Asia Times Online has included my commentary as one of the front-page features of their year-end edition, specifically under the sections 'Business in Asia Today', 'Southeast Asia', and 'Speaking Freely'. I'm republishing the text here.
Taxman vs Pacquiao hits need for Philippines reform
By Bonn Juego
Asia Times Online, 23 December 2013
Filipino boxing icon Manny Pacquiao's latest contest pitches him against the country's tax commissioner, Kim Henares, who has entered the ring with a US$50 million payment demand. The dispute sheds light on much deeper issues and the need for economic reform in the Philippines.
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 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 regard 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.
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 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 regard 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.
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 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 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.
Popular public support for Pacquiao's grievances is just a symptom of the fundamental causes of people's historical distrust in the BIR and the taxation system. A crucial cause of civil disobedience is the felt and perceived corruption, ineffectiveness, unprofessionalism, inefficiency, and lack of creativity of state agencies - at every level from the central to local government, and notoriously the corrupt pork barrel system enjoyed by elected officials.
The dedicated reformer Henares should therefore join the critical multitude in pressing her colleagues in the bureaucracy, her counterparts in all government agencies, and the elected leaders to work together towards a socioeconomic and political reform agenda to encourage responsible citizenship.
It is opportune, then, to use the current Pacquiao-Henares spat to raise awareness and consciousness about the very principles, purposes and practices of taxation, and not merely its narrowly defined rules.
A core principle of taxation is that it must be viewed in "relational" terms - that is, it is a social contract and relationship between the state and citizen taxpayer. As such, both the state and the citizen have rights and obligations. But there is a problem if the state only asserts its rights to tax citizens without fulfilling its obligations to provide for social welfare, infrastructure, and other programs for development and redistributive justice.
Based on the logic of taxation, the Philippine state - and thus, the Filipino people - has an interest in the successful boxing career of Pacquiao because the state gets balato (a share) from his earnings in the form of income taxes, which are then used for government expenditure.
Popular public support for Pacquiao's grievances is just a symptom of the fundamental causes of people's historical distrust in the BIR and the taxation system. A crucial cause of civil disobedience is the felt and perceived corruption, ineffectiveness, unprofessionalism, inefficiency, and lack of creativity of state agencies - at every level from the central to local government, and notoriously the corrupt pork barrel system enjoyed by elected officials.
The dedicated reformer Henares should therefore join the critical multitude in pressing her colleagues in the bureaucracy, her counterparts in all government agencies, and the elected leaders to work together towards a socioeconomic and political reform agenda to encourage responsible citizenship.
It is opportune, then, to use the current Pacquiao-Henares spat to raise awareness and consciousness about the very principles, purposes and practices of taxation, and not merely its narrowly defined rules.
A core principle of taxation is that it must be viewed in "relational" terms - that is, it is a social contract and relationship between the state and citizen taxpayer. As such, both the state and the citizen have rights and obligations. But there is a problem if the state only asserts its rights to tax citizens without fulfilling its obligations to provide for social welfare, infrastructure, and other programs for development and redistributive justice.
Based on the logic of taxation, the Philippine state - and thus, the Filipino people - has an interest in the successful boxing career of Pacquiao because the state gets balato (a share) from his earnings in the form of income taxes, which are then used for government expenditure.
The same goes for the US government which taxes Pacquiao's earnings from work done within its territory. In principle, the state, in return for citizens' payment of taxes, provides rents in the form of incentives, protection, or other social provisions. The US government, for instance, goes as far as militarily protecting the local and global interests of its taxpaying corporations. To maintain a harmonious relationship between the state and citizen taxpayers, both of them must be engaged in a mutual give-and-take relationship.
In this so-called "reform" process - or what others call a process of "nation building" - the existing unjust rules of taxation need to be seriously questioned, examined, and reformed. This is to be done by coming up with new principles as the bases for "rules" of state taxation that embody the collective interest and welfare of the Filipino people's existence in pursuit of the good life.
Economic mode of production as base for tax, redistribution
Policy coordination of each and every government agency is a must to effectively attain the social and developmental goals of taxation. Otherwise, there will be a conflict between the overly enthusiastic tax collector and the disgruntled citizen taxpayers.
Basically, the fundamental principle applies: the people must feel and see how and where taxes are spent. It is the task of the government to make people appreciate and realize that taxation is a collective social development process in which the conduct of business - the producing, selling, and buying of goods and services - is a social activity that has socio-economic consequences and implicates the entire society.
Recently, the BIR has expressed an intention to pursue taxing of "online sellers" and the "informal sector". This is not an easy job. The informal sector, which comprises the overwhelming majority of the country's workforce, belongs to the so-called "informal economy" precisely because those taking part in it are out of government's taxation circuit.
For sure, there will be conflicts, especially in a situation where the government only enforces its right to tax people without fulfilling its responsibility to create conditions for "full" employment, let alone "formal" employment. The immediate and long-term strategy and goal for an effective taxation scheme - thus, an active and socially responsible citizenry in a sustainable economy - is to get people into formal employment.
Further, the Philippine state has to assert that it is the only authority that has the monopoly power to tax people, incomes, properties, and business activities within its territory and sovereignty. The government has to seriously address those known illegal taxation operations by organized criminal groups and syndicates such as so-called "revolutionary taxes" and protection money, which are reportedly collected by armed groups in the countryside or crooks in the cities.
State taxation essentially requires political will and scrupulous enforcement. These are necessary but insufficient conditions for change. Alongside political will, there must also be the material means for a viable taxation system - which, in reality, only an industrialized or industrializing economy can provide.
Tax and fiscal policies can be strategically utilized to jump-start and strengthen the country's production system. In other words, the Philippines needs to develop an ecologically sustainable national production system built on the synergy between technologically intensive manufacturing industries, modern agriculture, high skilled services, and innovative SMEs.
If this could be achieved, it would produce two sources of long-term tax revenues: (a) goods, services, and enterprises; and (b) fully employed workers. This would then provide the government with the means to efficiently and conscientiously spend taxes for social welfare and infrastructural development.
In doing so, the Philippines would be establishing an economy with huge division of skilled labor and with highly diversified professions, while respecting life choices of individuals and groups to live and work alternatively such as in sustainable communities.
Something is terribly wrong in an economy where celebrities are the country's biggest taxpayers. Development common sense tells us that a country of entertainers, boxers, and unskilled manual workers won't be as economically advanced as a country of scientists, engineers, entrepreneurs, and skilled workers. The Philippines has to produce things and ideas with value. It has to stop specializing in being poor and in doing poor economic activities.
The idea is to build a production system that creates wealth for the nation in the form of higher incomes for the workers, bigger earnings for businesses, and larger tax bases for the government. The creation of this mode of production should be the first order development agenda, one that serves as the foundation and lifeblood of the redistributive goals of taxation.
A movement for socioeconomic reforms
The BIR's emphasis on the fear factor and civic duty needs to be challenged, not for purposes of civil disobedience but for the objective of deepening real policy reforms that are founded on, among other things, the principles of a democratic state's obligations in tax relations and the state's central role in the realization of social justice and the building of a mode of production for long-term socioeconomic development.
The critical mass must continue to be stimulated and sustained, and be supported by principled and far-sighted policymakers, organized labor and social movements.
What appears to be especially disappointing at this moment is the kind of political discourse in the Philippines where the dominant analyses and solutions offered fall into the "pro- versus anti-Aquino" trap. The deeper, structural issues get frozen out in the name of personality politics.
Labor and left groups who fall into this trap end up insisting on taxation rules based on the principles of anti-labor economics and anti-democratic development policy. "Liberals" who also fall into this trap would find themselves, either latently or manifestly, defending institutions and practices that undermine their anti-rentier agenda for the modernization of Philippine capitalism through the promotion of free markets and competitiveness.
Framing contemporary sociopolitical issues along this debate - where the heart of the sentiments and arguments are tied in with personalities rather than principles and practices - is an added problem and not helpful at all. It is not bringing out the best in people and it often harms relationships even among (social media) friends.
Doing away with the bankrupt pro- versus anti-Aquino discursive framing - and rediscovering the importance of analyzing specific historical and structural contexts of problems - would allow us to understand clearly the real conditions of the society and be able to propose and advance progressive reforms for social change in compelling ways. The fight has only just begun.
Bonn Juego is guest researcher at the Department of Political Science, Aalborg University, Denmark, where he also earned his PhD degree in the political economy of development. Currently involved as a postdoctoral researcher in a project studying the Asian Development Bank at the City University of Hong Kong, he is an alumnus of the Cambridge Advanced Programme on Rethinking Development Economics, Cambridge University, UK.
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