Rare Periodicals

Taxation, production and prosperity

Media

Part of The Manila Guardian

Title

Taxation, production and prosperity

Creator

Soriano, Andres

Language

English

Year

1951

Subject

Taxation -- Philippines

Agricultural productivity -- Philippines

Rights

Abstract

[This is an academic discussion that will serve as a reference for those concerned to frame the law’s desire to change existing taxes to provide greater incentives for production.]

Fulltext

jULY, 1951 THE MANILA GUARDIAN PAGE 9 TAXATION, PRODUCTION AND PROSPERITY By Col. ANDRES SORIANO THE Bell Report makes a good b. No~-taxativn of new agricultural ing excerpts: "Large _ profits enjoyed sincere friends as v~ry backward a~d ~iagnosis of Philippine economic enterprises at various times by the landowner susceptible to quick improvement, the ills - despite some of its recommen- c. Adjustment of agricultural tax- class have gone into the acquisition neglect (throu&'h insufficien't approd8.tion!t with which we do no"t agree 1 ation to normal ,level of more land. The result has been priation) of even elementary experi- and anyone who has studied or d. Taxation of non-productive in- that land ownership by farmers who r;pental work on which its advance, read it has coine to realize that tax- . dustrial investment work the land has steadily declined." ment depends is diff1cu\t to JJ.nder~tion and production are two o~ the e. Non-taxation of new indu.strial - In other words, there is more · and- stand. The Philippine budget .sh~uld baSic elements which, together :ith enterprise more land under ownership of people make adequate provision for experiminimum wages, require progressive f. Adjustment of industrial taxation who are wealthy enough not to have mental work, extension service and ~...1t:eatment in order to bring greater to normal level to . worry whether their land pro- technical and vocational education in P~blic welfare and prosperity to this We will discuss each of these pre- duces or not. agriculture. The Coll~ge of Agriculf nation. / mises separately. I have headed the Under these circumstance_s, in what ture at Los Bafio.s sho1.lld be reha~ There has been a great deal of dis- list with Taxation of Non-prodltctive way can taxation be an incentive to bilitated, a central experiment stacussion aboul taxation and produc- Agricultural Investment for two rea- production? To Provide you with an tion located at the college and equiption in their respective spheres; to sons: First, beca'..lse the proposition answer I will refer to a letter, made pe~ with facilities to carry on the ~my knowledge though this may '"tie "Taxation as an Incentive to Produc- public at the time, which under date necessary research for agricultural onJ! of the few times that the con- tion" is stated in the positive sense, of Decen\ber 7, 1950, Mr. Daniel development". Specialized experiment structive relationship between the two that is to say, the most literal inter- Aguinaldo addressed to the ECA stations should be established in suithas been made the subject of an ad- pretation of the subject is that the Administrator, Mr. Vicente Checci. able places throughout the country." dress. Our Chairman, Dr. Dalupan, incentive shall be created by ap- The letter proposed a tax system - A logical conclusion to be drawn deems it pportune for busine9smen plying taxation. Second, bec&use I may venture, inspired by the theo- from Mr. Aguinaldo's suggestion and to explore ways in which taxation agricultural is the principal pillar of ry. of the internationally known tax the findings ~f the Bell Report, is \ can be a'\. incentive to production, economy in the Philippines. I quote authority Henry George - designed that idle agricultural lands should be and he is to be congratulated for his the following from the Bell Report: to accomplish, among other important taxed mo~e heavily Ond a large pershrewdne~s. "In ,1949, the gross national product, social objectives, increased producti- centage of the reven'.les thus derived ... Before proceeding further do I including disbursements of the Unit- ~ity. In this connection Mr. Agui- utilized for the improvement of agri,need to make it clear that I am not ed Stat~s, was over 5 billion pesos. naldo proposed that a higher rate of cultural methods . • 1ot propo$ing more new taxes. This Of the total amount, agriculture con- real estate tax be levied on uncul- My second premise for discussion is an academic discussion which, form- tributed 56% ." If we exclude th11 tivated agricultcral land, with a gra- is non-taxation of new agricultural ing part of the collective material United States disbursements from the dual reduction in the rate as culti- enterprise. This means the tempofor this morning's general the~e, total, the relative contribution of vation increases, the rate finally be- rary lifting of the tax burden the "The Government and Business," agriculture to the gross national pro- r ing lowered to the normal"level when moment a landowner puts his erstmay possibly serve H a reference in duct is appreciably greater than the land is fully cultivated. To use while idle land into production. This case those whose concern it is to 56o/o. We further concur· with the Mr. Aguinaldo's own words, such relief from taxation must be limited frame legislation desire to modify Bell Report when it further states: form of taxation would result in to the production of new kinds of existing Exes to provide greater in- "Agriculture is certain to remain for either of the following: crops or existing crops under new c1mtive to production: a long time the dominant .source of '1a. Additional investments for cul- conditions, where a period of experilf we are to understand the effect income and employment. .For this tivation, or mentation is necessary before econoof taxes on production we have to reason, improved production in agri-. b. Liberal arrangement between mic success is achieved. This relief : regard the m 1 as a burden, however, culture and the solution of long- landowner and worker in which is afforded by Republic Act No. 35, ' necessary and justifiable they may standing land problems are essential it may well be that the land- now in effect to industry, as it be. How then can b'..lrden bring about to the improvement of the economy'. owner who is unwilling or un- exempts all new and necessary indus~ or increase prcduction? The•obvious Agricultural production has been res- able to undertake the cultiva- tries from the payment of all taxes ~ltnswer is, by placing the burden on tored considerabi"y since 1946 but tion himself may urge the for a period of four years from the non-productive investment and ini- in 1950 it is £till below the prewar landless to cultiv~te the land date of their organization. · Uy ..r..emoving it from productive average. The production of the prin- without charge m order to The third premise is the progresn "nvestment, with a gradual le- cipal food crops is now about equal save on taxes." sive adjustment of either heavy tax\r~li41\(' to normal rates' as the enter- to prewar levels but with al\ ex- But sl.lch a program would not be ation or non-taxation, as the case may prise becomes economic~lly stable. It pension of population of about 25%, complete unless a great precentage be, When the agricultural enterprise may be said, in ~onsequence, that to food production per capital is still of the revenue_s thereby received by has attained economic stability, i.e., produce .the desired results there considernbly below prewar and .,the the government are budgeted to im- assured successful operation, at which must be taxation and non-taxation nation is dependent upon imports for prove present methods of cultivation. time it should be ma,de subject to l preceding normal taxation. The ap- a sizable proportion of its food sup- Again I quote from the Bell Report: the normal rates of taxation usually plication must vary depending on the ply." Now then, to increase agricul- "The national budget makes little applicable. nature of the production and the tural production it is necessary to provision for this basic occupation The fourth premise is taxation .of stage same has attained. We will stimulate greoter interest among of the Philip.pine people. For the non-production industrial investment. only concern our.selves today with those ¥{ho actually work the land. It fiscal year )951, there was ·appro- This has been stated for academic two classes of production: agricultu- has been recognized for a long time priated to the Depaftment of Agri- reasons only, as a counter-part of the ral and industrial. And as taxes are that there is no better incentive than culture and Nat:iral Resources for in- first premise, because in practical efnecessary, non-taxation must be Ii- to give them an opportunity to own vestigations in plant industry, ani- feet there is no investment in indus1- mited, in either case, to the incipient the land. Part of the government's ma! industry, fisheries, and forestry try unless it be for production. In · stage of production. Our discussion Social justice program is, in facts, the sum of Pl.2 million, about one- exceptional cases where industrial then narrows ·down to six premises: devoted to the attainment 'Of that fourth of one percent of the budget. property, equipment ,or, .supplies are a. Taxation of non-productive agri- goal. Yet, de.spite these efforts, we When it is considered that Philippine purchased by middlemen whose sole cultural inve1tment read on tho Bell Report the_ follow- agriculture it regarded by it1 rno1t intent i1 to hold them for reaale at PAGE 10 THE MANILA GUARDIAN JULY,. 1951 higher prices - particularly in times should be done to correct this obvious of scardty - such nssets should be unomaly. The Philippines, engaged heavily taxed if they are held for as it is in a gr/at effort to improve - If for any ta:i.:able year the tax- the banks to relaX" their lending payer has a net operating loss, policies, thus stimulating lending'l' such net operating lose shall be a for productive purposes." more than a n:asonable period. its dollar reserves, and very success· net operating loss carry·back for In conclusion, may -1 say that of The fifth premise is non·taxation fully, I may say, due to the ability the precediug taxable year." the several points I have touched of new industrial enterprise. In the outstandingly demonstrated by the "If for any taxable year 1 ihe upon in this address the most im· c~se of industry ip its incipient stage, Governor of the Central Bank, Mr. taxpayer has a net operating loss, portani, in my opinion, is the need relief frofl taxation is as important as Cuaderno, and his well qualified staff such net operating loss shall be a for a larger appropriation to be given imposition of ta~es is in the case - can hardly afford to have its ex- net operating los.s carry.over for to the Department of Agriculture and of .idle agricultural lands. This re· ports impeded by mere technicalities. each of the, five succeeding \ax- Natural Resources 50 that it may be lief from taxation is 9fforded by the. It is to no avail to have repealed able years." able to increase and intensify scienprovisions of Act No. 35 to which the ~xport of !1/2% in 1946 if, on This provision is in recognition of t ific research for the improvement I have already referred. the other. hand, the local sales tax of · the principle that a net operating of agricultural method.S. This is not 1 The sixth premise is simply the 5% or rrJore can be impm1ed on profit shall not be taxed unti) all only ji.ist but necessary considering application of the normal level of export transactions when Jhey are the net operating losses shall have that the largest share of the gross taxation to new industries when they made on an "F. 0. B." on "F. A. S." be.en covered by profits of prior or national product is contributed V have .successfully emerged from the hasis. E;veryone knows that these subsequent years. Even an establish- agriculture and that more than 70 3 initial stage. terms are comon in the export trade. cd industry which has been making of the people de.;ive their livelihood Apart from Act No. 35, we must Another example of stimulating in- profit's for years is subject to the in- from it. c~e1di~ thed g~ver.dnm,ent for other le- dustry through r~lief from taxes may ~uo:,n~~,, 0,',•,:,':q'"u'•~•f,aoatnodno,th",',h 08 8~ Fro~· this specific ;tatement one g1s atlon es1gne o encourage pro- be found in Act No. 361 which duction by relief from taxation. The exempts the purchase of vessels from tastrophes which can throw it into can expand into a general comment repeal by Act No. 41 pa~sed in Oct- abroad from the compensating tax a subseqUent period of operating that the government, by evolving a ober, 1946 of Section 187 of the Na- imposed in Section 190 of the Inter- losses. Under :such circumstances it scientific t&x system and through pfo. tional nlternal Revenue Code which nal Revenue Code. This is construe- must be giv;en an opportunity to re- ductive public spending of revenues cover, fo~ unless it recovers it ceases from taxation, can be a leading agen· imposed a tax of 11/:z% on all ex- tive legislation because the Philipports was prompted by the vital need pines depends w much on the availof Stimulating exports of Philippine ability of vessels for the carriage 'of products. This resulted in lowering its ~xports. In times of war vessels their cost and was, therefore, an in· of foreign regii.try may be diverted qmtive to production. Unfortunate· by their owners or government from ly, m'.lch of this benefit has been their nounal routes and the Philip~ Cancelled by th.e imposition of the pines could find ~itself in a serious local .sales tax of 5% , 7% o~ higher plight if it had no commercia'1 ve.stO certain export transactions. The sels of it's own. Apart from this con· collecting agencies of the government, sideration is the fact that the merto be a taxpayer. cy of production, along with capital, Elf.amp/es; labor end management. Graphs showing rise in prices of: , The power of taxatiol\.' js· an ~c(a) GASOLINE cepted attri~ute of modern forms - (b) DIESEL OIL especially of the d~mocratif form - (c) CRUDE OIL of.govemmeilt, exercised for the· purBut reverting tO: the positive in· pose of financing public services. It ,. terpretation of the subject "Taxation must be admitted that business eni as an ·Incentive to Production" an\i terprise would be imJ)ossible without ·considering that under a ll circum- the security and the convenient servby resorting to technicalities based chant marine is botH a dollar·savin'g stances it is first neces9ary to have ices given by the government. How· on _ court rulings which long pre·dated industry, a~d dollar producing indus· ' capital before one can produce, I ever, to encourage productivity, unthe repeal of the export tax, have try. · This particular Act would be think it fitting to approach the end der this general principle, there ruled that products sold for export more up-fodate· if its provisions were of this address by quoting the two must be a judicious turning on and on"an "F.0.8." or "F.A.S.'' basis extended to included commercial following recommendations which, off of the pressure of -taxation which are subject to the local sales tax be- aviation. among others, were made by Dr. would. on the one hand,\ penl}lize cause the title to the property passes Francisco Dalupan in the excellent non·produa,tive. inve.stment end, on in the Philippines. In other words, The government can further en· speech he delivered before the Lions the other, reward the introduction of in order to steer clear of the local courage production, both agricultural Club on January 24, 1951: new productiv~ enter~rise. If ~e ~ sales tax, an export sale must be and industrial, by incorporating into . "1. Tax hoarded money not in power to tax 1s exerc:sed according made only on a "C.l .F." bass. If our Income Tax Law a provision banks in order to force the fun. to sound precepts, envolved through a mere technically can change the found ,in Section 122 of the United nelling of idle capital either into expe" riences of states and peoples of nature of an export sale into a local States Internal Revenue Code which the banks or directly into produc- the world, and if the revenues from sale for the purpose of taxation, I am allows the carry·back and carry-over tive investments'." taxation are wisely spent on produc-~· sure you will agree that it is impe- ·of net operating los.ses. It reads as "2. Tax idle bank deyosits over tive public services, taxation can an~ rative that something construCtive follo"ws: and above legal reserves to force will be en incentive to production.

pages

9-10