VAT hits consumers, not big businessmen
‘TWAS CONGRESS: Do not blame the Supreme Court if the upcoming imposition of a 10-percent Value-Added Tax results in a price spiral and civil unrest. Blame Congress.
It was not the high court, but the legislature, that enacted the VAT law (RA 9337). The tribunal was just asked to rule on its constitutionality, not on its wisdom, desirability or efficacy.
When applying the test of constitutionality, the Supreme Court is bound by the law. In theory, the tribunal is not to be distracted or swayed by the economic and political noise aimed at it.
Those who object to the VAT and its effects on our lives and livelihood will have to bang at the door of the Congress, not the Supreme Court. They should not spill into the street for calibrated hosing down, but charge into the halls of the Congress to have the law rewritten or repealed outright.
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ROAD MAP: Exactly one year ago, President Gloria Arroyo presented us a Road Map to restore, she said, “fiscal strength to fight poverty.” She did this, in a message to the Congress and the country, in the context of a ballooning fiscal deficit.
She said: “Our program for fiscal strength is premised on the painful fact that the government could, very soon, no longer afford to subsist on borrowed funds… If we persist in sustaining national growth through relentless borrowing xxx, the interest payments will eat up the share of the budget not earmarked for debt servicing.
“If this happens, public services and social reforms xxx would slow down or come to a full stop. The poor will suffer, in greater numbers and deeper magnitude.
“It is critical for our national survival that we bridge the widening chasm between our national debt and our capacity to pay before we surrender our economic future to the judgment of our creditors.”
(But from the gallery, we hear the question: “By imposing the VAT on the insistence of the International Monetary Fund, have we not ‘surrendered our economic future to the judgment of our creditors’ to some extent?)
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WHERE’S FAIRNESS?: The action plan in President Arroyo’s Road Map consists of (1) moves to improve administrative efficiency and (2) eight proposed legislative revenue measures.
The newly validated VAT law is one of the revenue measures. What ever happened to the rest of the eight-point agenda? As the nation braces for a VAT-induced price storm, Malacanang may want to do some updating and explaining.
Why were some of the tax bills hitting Big Business dropped? Is it fair that the government targets only consumers who do not have the clout to fight back? Why the insistence on VAT that hurts the masses and not the businessmen in the distribution chain?
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CHECKLIST: To refresh our memory, including that of President Arroyo, these were, in her own words, the eight revenue-generation proposals that she certified to Congress. (Status remarks on each item follow in parentheses.)
- Adoption of gross income taxation.This measure will replace the current net income tax system with gross income taxation of corporations and self-employed individuals through payment of a fixed percentage or a fixed amount. It will lead to a fairer taxation scheme by correcting the discrepancies in the present system that imposes the greatest burden for individual tax on salaried employees.
(Very contentious. Those who would be hit big by gross taxation are lobbying against it. What the Congress did in the meantime was to have the VAT law raise corporate income tax from 32 to 35 percent for three years and reduce it to 30 percent after that.)
- Indexation of excise tax on tobacco and liquor.The current specific tax for tobacco and liquor does not allow for adjustments due to inflation, thus the tax rates collected from them have remained the same since 1997 despite the increase in their prices. An estimated P7 billion is expected on its first year of implementation.
(These “sin taxes” were raised after much haggling with tobacco and liquor firms. Drinkers and smokers now seem to have gotten used to the resulting higher prices.)
- Excise tax on petroleum products.This will increase the specific tax rates on petroleum products by P2 across the board, except for LPG which will be increased by no more than 50 centavos, to adjust taxes to the price increases of these products.
(Instead of being increased, the 30-centavo per-liter excise tax and the nine-centavo per-liter import duty on fuel were scrapped so the full impact of the 10-percent VAT will not be felt at the retail pump. Anticipating VAT, oil companies raised prices in almost weekly creeping increments. Even LPG was not spared.)
- Rationalization of fiscal incentives.This streamlines the fiscal incentive system by putting together all the special investment incentives provided in several laws; withdrawing all inefficient, irrelevant and duplicative special investment incentives schemes; limiting the time frame for granting incentives; selecting the investments that can avail of them; and abolishing fiscal incentives not consistent with the WTO.
(The debate, sometimes touching on alleged discrimination or favoritism in allocating incentives, raged for a while in media then died down. Fate of the measure is uncertain.)
- General tax amnesty with submission of SAL. This generates immediate revenues and broadens the tax base by granting amnesty to delinquent individual and corporate taxpayers through the payment either of 3 percent of the taxable income or a fixed scheme. To broaden the tax base, the amnesty would also require every taxpayer of a given income threshold to file a Statement of Assets and Liabilities. We expect around P10 billion from this amnesty program.
(Too hot to handle? It is not known if Malacanang would insist on this measure that has been criticized as having been tailored for the big tax evaders in town.)
- Lateral attrition system. This measure institutionalizes an attrition system for revenue-collection officials and employees, whereby incentives are granted to those who meet targets while sanctions are imposed on those who fail.
(Adopted, attrition is reportedly being implemented to put pressure on revenue officers to work hard to meet collection targets. Still, revenue collection has been lackluster.)
- Franchise tax on telecoms. This measure reimposes the franchise tax on telecom companies to enable government to share in the tremendous growth of the industry without significantly hurting the pockets of individuals or corporations. The additional revenues, estimated at P5 billion, can be used for important social services such as health and education.
(After telecom bigwigs lunched with President Arroyo, she announced that government would no longer tax their multibillion-peso windfall earnings. When telecoms, particularly cellphone giants, threatened to pass on to subscribers any windfall tax slapped on them, Malacanang retreated.)
- Review of the VAT system. Pending a review of the entire VAT system, a two-step increase in the VAT rate increases it from the current 10 percent, which is one of the lowest in Asia, to a still relatively small 12 percent. We are aiming for a modest VAT-to-GDP ratio of 4 percent in 2005 and 5 percent in 2006.
(The VAT rate initially will be 10 percent to the consumer, with merchants allowed to retain or recover only 70 percent of the input VAT that they had paid. In January 2006, the 10 percent will be raised to 12 percent. Since consumers and not businessmen are the VAT targets, the tax law passed easily.)
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TRIUMVIRATE: As expected, my proposal last Tuesday for President Arroyo to convince the three living past presidents to form a consultative council to advise her on how to save the country met with more opposition than approval from readers.
I said when I broached the idea: “Immediately, I can see that the idea will be opposed by Arroyo loyalists who want the whole cake to themselves, and by opposition elements who might have started to have delusions that victory — meaning their return to power — is at hand.”
Some of those who laughed at the idea asked what wisdom as in “collective wisdom” could be expected from you-know-who. Others said that the trio would never strip themselves of their personal ambition and political agenda even for the sake of the country.
It would be interesting to hear directly the thoughts on the matter of President Arroyo and of her predecessors Cory C. Aquino, Fidel V. Ramos and Joseph E. Estrada.