Consumers, not traders, made to bear final VAT
CONSUMER HIT: In my POSTSCRIPT last Tuesday (Feb. 22), I asked why the government is not explaining to the people this killer tsunami called expanded Value-Added Tax that is about to hit them.
Reader Oscar Mejia has an answer. He says in an email: “Government does not bother to explain VAT because its defects will become more apparent if it tells us everything.”
I also asked readers to help explain VAT and to correct any error in my illustrative examples of how VAT is tacked on to goods and services moving in the market.
Mejia added: “Actually the final consumer does not only pay 10 percent VAT but 16 percent (P48/P300) in your example of carabao hide-to-leather-to-sandals case. Note that the final consumer does not only pay the 10-percent VAT on the price of the sandals but also the net taxes paid by those in the production chain (which are passed on to the next level of users).”
He was referring to my illustration of carabao skin (P100 price + zero VAT) being turned into leather (P180 price + P18 VAT?), then to a pair of sandals (P300 + P30 VAT?) with the price increasing as it is transformed and some value is added to it in the production and marketing chain.
Mejia concluded: “The final consumer pays effectively a total of 48 pesos (P30 + P18). The VAT scheme is applicable only to those registered as part of the chain since they are able to deduct from their tax the VAT passed on to them.
“You’re right, the answer is higher tax collection efficiency. If the present collection efficiency is 50 percent, government should aim to increase this by 20 percent or to 70 percent collection efficiency. This will offset the proposed 2-percent VAT increase (20 percent of the current 10 percent VAT rate).”
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CRUEL & WRONG: Reader Rudy L. Coronel of Alangilan, Batangas City, tells us in an email:
“Your assumptions on VAT are indeed cruel and wrong! In your example, if the P300 selling price of the sandals is P300 and inclusive of VAT, the VAT portion is P27.27, i.e. P300 divided by 11. On the other hand, if the P180 cost of the leather is also inclusive of VAT, the VAT portion is P16.36 or P180 over 11. The one is called ‘VAT Output,’ the other ‘VAT Input.’
“When the shoemaker files his VAT Return with the Bureau of Internal Revenue, he will be paying only P10.91 (Vat Output minus Vat Input), which is roughly 10 percent of the value added of P102.
“That process goes down the line until finally the product reaches the end-consumers who, after so many other ‘values’ have been added to the original product, must unfortunately bear the fullest brunt. And so, VAT is called consumption tax, which to some extent should encourage savings and thrift. The thing is, in this country savings is no longer in the vocabulary of the common tao.
“What to me is more cruel and even stupid (maybe unconstitutional!) is to increase the VAT rate from 10 percent to 12 percent for the simple reason that the existing rate is not being efficiently collected. Thus, the increase penalizes the religiously tax-paying taxpayers.
“That is not unlike a lessor of a 10-unit apartment for say, P1,000 per unit. Since only five lessees are regularly paying the rent in full, and the other five only half, the lessor is allowed to increase the rent to P1,500 for all of them to recoup the loss he suffers from the ‘balasubas‘ lessees.
“Meanwhile, that rice, meat and vegetables have been made VAT-exempt is not only because no ‘value’ has yet been added to them. The government also knows that not exempting them would be an exercise in futility for tax purposes. These items are being sold in the wet markets where no sales invoice is ever issued, and a sales invoice is the primary requirement for charging VAT.”
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WOE TO FINAL BUYER: Celso Balat of CEBA Marketing says in his email:
“First transaction — Farmer sells his raw carabao hide to businessman BA for P100. This transaction is not subject to 10-percent VAT as the item is hide, raw. So no money will go to the government.
“Second transaction — Businessman BA processes the hide into a pair of shoes and sells them to businessman BB for P180. This transaction is subject to VAT of 10 percent which tax is P16.36. This P16.36 is the amount of tax charged to BB that BA has to pay to the BIR on the designated time; otherwise he will be fined.
“Third transaction — Businessman BB sells the pair of shoes to businessman BC for P300 which includes a 10-percent VAT which is P27.23. BB is obligated to pay VAT of P27.23 to BIR but at the time of payment of VAT, BB will pay P10.87 only because he is allowed by the BIR to deduct the P16.36 paid by BA to BIR This is called Input Tax in the VAT language. In other words, the VAT which is built-in in the articles can be used as a deduction against the VAT payable by the businessmen.
“Fourth transaction — BC sells the shoes to the final consumer Juan dela Cruz, a young student of a public elementary school. The sales value is P400 which includes P35.55 as VAT. Juan cannot claim the VAT of P27.23 built-in in the shoes. He is not a businessman nor is he allowed by law to consider the P27.23 as a tax credit. He assumes the entire P35.55 VAT included in the sales value of P400 of the pair of shoes.
“To summarize, the following buyers were subjected to VAT: BA, zero VAT; BB, P16.36; BC, P10.87 (P27.23 – P16.36); and Juan dela Cruz, P35.55.”
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CHED, WAKE UP!: Dr. Conrad G. Javier of Broadway Medical Center, Chagrin Falls, USA, warns in an email that if the government does not act fast, other countries will beat Filipinos to the “rising worldwide demand for nurses and other professional health workers.”
The doctor, who has practiced in the US for the past 45 years, agreed with observations made in POSTSCRIPT last Sunday that the Commission on Higher Education should not block the opening of new nursing schools that have met all requirements.
Javier said: “Expanding and upgrading with some funding from the Arroyo administration for this very achievable critical financial lifeline support should be one of its priorities this year before other countries catches up with the demand.
“Extra effort should be exerted to double-up the current enrollments to produce top quality graduates within the next 3-5 years for these reasons:
“1. More foreign graduate nurses especially from Asia will be accepted to many more US hospitals due to a much lesser quota restrictions which will be pass by the US congress this year.
“2. The demand for nurses in the US at the present rate of nursing shortage is about 200,000 which is expected to climb to 810,000 by 2020 per estimates of the US Department of Health and Human Services. That represents a 28 percent vacancy from the 7 percent today.
“3. Many more foreign-graduate nurses will be in demand within the next five years because local (US) nursing graduates will be going into specialized work such as Nursing Practitioners in place of the dwindling numbers of family physicians, pediatricians, anesthesiologist (as anesthetist), and as mid-wife or labor room nurses within the next 5-10 years.
“This is due to the gradually decreasing enrollment in US medical schools during the past few years and to the early retirement of practicing doctors in their fifties and sixties due to the atrociously high yearly malpractice premiums ranging from $35,000 to $300,000 depending on one’s specialization.
“4. The average Registered Nurse in the US earns more than the average doctor, because of the high premium that doctors shoulder due to the very high Liability Insurance premiums. The average licensed Filipino RN earns annually about $60,000 (gross) for a 50-hour-week job.
“The government should have its CHEd work out a very viable solution expanding and upgrading its nursing education with all Nursing institutions involved before this gargantuan opportunity is snatched by good English-speaking Polish, Chinese or Korean nurses who are now up in there.”