Philippines government plans text tax

There are three proposals: to set a maximum limit of 50cents per sms to charge the telecom 5 cents for every sms and to install a metering device to ensure that telecom pays the correct taxes.

These are all reasonable and acceptable to the people. Currently, the telecom companies are claiming that sms, under promotions, only cost 10cents to 20cents. So they should not be complaining if it is pegged at 50cents maximum.
Secondly, even if the telecom add this 5cents fee, the cost to consumer is still below 50cents. and Thirdly, installing a monitoring device is long overdue. Ordinary sales of businesses are long being monitored in their cash register. To exempt these telecoms from monitoring is unfair. As it is now, they are paying taxes based on their own declaration, the government without a way to check on this.

This should not be too much of a burden or problem to law-abiding telecom companies, if they are paying the proper taxes. Also, the consumers will be happy about this, because many consumers pays 1peso per sms (without promotions)

Juan, I have to say I completely disagree with you. It sounds like you are repeating the arguments of the politicians who are pushing this wasteful and unnecessary stealth tax.

The purpose of this proposal is to make money for the government. Every other aspect of this proposal is designed to obscure that fact. This is a tax, not a fee.

The politicians argue that SMS is profitable, so it is possible to raise more tax without increasing cost to the customer. So why tax the revenues from one product in isolation? Why not just take more tax from the final profits of telcos? If you tax the revenues of a product in isolation, only one of three things can happen.

(1) The telco may find a way to compensate for the loss of profits by charging the customer more for other services. If that happens, then the government''''s increased tax income is still paid by customers, even if SMS rates are pegged. That would turn this into an extra tax on ordinary people.

(2) The telco may try to compensate for the loss of profits by cutting costs. "Great!" say the politicians, who feel like they get something for nothing. Cutting costs means paying staff less, employing less people, reducing expenditure on providing current services or reducing investment for the future. All of these are bad for the economy. Reducing investment is especially bad for countries like the Philippines, that are trying to grow per capita wealth by selling increasingly sophisticated services to overseas corporations. For that to work, you need a connected and educated populous that can freely and flexibly communicate, and you only get that with investment in infrastructure.

(3) The telco reduces its profits. This result is exactly the same as would have happened if the government had taken more tax from the telco''''s profits, except you waste $30m on a system to do it, and you interfere with how the business is run for the sole purpose of trying to pretend this is not a tax rise.

The politicians'''' analogy of a cash register is false. This monitoring system will know nothing about cash, it will inspect detailed operational data. Cash registers measure cash. This monitoring system will not. Collection of cash is the relevant activity for a tax authority to monitor. They should do that by inspecting the receipts of money from customers and the flow of cash to banks, not by inspecting low-level technical data. Auditing cashflows does not require a $30m system to interrogate what has happened on a telecoms network. The only reason for auditing SMS is if you want to tax the revenues of a specific product, and you suspect the telcos will not be honest. There is a simple and much cheaper solution - just tax the overall profits instead. Arguing that you need to audit SMS is like arguing you should levy a special tax on Amazon every time a DVD leaves their warehouse, but not when a book does. It is a distraction to argue that the government should be able to check how many SMS messages are sent. It builds the bad and overcomplicated idea of auditing specific business operations upon the bad and overcomplicated idea of taxing specific business revenues. If the government lacks the data or skills to audit cashflows in the business, and hence to tax the profits of a business, it will certainly not be able to validate them through the complicated and indirect mechanism of scrutinizing the detailed operational data. The difficulty of auditing is driven by the complexity of the detail. By trying to levy taxes on a specific business product, instead of the business overall, the authorities are making an artificial problem which then needs to be solved by an expensive and otherwise unnecessary audit system.

In short, this proposal is terrible for the Philippines. I explain more at talkRA.com, the website for professionals that audit the revenues of telcos. The article on this stealth tax is at http://talkra.com/archives/788 and I expect the impartial experts will agree with me: auditing the internal operations of a telco is a costly and unreliable way to validate cash receipts.

The only real winner from this crazy proposal would be the overseas business that wins an enormous US$30m contract for the monitoring system. Unfortunately, the Philippines government is not alone in using complicated and deceptive schemes so they can hide behind telcos whilst they grab money from the people. The people need impartial information, not government propaganda, so they can understand how proposals like this hurt them and their economy. This proposal would waste at least $30m of Philippine money. That money will be taken from the Philippine economy one way or another, but it would be better spent in the Philippines.