POSTSCRIPT / April 26, 2005 / Tuesday

By FEDERICO D. PASCUAL JR.

Philippine STAR Columnist

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Who in the Palace gets the usual 'jueteng' tong?

JUETENG FLOURISHING: Logic alone can lend credence to persistent reports that tong from jueteng, the illegal numbers game flourishing under the Arroyo administration, continues to be delivered to some top officials.

Ilocos Sur Gov. Chavit Singson testified under oath during the impeachment trial of then President Erap Estrada that he collected tong from jueteng operators and delivered the lion’s share to Malacanang.

Has anything changed with the change of administration?

After Mr. Estrada was replaced by then Vice President Gloria Macapagal Arroyo, who then went on to get herself elected to serve her own presidential term, jueteng operators bounced back with renewed confidence of official protection.

Questions: Since it is obvious that tong-collection has not stopped, who is now collecting the millions in tong? Is it still Chavit? And who is now the Malacanang personality receiving the dirty millions?

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PERCEPTION: Malacanang has not declared categorically that jueteng has been at least substantially clipped, and that no ranking official or anybody related to the President or the First Gentleman receives money from illegal gambling.

Unfortunately, official denials and the raising of clean hands are of no effect. Whether reports on tong collection are true or not is immaterial, because the whole mess revolves around perception.

The longer the negative perception persists, the more difficult it will be for Malacanang to erase it.

It is sad that reports of huge tong collections surface at a time when the poor masses are again being threatened with more taxes to cover the fiscal hole dug by official corruption and profligacy.

Malacanang may want to address the question nagging the poor, the neglected and the dispossessed: Why are we suffering when our leaders are living it up?

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DISMAL RECORD: Such questions resonate as Congress, the business community and a restive population debate the question of Value-Added Tax being raised from the current 10 percent to 12 percent.

President Arroyo has made it known that she is totally banking on a 12-percent VAT being approved to bail the country out of its “fiscal malaise.”

We are in for some disappointment if we bank on that. Going by the track record of government, businessmen and other taxpayers, the approval of a new VAT law is just a thin slice of the solution to the problem.

Reports have it, for instance, that under the current 10-percent VAT rate, only about half of the tax due is collected. At that level of collection efficiency, raising the tax rate to 12 percent will not bring in the P65 billion targeted under VAT.

So what are we trying to do?

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HOW TO CURE: President Arroyo calls for sacrifices. She and her chorus sing while waving the Bitter Pill — the VAT that she said will cure the fiscal malaise brought about, if you ask me, by official corruption, extravagance and mismanagement.

But the VAT can start to cure that ailment ONLY IF:

  1. The taxpaying public cooperates. This will happen if the people are convinced that the Bitter Pill will be swallowed not only by them but also, and more especially, by government leaders finally leading by example by taking their own Bitter Pill.
  2. The business community cooperates. One big leak in the system is in the manipulation of the tax records of business in collaboration with corrupt taxmen. How do we pluck the string of patriotism in their hearts? How do we make sure that the correct taxes they pay will not be stolen?
  3. The government reforms itself. By “government,” we mean government officials, the human element in the system, the same people in positions of power who demand and get tong in various forms.

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VAT CAP: As we started to discuss the problem of VAT leakages, we heard Negros Oriental Rep. Herminio Teves saying that the Senate-House conference committee on the VAT bill should impose a cap on the creditable input VAT that may be claimed by corporations and other big taxpayers.

“It has been the practice of many large taxpayers to overstate their creditable input VAT to effectively reduce their net VAT liabilities,” said Teves, the House ways and means committee senior vice chairman.

There are an “input” and an “output” VAT in taxable transactions. A businessman collects for the government an “output” VAT from the buyer of taxable goods. The businessman himself had paid an “input” VAT when he bought the goods.

The net VAT that he must remit to the government is the difference when he subtracts from the output VAT (that he had collected) the input VAT (that he had paid).

There is rampant cheating through the misdeclaration or manipulation of the output and the input VATs whose records are with the businessmen.

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THE REAL VAT: Teves reported that by over-declaring input VAT, many large industries actually pay a real or effective VAT of just 1 to 3 percent, instead of the current 10 percent.

He cited Bureau of Internal Revenue statistics showing that the telecommunications industry, for one, paid an effective VAT rate of less than 1 percent, or just 0.86 percent, on their sales from 1999 to 2004.

Over the same period, he said the construction industry posted a negative VAT rate of 12.31 percent; the soft drinks industry paid an effective VAT rate of 1.90 percent; the stevedoring industry, 2.92 percent; the cement industry, 3.81 percent; and the flour industry, 8.18 percent.

He added that data from the Department of Finance show that from 1998 to 2003, government failed to collect a whopping P352 billion in VAT revenues, or an average of P58.6 billion per year.

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CORRECT INPUT VAT: The House ways and means committee headed by Tarlac Rep. Jesli Lapus had imposed a 5-percent cap on the creditable input VAT. Unfortunately, the ceiling was deleted when the VAT reform bill was approved on the floor.

Teves likened his proposed cap to an existing provision in the Tax Code imposing a 1.5- percent cap on the creditable input tax in public works contracts.

He said that with a 5-percent ceiling on creditable input VAT, government can easily collect some P75 billion to P90 billion in incremental VAT revenues on VAT rates of 10 percent to 12 percent, respectively.

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TAX LEAKS: Teves explained how the VAT works. A manufacturer pays input VAT (or VAT on purchases) on all materials that he buys to come up with a product. The input VAT is posted in the manufacturer’s book of accounts.

When the manufacturer sells his product to the wholesaler, the manufacturer collects, on behalf of the BIR, output VAT (or VAT on sales).

He said the leak in VAT collection starts when the manufacturer claims higher input VAT than output VAT, for example, due to fewer sales compared to purchases.

But even with a cap, if there is collusion with corrupt revenue officials, the leaks will continue.

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POWER RATE HIKE: On the increase in electricity rates starting this month, reader Rodel Ocampo says in feedback:

“The Energy Regulatory Commission, Department of Energy, National Power Corp. and the entire government energy establishment mislead, deceive and discombobulate on the power rate increase of P1.50 per kwh approved last Friday by the ERC.

“Energy Secretary Rafael Lotilla talks about rate impact mitigation: lifeline rate, EPIRA discount, ToU, etc. The real issue is: Why is our rate among the highest in Asia? Why are we still paying for onerous IPP contracts?

“What is prudent, reasonable and necessary cost for power? Does it include the P12-billion golden parachute of NPC retirees, the P1.632-billion annual payroll for 3,825 employees (or P35,555 per employee per month)?

“The so-called Time-of-Use or ToU is the biggest deception. How can the end-user or household consumer benefit from it without changing his meter to reflect time of use? When NPC implements it with distribution utilities like Meralco, Meralco will only pocket another windfall profit from the vain efforts of households to manage their demand. In the averaging out of cheap and expensive power, efficiencies from the former are wiped out by distortions in the latter.

“The focus of the debate should be on what is prudent, reasonable and necessary cost. Was it prudent for NPC to provide market, financial, currency, fuel, regulatory, and political, guarantees to their IPP’s?

“Is it reasonable for NPC to pass on to its customers a P12-billion retirement bonanza and a P1.6-billion annual payroll? Was it necessary to contract power far and beyond the requirement of the market? Was it prudent for NPC to surrender its market to Meralco-IPP, at huge cost to the public?”

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(First published in the Philippine STAR of April 26, 2005)

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