POSTSCRIPT / January 25, 2005 / Tuesday


Philippine STAR Columnist

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Bare DoF, DTI, BSP appointments as a team

FIRST TEAM: The stage is set for President Arroyo to present with flourish a topnotch economic team that would ignite the imagination of the international and the domestic financial markets of a finally rebounding Philippines.

With the masses getting impatient and the business community looking worried, the President should not miss her cue this time.

Merely shuffling around the same old tired hands will not do. Recruiting manager-achievers with golden track records instead of the usual economists who tool around with theories will.

The President is shopping around for talent, for some new faces and fresh ideas, to lead the Department of Finance, the Department of Trade and Industry, and the Banko Sentral ng Pilipinas.

The appointments to these critical posts should not be announced piecemeal, but presented in one grand show to stress their being The Team that would pull the country out of its fiscal crisis.

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NAMES FLOATED: Trade and Industry Secretary Cesar Purisima is prominently mentioned as possible replacement of Finance Secretary Juanita Amatong, who has told the President of her desire to retire.

Among the names being floated for the DTI are those of Juan Santos, former chief executive of Nestle Philippines, and Rep. Jesli A. Lapus, chairman of the House committee on ways and means.

With BSP Gov. Rafael Buenaventura retiring in March, his replacement, as well as three upcoming members of the Monetary Board, could be announced together with the new DoF and DTI secretaries to underscore the teamwork theme.

Cabinet teamwork could be woven into a larger tapestry of national unity and the common weal.

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WHIZ KID: For a trade department looking both inward and outward, President Arroyo obviously needs a seasoned and versatile executive with all-around exposure and proven effectiveness in industry, finance and the public sector.

Looking for a professional manager recognized in industry as having steered companies to undisputed leadership, the President cannot miss Lapus, a turn-around artist known for having turned foundering international and local firms into shining successes.

Samples: Tapped at age 42 as president and CEO of the Land Bank in 1992, Lapus steered it in six years from No. 18 to No. 3 among commercial banks. Earlier, as chief of the local subsidiary of Triumph, a century-old German multinational firm, he achieved at age 29 the highest global production efficiency standards, paid the highest wages in the country, delivered the highest profitability and paid the highest taxes.

From the private sector, Lapus served with distinction in the Cabinet of two presidents (Aquino and Ramos) and is now on his third and last term as an outstanding legislator. An impressed President Ramos said, “Jesli Lapus (then 36) is the priziest catch we’ve had from the private sector.”

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CLEAR & SIMPLE: A former finance professor at the Asian Institute of Management, Lapus explained to our Capampangan media group last week in clear and simple terms the rationale for raising VAT (value-added tax) from the present 10 percent to 12 percent.

Press Secretary Ignacio Bunye was to say later that Lapus’ explanation was the clearest he had heard so far. His main point was that the poor would hardly feel the VAT increase. He added that the burden would be shared mainly by the rich and the middle class.

Citing a study of the National Economic and Development Authority, Lapus said the bulk of the expenses of the poor — up to 89 percent of their total — are for goods not covered by VAT or are bought from small outlets that do not pay VAT and therefore do not pass it on to consumers.

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THE OTHER SIDE: Critics of VAT cannot be expected to take this lying down. For sure, they will try to refute Lapus’ arguments.

One could argue, for example, that VAT would still have a disproportionately adverse impact on the poor given the dismally low income levels of a large part of the population.

Some sectors have cautioned Congress that wholesale removal of the VAT exemption on the sale and importation of goods by cooperatives may kill those that are not yet financially viable.

Others said that the way to go is to increase corporate income tax to 35 percent, from the current 32 percent. Still another group batted for increasing taxes on petroleum products, power companies and telecoms.

In any event, Lapus deserves kudos for two reasons. First, in the current climate, it takes courage to stand up and defend the VAT measure. It is certainly much easier for politicians and consumer groups to take the opposite stance. If only for that, Lapus’ arguments deserve a serious hearing. Second, he does us all a service by raising the level of debate on this controversial issue.

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EXEMPTIONS: One bill under consideration authored by Rep. Salacnib Baterina seeks to withdraw VAT exemptions granted to: sale or importation of coal; sale or importation of raw materials used in the manufacture of petroleum products by the buyer or importer himself; importation of passenger and cargo vessels of more than 5,000 tons; sales and importations of cooperatives; sale, importation, printing and publication of books; services rendered in the exercise of the medical and legal profession.

Baterina explained that removing or reducing exemptions would strengthen the VAT system and plug the system’s loopholes.

The key advantage of VAT is its built-in self-policing feature through its VAT credit mechanism. This mechanism creates a paper trail that enables tax authorities to match claims for input VAT with the sales declarations of taxable suppliers of goods and services.

Businesses are forced to ask for receipts so they could claim their VAT tax credits. Through this process, fraud and under-declarations could be detected more systematically and prosecuted.

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TRADE-OFF?: Exemptions distort the system. They break the chain on which the self-policing mechanism of VAT relies.

Testifying before the House last year, Finance Undersecretary Emmanuel Bonoan admitted that VAT collections as a percentage of the Gross Domestic Product went down in recent years.

He attributed this to the “numerous” exemptions that have been granted. There are currently 26 sectors exempt from VAT payments.

Sen. Ralph Recto, chairman of the Senate ways and means committee, is addressing such concerns by proposing variable VAT rates. He would want sensitive products like petroleum to be subject to a rate lower than the standard 10 percent.

Consumer and Oil Price Watch chairman Raul Concepcion has taken a similar approach, saying that cooperatives, for example, could be subjected to a minimum of 2 or 3 percent.

While this approach is more politically palatable, there are drawbacks: (1) Revenues would be lower in a multi-rate system; and (2) Implementation would be trickier. Internal revenue officials have warned that they would be hard put monitoring compliance with a multi-rate VAT system.

This is an area where the Arroyo administration may have to make major trade-offs.

Lower rates for sensitive products like oil may lower resistance — but at the cost of a more complicated system that yields less revenue. The administration may console itself with the thought that — as Concepcion puts it — the compromise would “drag” those still not covered by VAT into the system and thus improve its coverage.

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LESS HEAT, MORE LIGHT: Debating issues like VAT should be an opportunity to have serious, fact-filled and well-reasoned discussions of difficult policy questions for which there are usually no easy answers.

We lack such quality discussions on many of the political issues that divide the nation. The scarcity is far worse when we get to economic matters.

Public officials and the media have an obligation to help raise the economic literacy of the public. While we in media have to plead lack of preparation for in-depth discussions, we keep studying and trying to help the public along.

Many politicians are similarly disadvantaged. Imagine the potential humiliation that faces senators and congressmen who dare stand up and debate complex economic issues on the floor of Congress.

That is no reason, however, why we — everybody — should not speak up on something that is about to hit us where it hurts.

In discussing such a controversial topic, there should be less name-calling and mind-numbing chanting of slogans. The debate should, as we love to say, generate more light than heat.

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(First published in the Philippine STAR of January 25, 2005)

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