BUOYANCY AND ELASTICITY: DETERMINANTS OF
LOCAL TAX SYSTEM’S PERFORMANCE
Civil servants and priests, soldiers and ballet-dancers, schoolmasters and police constables, Greek museums and Gothic steeples, civil list and services list—the common seed within which all these fabulous beings slumber in embryo is taxation.
Every citizen, whether young or old, wealthy or poor, property owners or property-less, pays taxes to help finance governmental functions. Every business pays taxes, which almost certainly enter into the prices the consumers pay. The wages of the workers are withheld for income taxes. No one can avoid paying taxes.
Taxes have always been the traditional sources of government revenues. Recourse to taxation to finance the operational costs of government has been availed of by rulers of all times and climes from antiquity down to the present. It is what the government uses for community development.
Taken in this light, therefore, taxes are not mere contributions of the people to their governments, but represent the peoples' investments for their own welfare and future. Despite this, however, and the compulsory nature of taxes, many delinquent taxpayers manage to evade or avoid the payment of their taxes in one way or another. Tax evasion has become a serious societal problem. Too many people fail to pay their rightful tax. As a consequence, the government incurs huge deficit, and its delivery of basic services is tremendously affected.
With R.A. 7160, otherwise known as the Local Government Code of 1991, providing greater degree of fiscal autonomy to local government units, a periodic evaluation of the performance of the prevailing local tax system from the perspective of resource mobilization is, therefore, an imperative task among local government units.
Estimation of Tax Buoyancy and Elasticity
An important point to consider in any tax system is the responsiveness of the tax revenue to changes in income. According to Mansfield (Majuca, 1998), this responsiveness is measured by the concepts of tax elasticity and tax buoyancy.
Tax buoyancy is a ratio of the percentage change in tax revenue to the percentage change in aggregate income with the revenue changes inclusive of the increment in revenue brought about by discretionary factors. Modifications in the statutory rates and bases and extraordinary changes in the degree of administrative efficiency constitute discretionary tax measures. The growth in tax revenues (after adjustments are made for discretionary changes) reflects the growth attributable to changes in economic base and to trend changes in administrative efficiency. Thus, tax elasticity, which is based on revenue changes after adjusting for discretionary effect, is a measure of the responsiveness of tax revenues to automatic changes in economic activity and tax administration. Tax elasticity is the product of two components: (1) the base elasticity...