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Economic Rent and the Stumpage Sale System in Philippine Timber and Forest Land: A Case Study Approach
Abstract:
The study attempted to estimate the economic rent that resulted from the use of the country's timber resources and to evaluate the efficiency of the existing forest taxation system and the proposed alternative stumpage sale system in terms of"ideal" tax system.
Most ofthe information used in the estimation of rents were drawn from the financial reports of the case firms, which consisted of three logging firms in Region XI. They were selected so that each firm represented a particular category (i.e., small, medium, and large).
Resource rent is a payment for a factor of production in excess of the payment required to secure use of the scarce resource from its owner.
Estimates of the rent derived by each firm indicated the declining profitability of the logging firms. Moreover, these also indicated the inability of the existing system of "fixed" forest charges to appropriate these rents.
The study also found that the more efficient firm generated from rents but it was being taxed less than the less efficient firm that generated smaller rents. This indicated not only the proportion of the government's share in the rent paid by each firm but also the nature of the forest taxation system. In terms of equity and efficiency in raising revenue, the system was regressive in the sense that an unequal proportion was confiscated from each firm. In terms of optimum resource allocation, the system was neutral because it affected only the economic rent and had no impact on the supply price.
The proposed Stumpage Sale System (SSS), on the other hand, showed great potential in approximating the effects of the theoretically ideal system. On efficiency in generating revenues, the system is capable of capturing as much as 100 percent of the economic rent. On the basis of equity consideration. the system may not be totally neutral because of its tendency to confiscate an unequal proportion from each firm. In the interest of optimum resource allocation, the system is neutral since it is able to lim it the government's share to no more than the economic rent. Unlike the existing system which attaches a low value on the timber and forest resources, thus encouraging forest destruction, the SSS was foreseen to do the exact opposite by attaching to timber and forest resources their true value.
The study provided an estimate of the resource rent in the logging industry. However, since the study was limited only to three logging firms, results derived should be taken only as indicative of the potential for taxation in the logging industry.