consider lowering tax rates when necessary. Lowering tax rates (but not too low) would be needed. In business, selling a service or product below its cost or too high above the cost will discourage profits. Selling premium rice at PHP 20.00 per kilo will not generate a profit. Selling rice beyond the Suggested Retail Price will also discourage purchases. Keep raising your rental fees too much, and tenants will leave sooner or later. 

If we set conditions right, that is, more FDIs will come and invest in the Philippines. The real issue with FDI, again, isn't about corruption per se. That's unless we blame corrupt officials who defend the rule of 60-40. I blame corruption (in part), but only because corrupt officials may be defending economic protectionism, to protect their own interests. Several people in groups like Makabayan bloc (ex. Bayan Muna, Kabataan Partylist) probably defend unjust FDI restrictions to shield their own interests. If more Filipinos are employed, then all their campaigns will come to moot. You just need a series of broken promises to a series of broken people, to keep getting into power, right?

There's such a thing as short-term success and long-term success. Several people fail because they want instant gratification. The whole scheme is most likely for instant gratification. It's not going to be easy to set aside Pinoy Pride Economics. However, if we think long-term, we'll get better returns than short-term.