02 May 2013

Time for Churches to Pay Taxes?

Taxing the Philippine Catholic Church
Some Israelis believed that if there are enough Lapids in the world, the financial environment would have been in a much more stable condition. They are not referring to Philippine Senator Lito Lapid, but to the newly minted Finance Minister Yair Lapid.

Minister Lapid became very popular after opposing the long-standing preferential treatment enjoyed by the religious minority, is moving swiftly to slash state handouts to large families, compel lifelong seminary students to work and join the army, and remove funding for schools that don't teach math, science and English.

Minister Lapid is openly waging a war against the powerful ultra-orthodox Jews. For most of the last three decades, this small religious minority sat in governing coalitions, securing vast budgets for religious schools and automatic exemptions from mandatory military service for tens of thousands of young men in full-time religious studies.

It would have been something to grace and witness Minister Lapid's radical influence extend far from the shores of Israel and plant a seed of hope in the Philippines against the expensive tax incentives that the Roman Catholics are enjoying. It would have been much better if his namesake here, Senator Lito Lapid, will be the one to lead the charge, but I doubt it very much that the lawmaker from Pampanga will be willing to step out from his quiet comfort zone and engage the influential Church in an action-packed gun-battle ala "Leon Guerrero".

One of the things that the country could learn from Minister Lapid is that if the country faced a dire need to infuse cash into its coffer, it need not be force to avail of high-interest bilateral or multilateral loans. It can always improve and refine its tax collection system, including an expansion in the tax imposed on religious groups to cover those that they operate for 'non-religious' purpose such as hospitals, schools, resorts and retirement villas.

Taxing Church activities may be a prickly issue fifty years ago, but I don't think many will not agree to it now. When there was a discussion about bringing Churches under the new Social Security system in the days of US President Franklin Roosevelt, he quickly replied, "But that would be taxing God!" And so it would. But it is clear after the support to the passage of the Reproductive Health Law that those days are behind us.

Public officials around the world are more practical, critical and audacious than ever, and they are desperately looking for new sources of revenue. If countries like Spain, Italy, Ireland, and Britain have step-up efforts to tap into the Church's piggy bank, or simply stop putting money into it, then there is no reason Filipinos cannot amend the 1987 Constitution and do the same.

At present, Church real properties are not subject to realty taxes and this was specified clearly by the Real Property Tax Code. Moreover, all activities of the Church that is designed to either maintain or to further the faith cannot be subject to tax except indirect taxes like VAT – since these were passed on to the buyer and not a tax on the church income itself.

I don’t think that by removing some of these perks, which the Church seems to enjoy so much, there will be a violation in the separation of powers between Church and State. There is nothing in the Constitution that says the Church is equal in power with the government. This led me to conclude that in a rational political system, the government is regarded as the higher authority than the Church (any Church), and therefore can impose its will on it just like what it is doing to everybody else.

I'd like to quote an portions of an article of Red Tani published in the Philippine Daily Inquirer last 15 March 2013,

The Churches in the Philippines is taking for granted the fact that even religious organizations — like all charitable organizations — are regulated. This is what happened in 2004 to the Lung Center of the Philippines.

Like the Catholic Bishops’ Conference of the Philippines (CBCP), the Lung Center is registered as a charitable institution. It is also entitled to tax privileges in exchange for participating in charitable activities—primarily the treatment of patients with lung-related ailments.

But the Quezon City assessor discovered that the Lung Center also operated for profit. Because of this, the assessor taxed both the land and the hospital. The Lung Center made an appeal, claiming that as a charitable institution, it is exempted from paying real property taxes. It appealed to four other courts — and lost. Eventually, it brought the case to the Supreme Court.

Essentially, the Lung Center is saying that although they participate in non-charitable activities, these activities are performed to further their primary goals. And since their primary goals are still charitable in nature, the organization still qualifies as a charitable institution exempted from paying real property taxes. This argument is really stretching it far.

The Supreme Court decided that those parts of the Lung Center leased out for profit are not exempted from taxation. It doesn't matter whether the profits are used to fund the Lung Center’s main goals. The fact that a non-charitable activity was done at all automatically disqualifies a property from tax exemption. In other words, it doesn't matter what the Lung Center uses the money for. The fact that it made money at all is enough to disqualify it from tax exemption.
Just before he died in August 2012, outspoken Cardinal Carlo Martini (a Jesuit who was once considered "Pope material") openly criticized the Catholic Church for its unwillingness to embrace reform, describing it as "200 years behind." "Our culture has grown old, our churches are big and empty, and the church bureaucracy rises up..." the Cardinal said, adding that the "child sex scandals oblige us to undertake a journey of transformation" — a radical transformation beginning with the Pope and his bishops, Martini declared. Maybe he should have added, "by paying our taxes diligently and properly, we can convince the public that we deserve the trust and respect that they have blindly thrust on us".