SUICIDE?: What has possessed Makati Mayor Jejomar Binay that he seems bent on killing the goose that lays the golden eggs for the premier city entrusted to his care?

For his own sake and that of the people of Makati, it is right that higher authority has stepped in to regulate Binay’s sadistic practice of unleashing partisan demonstrations on weekdays right in the very heart of the business district.

Many businessmen in the affected area have complained of the disruption and the disorder. Binay’s marching hordes force business to grind to a halt and make a mess of the country’s financial show window.

The right to free expression and to peaceful assembly must be balanced by — sometimes even yield to — the paramount rights of the greater number. Binay knows that.

As justification, Binay’s marchers claim they are out there in the streets looking for the truth. They will not find it there. They know that, too.

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CAP ON CREDIT: The 10-percent Value-Added Tax is in effect a sales tax in terms of collecting revenue, but beats a sales tax in bloating prices. It must be struck down as unconstitutional for being oppressive, regressive and confiscatory.

This is the position taken by Bataan Gov. Enrique T. Garcia Jr. in his motion for reconsideration of a recent Supreme Court decision upholding the constitutionality and validity of RA 9337, the law imposing an expanded VAT.

Supplying computations, Garcia showed that with the 70-percent cap placed on the portion of the VAT from which a businessman may claim credit, the effective VAT on goods and services would drop from 10 to just 3 percent.

If so, what’s the point of inflicting a bloody VAT on the overtaxed population?

After all the confusion, the convoluted computations, the cheating and the VAT-padding of retail prices, the government collects a measly 3 percent?

Maawa naman kayo!

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INPUT-OUTPUT VAT: Pardon my mentioning this again for review, but there is a so-called input VAT and an output VAT. It is a bit complicated, but let us look at it again.

Output VAT is the tax tacked on to the price at the point of sale, but that tax is not remitted in its entirety to the government. The merchant removes from it and keeps what is called an input VAT, which is the VAT that he earlier paid when he bought the goods from his supplier.

(How do we know that the input VAT that the businessman retains is correct, that he is not cheating the government despite the receipts? We will not discuss that yet.)

Under the new version of the VAT law, Congress placed a 70-percent cap, a maximum, on the input VAT or input credit that a businessman may claim.

Garcia pointed out that by placing a 70-percent cap on input credit, RA 9337 has effectively shifted from VAT to a percentage tax on gross sales.

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CASCADING TAXES: Garcia said there is no country in the world using the VAT system that has placed a cap on the input credit that could be offset against the output VAT.

“The reason is simple,” he said. “Putting a cap on the input credit goes against the very essence of the VAT system which is to prevent the cascading of taxes, that is, where what is taxed at each level is only the value added excluding what have been taxed before.”

He said the 70-percent cap was an innovation meant to plug the loophole in the VAT system and guarantee that the government would collect at least 3 percent in taxes at every level. But in doing so, Congress has shifted from VAT to a simple percentage tax of 3 percent.

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DOOMSDAY SCENARIO: The fiscal crisis gripping the country has been (over)used to justify the imposition of VAT. The expanded tax is expected to raise P60 billion annually.

On this point, Justice Reynato Puno has said:

“It cannot be gainsaid that the country is in the vortex of a financial crisis. The broadsheets scream the disconcerting news that our debt payments for the year 2006 will exceed P1 billion daily for interest alone. Experts underscore some factors that will further drive up the debt service expenses such as the devaluation of the peso, credit downgrades and a spike in interest rates.

“But no doomsday scenario will ever justify the thrashing of the Constitution. The Constitution is meant to be our rule both in good times as in bad times. It is the Court’s uncompromising obligation to defend the Constitution at all times lest it be condemned as an irrelevant relic.”

Garcia noted that while the reality that the VAT system will cause tremendous hardship on the consumers by way of higher prices is recognized, the SC has shown reluctance in declaring the law unconstitutional in the absence of a specific provision in the Constitution restricting the power of Congress to enact the tax measure.

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HIGHER PRICES: Garcia called attention to the fact that with the 70-percent cap on VAT credits, RA 9337 will result in (1) the same VAT revenue collection as a straight 3-percent sales tax, and (2) prices under a VAT system higher than under a 3-percent sales tax that is the revenue equivalent of the expanded VAT.

Garcia submitted data and charts showing that the revenue that the government stands to collect from VAT is the same as a 3-percent tax on gross sales.

He said: “On diesel, unleaded and premium gasoline, there will be a per-liter tax reduction of P0.53, and tax increase of P1.41 and P1.44, respectively.

“On the other hand, the additional price increase per liter on diesel under VAT is P1.30 and P0.45 under 3 percent Gross Tax (GRT) or a P1.75 difference in favor of the latter. The same is true for unleaded which is P3.45 under VAT and only P1.40 under GRT while for premium, it is P3.51 for VAT and only P1.44 for GRT or a difference of P2.07.

“The foregoing demonstrates that VAT with a 10-percent pass-on output tax, the prices of petroleum products go sky-high, but the revenue take would be the same whether under a 3-percent tax on gross or under an input credit tax with a 30-percent cap.”

He said this shows the arbitrary and oppressive character of RA 9337.

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NOT EQUITABLE: Garcia took issue with the high court’s declaration that RA 9337 is equitable, because it does not apply to sales of goods and services with gross annual sales or receipts not exceeding P1,500,000.

The court has said: “RA 9337 is equitable. The law is equipped with a threshold margin. The VAT rate of 0 percent or 10 percent (or 12 percent) does not apply to sales of goods or services with gross annual sales or receipts not exceeding P1,500,000.”

But Garcia said that that reasoning is an oversimplification. “True, individuals earning sales of less than P1.5 million are VAT-exempt,” he added. “But these individuals also buy from VAT-registered entities like petroleum dealers. In short, as consumers, they are also affected by the higher prices.”

He noted that the government has said that deferring the implementation of the VAT will, in the final analysis, affect the poor because it will diminish the capability of government to deliver basic services.

Garcia said that such reasoning would hold if the premise were that VAT could be the only source of government revenue.

But, he added, we have seen that (1) consumers will end up paying less in terms of cost of goods and services if Congress had simply imposed a 3-percent percentage tax, (2) the 70-percent cap on input credit has practically changed the nature of RA 9337 as a VAT measure, and (3) the government will generate the same amount of revenue under a gross tax regime.