guys, what are your thoughts on the proposed VAT rate increase from 10 to 12 percent?

fire away.

Coming from a non-economist, the initial argument of increasing VAT to increase government revenues seems sane. Government is in crisis (financially, among other things) and needs additional revenues. Since we have a very low VAT when compared to other countries implementing a similar system (GST, etc), then why not increase VAT to generate additional revenues?

However, despite the good news about growth hitting 6.1%, I recall reading an article quoting Secretary Purisima saying we actually need 7.5% growth over 5 years just to double the median earnings from $2 to $4 per day. Of course, assuming that there is equitable distribution from that growth. Think this VAT thing will work at achieving that? I don't think so. What this boils down to is not increasing the tax rate, but at improving collection. Why burden the already over-taxed worker?

On another issue, new taxes or increased taxes are always unpopular. The challenge for the government is to show where these taxes are going. The education system is still in shambles, electricity is in a looming crisis, corruption is still rampant, our government officials act like lords when they should be public servants... The litany goes on and on, yet are there solutions in sight? Just take the last whinge. Until we have public servants in offices designated for public service, we will continue to live in a feudal society disguised in a democracy where the rich become richer, the poor become poorer and the middle class becomes extinct.

great point, radonc!

on my part, my main concern really is the soundness of increasing the VAT rate itself. what really weakened the VAT law when it was legislated in 1991 was the exemptions granted by government to certain "favored" sectors and industries. i realized later on that the moment government began granting VAT exemptions, it proved to be very difficult later on to turn down the requests from other interests, thus compromising the very system itself. as a dire consequence, we lose tens, even hundreds, of billions of pesos on foregone revenues that should have addressed the problem of low tax collection right at the onset.

i read in the news that the sale and importation of items pertinent to the coal and natural gas sector are VAT exempt, and that such sale and importation costs the government over eight billion pesos annually. question: if it is so essential to protect, say, domestic coal and domestic natural gas, how come importation is also exempted?

same with the big three oil companies. in the same news article, it says the government loses over 11 billion pesos of otherwise easily collectible revenue from the sale or importation of raw materials for the manufacture of petroleum products.

now what is happening here? are those industries becoming highly privileged tax-exempt importers of the items they pretend to be producing? are they hell-bent on retaining tax exemptions that can only be justified if they pertain to local products? draw your conclusions.

in the midst of the shouts and murmurs going on with respect to the VAT rate increase, let's always keep in mind that there are still institutional freeloaders out there that have gotten away with bloody billions in tax obligations. let's not delve too much on books, services and snacks that will, at most, result in a few hundreds of millions in increased revenues. instead, our legislators should look into the big-ticket sectors like those i mentioned, plus many others i may have missed such as IPPs and so on.

if they can just revoke their VAT exemptions, by all indications there might not be any need for a VAT rate increase and, thus, any need for a new legislative amendment.

while the intent of the VAT increase may seem a good thing for us, i don't see anything good resulting from it. for one thing, the increased VAT will burden most us consumers, we have learned in the past that while there are 2 ways of reacting to increase in taxes, it has been a trend here to follow one, that is to let the consumers shoulder the increase instead of absorbing them. syempre ipapasa at ipapasa rin yan ng mga businesses no. nagmumukha ngang unsympathetic ang gobyerno ni GMA sa mga mahihirap kasi they keep insisting that hindi daw gaanong maaapektuhan ang lower classes, pero i think that's plain bullshit. i agree with what cubao said on the exemptions. kung anu pa sana ung mga dapat na pinagkakakitaan ng malaki ng gobyerno eh un pa ang exempted sa tax. besides, increasing our taxes won't guarantee us that these taxes supposedly collected will really go where they are supposed to go. it's so sad to see that every year the state of our country gets worse and the goverment doesn't really change. nagpapalit lang ang mga mukhang nakaupo pero ganun pa rin naman, walang pagbabago.

Actually, the lifting of certain VAT exemptions may be a double-edged sword in itself. Take the medical field, for instance. When they experimented on lifting the VAT exemption on physicians two years ago, my professional fees were subject to VAT and that VAT is passed on to the patients.

Whether we like it or not, that is the sad reality of things. From the BLT sandwich I had for lunch to the price the water used to flush the $#!+ it becomes the next day, all are subject to VAT (in the system it was envisioned). What this entails is an increase in the amount of cash out for everything we do. As it is, once certain exemptions are lifted or if taxes are increased or new taxes are introduced, people would end up paying more.

Whether the taxes are used to further public service or just to fatten the corrupt's wallet is another (and more important) matter.

vat-exempt sectors before were:

agriculture - all aspects, whether growing, harvesting, sale, distribution/importation and first-level processing (such as rice milling, meat cutting/freezing and packing)

private education - all
health services, hospitals - all
utilities (electricity, water)
all businesses that generate less than Php 100,000 annual revenues

zero-rated transactions were:

all inputs that go to export
service to international entities (whether to a docked ocean liner or an embassy)
others i can't remember
***
as you can see, the previous exemptions made sense in that it made sure the basic needs of individuals (food, education, utilities, health) were protected. also, it's so hard to tax basic and staple sectors because they are so numerous and indivdually small it's not possible to track them by regular audit.

what makes VAT operationally superior to plain excise taxes is that it avoids a cascading effect along a value chain. this is because excise taxes slice off a percentage from the sales whereas vat takes a percentage of gross profit. this way, the 'pass-on' effect is softened.

the exemption for private education also begs the question: why the hell do tuition fees go up more than 12% every year?

isa lang ang masasabi ko..

hindi solusyon ang vat increase for now.

kung ngayon, malaki ang leakage mula sa VAT (at ayon kay casiño, mas malaki daw yung leakage sa collected amount) paano pa kaya kung tinaasan?
ganoon din yon.


sa palagay ko lang, dapat ayusin ang pangongolekta ng buwis. at ibang administrative problems na hinaharap ng BIR.

kapag naayos na ang koleksyon, maari na sigurong taasan kung kulang pa rin ang revenues ng gobyerno para matugonan ang fiscal crisis/fiscal deficit

yun lang.

kasi, hindi ba sabi ng CHED or DEPED ata, na maari nang mag-increase ang paaralan ng matrikula. sila na ang bahala kung ilang bahagdan basta hindi lalampas sa 15%.

iyon yung pagkakaalam ko.

Just like SIN taxes and other tax measures still to follow, why the hell should we Filipinos pay the government for screwing us in the first place? Government incurred trillions of pesos in debt, which produced little in generating employment, lessening the costs of doing business in the country, building infrastructure, etc. Now, government wants us to pay these debts without any explanation whatsoever as to where the money went and got the country in this shithole except to scare Filipinos that we pay up or else the country goes under. Why must generations of millions of innocent Filipinos pay for the sins of a few? lagi tayo, tayo ulit at lagi na lang tayo.
A government is supposed to serve its citizens, but instead it is more of a burden to Filipinos. Any revenue earned by the government goes first to paying these debts (more than a third of the national budget goes to interest payment of debts and then a huge portion goes to operational costs of government like salaries of government employees, pork barrel, intelligence funds, etc.) leaving very little for government to fund the provision and delivery of public services to Filipinos.
That explains why everything sucks in this country. Government says we are facing a crisis. Hindi pa ba crisis ito? If we’re not in a shithole right now, then what the hell do you call these things we experience daily? rising prices of basic commodities, an unstable foreign exchange rate of the peso, nauso pa dito sa 'pinas ang usurious monthly interest rate for those without access to credit from the formal banking system, crappy law enforcement (lagi na lang ang dahilan “wala o kulang sa budget”), shitty implementation of good laws on the environment, anti-smoking, seat belt, etc., no infrastructure (especially in the countryside), lousy education system in public schools (no wonder Filipino students are ranked in the bottom five countries with the least proficiency in math, english and science), a dismal national sports program, poor health care, a chaotic public transport system, a double standard justice system favoring only the rich, social insecurity, higher costs of government services (e.g., licensing, passports, permits, etc.), less or no money for victims when natural calamities hit the country, a looming power crisis, a helpless government in mitigating the effects of rising gasoline prices, and the list goes on and on.
Dahil sa kagagawan ng gobierno, nawala ang respeto ng ibang bansa sa Pilipinas lalo na pag lumalakbay tayo sa ibang bansa (napagkamalang lagi ang pinoy na DH, TNT, japayuki, atbp). Parang floor mat ang turing sa Pilipinas. Natandaan niyo ba na sinisindak ng Tsina ang Pilipinas dahil sa spratlys kasi alam ng Tsina na walang ikakasa ang ‘pinas dahil walang pera pang giyera tayo? Everytime you come back, you can’t help but feel sorry for the country on how inadequate we are compared to other countries. Ang tigas pa ng mukha ng isa diyan na tawagin na “strong republic” ang ‘pinas sa kaniyang SONA.
These are just a sample of a series of unfortunate events that can be traced to several administrations that screwed us. Now, before I pay Government an extra centavo in taxes, they must account for the trillions of pesos they squandered.

Hindi VAT ang solusyon. Ayusin muna ang tax collection. Eh leche namang BIR yan eh, niloloko tayong lahat. Corrupt na masyado. Yung tax na binabayad natin, sa bulsa nila napupunta. Bwiset.

well, i'm for no exemptions whatsoever as long as individuals are included in the VAT 'loop'. by this i mean my income will have an output vat of 10%-18% but i can offset that with vat from my necessary inputs. these are:

basic food products
utilities
rent
education
charity donations

this just in from an insider at DOF:
the increase to 12% in VAT is just step 1 of the plan. step two is an increase to 14% by 2007. it could come even sooner than that, depending on how successful step 1 will be.

don't you just love it?

With the VAT system in place, should this make other taxes redundant? I asked an accountant friend of mine to explain to me that on top of VAT (which it seems my income will be subjected to) and income tax plus the witholding tax the hospitals take from my fees and on top of that the obligatory senior citizen discount, there seems to be some sort of double taxation. The VAT is supposed to simplify taxation, but in our current setup, it seems to confound the situation even more.

The increase in VAT I think is envisioned to reach about 17%, if my moles in the DoF are to be believed. Ah, well, sumovabee....

Tanong lang. The VAT law in place right now, is it an entirely new piece of legislation or is just a modification of old laws? I remember in the eighties (or was it the seventies), the government introduced VAT but it didn't meet expectations. One reason was that corporations and small enterprises then didn't have the proper information collecting infrastructure and systems to support calculations required for VAT. Are present day businesses more equiped to handle VAT? On a related note, how do those blokes in the UK (or the other countries who have VAT) manage to do it properly (assuming the VAT system there is running efficiently)?

jaco, this is what i know about the VAT, kaya pasensiya ka na kung medyo palpak

the Value Added Tax (VAT) is a general consumption tax assessed on the value added to goods and services.

it is a general tax that applies, in principle, to all commercial activities involving the production and distribution of goods and the provision of services.

it is a consumption tax because it is borne ultimately by the final consumer and is not a charge on companies.

it is charged as a percentage of price, which means the actual tax burden is visible at each stage in the production and distribution chain. it is collected fractionally via a system of deductions whereby taxable persons (i.e., VAT-registered businesses) can deduct from their VAT liability the amount of tax they have paid to other taxable persons on purchases for their business activities.

this mechanism ensures that the tax is neutral regardless of how many transactions are involved.

however, my position, as i have stated right at the very start, is that enacting additional tax measures would not address the country's financial deficit problem.

government should first address the uncollected tax before it moves to legislate an increase. from a layman's point of view, it makes sense that a more efficient tax collection and administration can help government earn more revenues in view of widely-reported leakages. examining how to make the current VAT collection system more efficient should have been addressed first before any talk of rate increases is even considered.

simple and politically defensible.

Flea, I agree with everything you posted. With all these new taxes, it seems that the law-abiding citizens get screwed-up some more while for the tax cheats - tuloy pa rin ang ligaya. For GMA and all her technocrat's advanced training, they still can't address (comprehend?) the collection and tax leakage issue.

it has its disadvantages and advantages. while several pinoys (especially in the low-income bracket) complains, some (those who are optimistic) approves this increase.

the government will try everything to cushion the impact of the additional increase of VAT to the low-income earners. i'm not saying that the poor wouldn't be affected, but it wouldn't be that high as others are exaggerating the facts.

i agree that tax collection must improve and i also condemn gov't corruption. being a Filipino, of course i'm concern where my taxes would go. but VAT is inescapable. everything we buy has VAT. all i can do for now is to read the daily news, and surf the net to be updated on the improvements of tax collection, where it is being used etc....

btw, i've heard that BoC has exceeded its target of tax collection.

from what i've observed, with the passing and approval of the tax bills, our government's image gained admiration from our neighboring countries. it has proven its might on implementing measures that could possibly boost up the country's economy.

It is a question of necessity. What ever will happen the triangular effect will occur. The poor will in someway will be affected.

The issue is, Is there a genuine need to increase the VAT. Also, Is there no other way? If their is no other way, then the people will just have to accept it. There is not much of a choice to the consumer as a whole anyway.

They should also look for tax evaders, especially those big companies and maybe make better the system of collecting taxes.

all arguments are funnelled towards VAT as the most 'palatable' measure to meet the government's revenue targets and avoid the long-dreaded fiscal failure.

but supposing you consider the demand side of internal revenue? why the hell does our guvmint need that much money and why doesn't it have much to show? simple. too much money is used for non-productive endeavors, mostly welfare and and other pro-poor programs.

supposing the government dispenses with most services and limits itself to protecting the basic rights of individuals? what if the philippines had a MINIMAL GOVERNANCE?

to those who will someday be at the helm of any of the three branches of our government, please visit this site:

www.minimalgovernment.org

the VAT increase is the fastest and surest way of earning revenues and ensuring that the country will not default on its debts. with the passage of the proposed revenue measures, investor confidence will be restored.

it will indeed be a burden on us, but i suppose we can expect better social services out of it.

If the government of Gloriaetta still continues on with its policy of repayment of political debts, I wouldn't bet my life on it . It will just be another venue for the government fatcats to fatten their already obese pockets.

Isn't imposing new taxes without fixing the collection system just like putting fresh wine in old skins?

All taxes suck...

Then we see supposed civil servants with big houses, new cars, numbered international accounts, acting as if they did absolutely nothing wrong...

Wanna see where your taxes go? Check out how many AFP Officers get to travel abroad along with families and entourages, or how units held by at least 1-star generals celebrate their anniversaries, or how much discretionary funds are given to various staff offices especially at General Headquarters.

Wanna get some good financial management advice? Forget brokers and analysts. The best guys to talk to are the Admin and Budget people, especially in an AFP J-Staff, or Major Service HQ Staff.

Feel na feel pa ng mga hindot na utang na loob natin sa kanila na tawagin silang "Sir" o "Ma'am".

Bato-bato sa langit, sana mabukulan ng sinlaki ng softball...

All taxes suck...

buti nga kung lahat ng tao nagbabayad. ang dami kong kakilala dito hatid-sundo ng expedition at jaguar, pinagmamalaki pa na hindi nagde-declare ng lahat ng assets dad niya at konti tax nila dahil may kaibigan sa BIR.

wala nang mabili ang sampung piso ngayon!!!

Could anyone recall an instance where additional taxes did spur economic growth ?

the VAT rate increase will result to better perception of the country as a debtor and as a consequence, we'll have more capital inflows, lower interest and inflation rates thus allowing the peso to appreciate. reduced cost of production will create more jobs and stimulate more investments.

the recent appreciation of the peso was partly due to the improved perception in our financial and capital markets.

The economic problem is not brought about by our perceptions as debtors. As long as there is no confidence in government, no improvement in infrastructure, continued rampant corruption and disregard for the law, no amount of increase in taxes will improve our country's economy.

The peso did appreciate, the market was bullish, but what did that translate to?

Actually, additional taxes might be perceived as either the government is not having enough revenues or it has not been collecting the correct amount of taxes. These are not good images. The country's problem cannot be solved by imposing new taxes that the government could not collect. Additional taxes doesn't necessarily translate into additional cash inflows for the government. The government should instead step up collection drives and not be beaten by tax evaders in cases. The people should be truthful enough to state their true taxes and pay them. Progress is a two way street.

lucio tan

dagdag lang, if ever the gov't tries to arrest the tax evaders, they might want to try harder. click the link above, it's about lucio tan GETTING A TAX REFUND.

there is a reason why lucio tan is jokingly called by journalists as "lusot" tan.

really, i don't think it's appropriate for government to be imposing new taxes when people like lucio tan and many others continue to get away from paying their due. i believe every time new taxes are introduced, the systemic injustice committed by tax evaders on those who faithfully pay theirs becomes more and more abominable.

The government should exert every effort to stop the tax refund to Lucio Tan in the SC as the government goes after tax cheats, smugglers and economic saboteurs.

Delay in passage of VAT bill, worries DOLE
March 21, 2005


Labor Secretary Patricia A. Sto. Tomas today said that the non-passage of the Value Added Tax (VAT) could worsen unemployment that, according to the National Statistics Office, now stands at 4.03 million as of last January, up from 3.9 million a year ago.

The slight uptick sent the unemployment figure inching up to 11.3% of the country's labor force, estimated at 35.7 million in January 2005, compared to 35.4 for the same period last year.

"While the 0.03% increase in unemployment on a year-on-year level may seem marginal, this is enough to cause us worry considering that hundreds of thousands more will be joining the labor force from the ranks of graduating college students next month, "said Sto. Tomas.

"Hence, we would like to strengthen the training, skills development, job creation and employment assistance programs being provided by the various offices and attached agencies of the DOLE, and this is where the additional funds that will be generated by the new VAT law will come in very handy, "Sto. Tomas added.

The VAT bill is one of the revenue measures that the administration is pushing to generate an additional P80 billion for the state coffers to finance various government programs and help tame the budget deficit targeted at about P180 billion for this year. The labor chief said any prolonged delay in the passage of the VAT measure could negatively affect the implementation of the DOLE's programs.

The DOLE budget for 2005 stands at P4.495 billion. This, the labor chief said is not enough to enable the department to make a big dent on the unemployment picture made worse by the forced repatriation of workers from Malaysia and the restrictions imposed by Japan on Filipino entertainers entering that country.

government assistance programs can only do so much in spurring job creation, unless the arroyo administration plans to undertake a FDR-style New Deal Program to absorb idle labor.

i'm afraid the best recourse we have toward job creation is by taking the path to entrepreneurship, by becoming self-employed proprietors of micro- and small-business ventures. out of necessity, our young graduates must be provided the concepts and skills to recognize opportunities that others have overlooked, and to have the insight, self-esteem and knowledge to act where others have hesitated. government must be credited, though, by launching seminars on opportunity recognition, marshaling resources in the face of risk, and initiating a business venture. nevertheless i hold that the government coffers are more than enough to fund these livelihood projects, unless...

At the rate the executive department is pushing the VAT increase, one would think that there is a vested interest hidden somewhere. The way they are railroading this measure is reminiscent of the oil deregulation law, and we all know where that measure took us: Letting an oligopoly run the oil industry where there is no free enterprise.

I think we should learn from this past lesson in railroading "urgent" bills...

i wouldn't know about vested interest, but according to 11 UP professors, "the VAT hike bill is the economy's final hope"; and that, to me, is putting the country's interest FIRST.

UP professors’ support for VAT bill hailed
Manila Bulletin
March 28, 2005
By BEN R. ROSARIO, FERDIE MAGLALANG and RAUL GONZALES


Members of the House of Representatives yesterday said that the position by the 11 University of the Philippines (UP) economic experts that the value added tax (VAT) hike bill is the economy’s final hope should open the eyes of the senators to pass the measure.


The House members aired the view as they assured that the chamber will muster a quorum in support of a congressional special session called by President Arroyo to approve the proposal.

Speaker Jose de Venecia urged the Senate to heed the warning of 11 UP economics professors for the immediate approval of the bill as "absolutely necessary" for national survival.

The lawmakers, led by House Assistant Majority Leader Antonio Cerilles, Majority Leader Prospero Nograles, and Tarlac Rep. Jesli Lapus, chairman of the House committee on ways and means, said the UP economic experts’ statement is timely in the light of the Senate’s delayed action on the VAT hike bill.

The failure of the Senate to approve the VAT bill compelled President Arroyo to call Congress to a special session this week to enable the Senate to pass the measure.

Cerilles said under the leadership of Speaker De Venecia, enough House members will show up during the special session.

"Speaker De Venecia has appealed to the sense of patriotism of House members to attend the special session," Cerilles said.

Cerilles said it would be best for the Senate to approve the VAT hike bill en toto like it did to the House version of the 2005 national budget . "If they wish, we can ask our counterparts in the Senate to be present for maybe one hour to approve the House VAT hike bill en toto then go back to vacation," Cerilles said.

"The UP economists have come out in the open to forewarn members of Congress to do their share in ensuring the country’s survival. Just as Christ has resurrected, the whole country needs to economically resurrect through the VAT bill as part of a comprehensive economic reforms program," Cerilles said.

Lapus said the VAT hike bill is crucial as a revenue-generating and tax reform measure, which is the same position taken by the UP economists. The experts warned that without a credible law that would increase the VAT rate now and expands its coverage later, the government’s fiscal reform program has no leg to stand on.

De Venecia to senators: Heed UP economists


By BEN R. ROSARIO

Speaker Jose De Venecia yesterday urged the Senate to heed the warning of 11 professors from the University of the Philippines (UP) School of Economics on the need for Congress to urgently pass the two Value Added Tax measures to prevent the country’s economy from collapsing.

De Venecia aired the appeal as key members of the House of Representatives bewailed moves by the chamber’s minority to block the holding of a three-day special session starting March 30.

Asst. Majority Leader Rodolfo Bacani (LP, Manila), together with Reps. Luis Bersamin (Kampi, Abra) and Isidoro Real (Lakas, Zamboanga del Sur), lamented the opposition’s plan to question before the Supreme Court the special session proceedings.

On the other hand, Senior Deputy Majority Leader Arthur Defensor (Lakas, Iloilo); Del de Guzman (Lakas, Marikina City); and Reps. Eric Singson (LP, Ilocos Sur); Jaime Lopez, (Lakas, Manila) and Constantino Jaraula (Lakas, Cagayan de Oro City) dared the Senate to "prioritize economics over politics" by approving the two pending VAT measures during the three-day session.

Administration Reps. Eduardo Zialcita (Lakas, Parañaque City); Edwin Uy (Lakas, Isabela); Monico Puentevella (Lakas, Bacolod City) and Real also asked Senate to adopt the VAT bill en toto, "including the commas, like they did in adopting the 2005 national budget."

De Venecia agreed with the views aired by the 11 Up professors that the bill increasing VAT from 10 to 12 percent and the lifting of VAT exemptions are "absolutely necessary for national survival."

"The continuing deadlock creates economic paralysis and is disastrous to Philippine democracy," De Venecia warned

He added: "The alternative to the non-approval of the expanded VAT is continuing economic deterioration leading to debt default and financial collapse."

Earlier, 11 UP professors, among them former Cabinet members Benjamin Diokno, Gerardo Sicat, and Solita Collas-Monsod, warned "that government’s fiscal reform program is doomed without a credible law that increases the VAT rate now."

"It is absolutely necessary for national survival that the Senate now approve these pending VAT measures, "De Venecia said as he welcomed the UP professor’s comments on the VAT issue.

here's the report -



The economy on a cusp

The proposed VAT amendments and their larger significance


Debates on the revision of the value-added tax (VAT) are about to reach the

penultimate stage. Once house and senate have passed their respective versions

of the bill, congress – through a bicameral conference committee sometimes

referred to as the “third chamber” – must then agree on the final form of the law.

After all the media-posturing, the politicking, and horse-trading have subsided,

politicians of both chambers are still left to confront the nation’s true interests –

and their own consciences. It is vital that they finally pass a law that is right in form

and adequate to the economy’s needs.

The shape of the VAT law that is ultimately passed will dictate whether or not the

country remains on a fiscal sickbed. Contrary to government pronouncements, the

Philippine economy is not yet out of fiscal trouble. Notwithstanding all that has

occurred, the country, in our view, still needs to raise the rough equivalent of one

percent of GDP in additional revenues (around P54 billion in 2005) simply to

placate financial markets and pave the way for the refinancing of maturing debts

(thereby avoiding a future default).

Failure to pass an adequate VAT law would be most inopportune, particularly when

the national government is expected once more to tap international credit markets

in September this year for the amount of some $3 billion. Indeed the mild

treatment Philippine government debt paper received despite Moody’s two-step

downgrade was due to the fact that markets had already factored in the passage

of a satisfactory VAT law. Without such a law, on the other hand, if a credit-

downgrade or massive loss of confidence in Philippine sovereign debt should

occur, borrowing costs could rise by 300 basis points (i.e., three percentage

points) and cost the nation an additional P5 billion in just one episode. That

burden would multiply as the country continued to borrow and its ratings continued

to decline. More profound than this, however, are the social, economic and

financial costs to the nation if one considers – as one should – the

macroeconomic instability and uncertainty that are bound to follow upon a debt-

payments crisis. (Among other things, recent favourable trends in the exchange-

rate and the stock market could very quickly reverse.)

Beyond merely overcoming the “Moody’s blues” and placating its creditors,

however, the government must seriously respond to the people’s need for

development and expand the budgets of vital social services and infrastructure: to

do this it actually needs to raise the equivalent of another percentage point of GDP

in revenue at the very least.
Table 1
Selected items of government spending
(as percentages of nominal GDP)
1999 2000 2001 2002 2003 2004
Primary spending1 16.25 15.04 14.76 14.95 13.96 12.86
Education 3.39 3.23 3.05 3.03 2.99 2.69
Health 0.44 0.38 0.31 0.33 0.25 0.23
Infrastructure outlays 1.85 1.94 1.77 1.51 1.41 1.06
Memorandum:
Personal services 7.24 7.01 6.82 6.77 6.42 6.16
1Expenditures less interest payments
Source: Department of Budget and Management

Government spending net of debt service (i.e., primary spending) grew in nominal

terms only by 1.4 percent in 2003 and 3.9 percent in 2004. These increases failed

to keep pace even with the rate of inflation. As a proportion of GDP, primary

spending has fallen more or less continuously from 16 percent in 1999 to less

than 13 percent in 2004 (Table 1). By the end of this year it will have shrunk by the

equivalent of 2.7 percentage points of GDP (1.09 and 1.61 percent in 2004 and

2005, respectively).

Social services spending has mirrored this decline: as a proportion of GDP,

spending on education dropped from 3.4 percent in 1999 to only 2.7 in 2004,

while health spending fell from less than half a percent to less than a quarter of a

percent of GDP. Similarly, spending on infrastructure is now barely one percent of

GDP.

More alarming is the fact that the 2005 budget even projects a contraction of

primary spending by 2.8 percent in absolute (nominal) terms. The decrease in real

terms, of course, is much larger. The cuts would bring primary spending down to

only 11.9 percent of GDP. While there are those who would argue that spending

compression cuts fat – about which there can be no argument – what is even more

obvious is that expenditure cuts are hitting not just fat but bone and muscle as well.

The result is the present state of affairs where, among other things, the secretary

of education must grovel before private charity simply to rebuild schoolhouses in

Quezon levelled by last year’s the storms and landslides; and where, rather than

have supervised school lunches, scores of young children must die of food

poisoning from ill-prepared street food. In the meantime, the government has also

cancelled hundreds of millions of pesos in foreign official grants for want of

counterpart funds.

If the nation’s politicians would only care to look, the magnitude of the task would

be clear enough. The legislature’s target should be to raise roughly P108 billion in

revenue or in reallocated spending in 2005. Roughly half of this is the minimum

needed to stave off a fiscal crisis; the other half is required to restore vital social

services to even halfway-decent levels.

The score so far
How do actual accomplishments measure up? Thus far congress has really

passed only one significant revenue measure: the updating of tobacco and

alcoholic beverage excises, or the so-called “sin taxes”. By most estimates this

measure will raise at most P6.7 billion this year, with perhaps succeeding three-

percent increments in the next two years. Unfortunately even this gives mixed

signals. The measure could have raised as much as P14 billion if only congress

had not surrendered on the one crucial issue of re-classifying products to reflect

their current prices rather than those that prevailed in 1997. This fact confirms the

suspicion that certain interests remain sacrosanct. Furthermore, it retains the

inherent inflexibility of a specific tax system whose adjustment is hostage to the

whims of congress. It was this very feature that contributed largely to the fiscal

crisis in the first place, as tax revenues on big items such as alcohol, tobacco, and

petroleum failed to keep pace with the changes in economic activity because they

were invariant to changes in the prices of these goods.

The only other significant fiscal “reform” legislated thus far occurred unintentionally

when the senate passed the house version of the budget without revision. That

budget contained the original 40-percent cut in pork-barrel funds submitted by the

executive, slicing off approximately P8.5 billion from the budget. By making it

possible to run a smaller deficit than otherwise, the cuts should be lauded for

lowering the debt-trajectory. It is naïve, however, to think the savings will recur in

future budgets. Be that as it may, however, this is at least still “burden-sharing” –

no matter how grudging and unintended – and people should be grateful enough

not to look a gift-horse in the mouth.

Still, relative to the goal of P54 billion in added revenue simply to avert a crisis –

not to mention the P108 billion for both stabilisation and even a minimal recovery

of social spending – these achievements are paltry, indeed. The current tenor of

developments bodes ill even for the administration’s own programme of legislative

revenue measures (Table 2). Of eight revenue measures the Arroyo administration

originally proposed, only two have been passed (of which one even has a dubious

revenue impact) while four have been abandoned.

Table 2.
The administration’s original legislative revenue programme
(projected yield in billions of pesos)
Yield Status
Sin product indexation 9.1 Passed in diluted form; yield P6.7 bn
Rationalization of fiscal incentives 5.0 Pending (partly covered by

VAT proposal)
Raising the VAT 30.0 Pending
Tax on telecommunications 9.1 Abandoned
Excise tax on petroleum products 28.0

Abandoned/postponed?/replaced by VAT inclusion?
Adoption of gross income tax 16.8 Abandoned
Total 97.0
Memo:
General tax amnesty 25.00 Abandoned; one-off increase
Lateral attrition law --- Passed (of unknown revenue impact)
Source: Philippine medium term development plan 2004-2010, Chapter 7, pp. 97

-98.

To be sure, some of these proposals did not even deserve to see the light of day:

tax amnesties are well-known failures, and gross-income taxation is highly suspect

in terms of horizontal equity and its economic impact. Be that as it may, what is

clear is that the administration’s programme is now tattered and mangled. For this

the Arroyo administration itself must assume some responsibility for its precipitate

pronouncements and lacklustre leadership; but the legislature’s obduracy and its

vulnerability to lobbying by powerful vested interests are also partly to blame. If

towards the end of 2004 the administration envisioned P97-122 billion from its

programme, it can now expect less than P42 billion even under its own

assumptions. As stated above and argued in detail below, however, this amount is

barely sufficient to fill the minimal requirements of stabilising the debt, much

responding to people’s needs.

What becomes even clearer, however, is the pivotal role the VAT measure now

plays in the equation. The VAT amendment is now the only significant revenue

measure that is still active and pending; it has become, like it or not, the

centrepiece of the Arroyo administration’s fiscal reform programme. Without a

credible law that increases the VAT rate now (and expands its coverage later) the

government’s fiscal reform programme has no leg to stand on.

VAT’s supposed regressiveness
This brings us then to the main point: just how good are the VAT-related proposals

currently on the table? Two criteria must be applied: the first is whether the

revenue raised is adequate to the task. For this is certainly entire point of the

effort. Second, however, one must ask whether and how any social inequity and

economic distortion can be avoided or mitigated without sacrificing this principal

task.

The original idea – a proposal we originally supported as part of a burden-sharing

package – was simply to increase the VAT rate from the current 10 percent to 12

percent. If nothing else is done, this is estimated to yield an additional amount of

P30-35 billion, a figure broadly in line with the government’s own projections when

it assumes a 70 percent VAT-collection efficiency (first row in Table 3). We

continue to hold that as a bare minimum, an increase in the VAT rate from 10 to 12

is an inevitable and basic component of any adequate formula to address the

fiscal crisis. Nor would a 12-percent rate, if adopted, be internationally out of line:

while it is true that a 10-percent VAT appears to be a rule of thumb for the region

(e.g., for Thailand, Vietnam, Indonesia), none of of these other countries faces a

fiscal crisis of the magnitude the Philippines does. On the other hand 15 percent is

the level of China’s VAT, as well as the average for fiscally troubled Latin America.

Finance department computations suggest that, when combined with the removal

of a number of unwarranted VAT exemptions, such as those on medical and legal

services, cooperatives, and various fuels, petroleum products, the higher VAT rate

could result in revenues approaching P63 billion (Table 3), assuming 70-percent

efficiency in collection . In terms of the stipulated benchmark, such a measure may

be adequate to fulfil the demands of debt stabilisation, but it would only begin to

alleviate the pressing requirements for social and infrastructure spending (recall

the benchmark of P108 billion). Moreover, with respect to the removal of some

major exemptions, particularly those on petroleum, there could be difficulties with

timing, as we discuss further below. In

Table 3.
Yield from raising VAT rate to 12 percent and
repealing selected VAT exemptions
(70% collection efficiency assumed; yield in billion pesos )
Yield
Increase of VAT to 12 % 35.12
Repeal of VAT exemptions 27.64
Particulars of which:
Coal and natural gas 0.34
Petroleum products 8.62
Raw materials for petroleum products 11.77
Vessels of more than 5000 tonnes 0.002
Cooperatives 4.87
Books 0.23
Medical services 1.37
Legal services 0.44
Total 62.76
Source: Department of Finance estimates (4 March 2005)

The simple proposal to raise the VAT rate from 10 to 12 percent has since been

mangled, however. The principal objection lodged against it is not that it fails to

raise significant revenue – for it obviously does – but that it is inequitable. Such a

casual observation, often allowed to pass unanswered, has since led a number of

politicians to tinker with the simple VAT law and to propose any or all of the

following: from the house come proposals exempting or privileging certain

manufactured goods consumed by the poor (e.g., instant noodles, canned

sardines), as well as instituting multi-tiered VAT rates, with zero or lower rates on

certain goods presumably consumed by the poor. From the senate, more

significantly, comes the general proposal of opposing any increase in the VAT rate

in favour of simply broadening its coverage.

To the extent it is used as a rationale, in the first place, the myth must be dispelled

that the VAT in general – including any additional amount to be imposed – is paid

only minimally by the affluent, and that most of the revenue would be collected

from the middle classes and the poor. Media has repeated the assertion, for

example, that only two percent of the VAT is paid by “the rich”, 44 percent by the

“very poor”, and 54 percent by the “middle classes”. Such claims do not seem to

jibe with the facts.

Of course, since richer households can save more, VAT paid reckoned as a

proportion of household income, may fall as income rises; by this measure it is

moderately regressive. The National Tax Research Center (NTRC) estimates the

effective VAT rate is 5.2 percent for people who earn P20,000 or less, while those

making P500,000 or more pay 3.66 percent of their income as VAT. Nonetheless

economic theory posits expenditure (i.e., consumption) rather than income as the

proper basis for measuring progressiveness, since not paying taxes on income

saved at most postpones but does not avoid tax payment. (This is all the more

true, since interest income from savings is also subject to a tax of 20 percent.)

Using household expenditures as a tax base, therefore, it is not surprising that the

VAT is in fact mildly progressive. There are two factors at work here. First,

because consumption like income is highly concentrated, any consumption tax is

more likely to fall on the rich. To illustrate using figures for 2000, the richest 10

percent of the population accounted for 35 percent of all spending in the country

(column 3 and last two rows of Table 4). This, of course, merely confirms a well

known fact, namely, that incomes and wealth are unequally distributed, but it also

suggests that it is the rich who are more likely to pay the VAT than the poor.

Second, goods consumed by the rich are more liable to be subject to VAT than

those consumed by the poor. In the Philippines, the exemption of a number of

goods consumed largely by the poor (e.g., agricultural products, unprocessed

food, and kerosene) has meant that the proportion of a household’s consumption

subject to VAT increases as the household becomes richer. Again Table 4 (third

column) shows that somewhat less than half of consumption in the poorest half of

the population is subject to VAT, but that this figure rises to 64 percent for the

next-richest nine percent and to more than 75 percent for the very richest one

percent of the population. (This despite the fact that some items pre-eminently

consumed by the rich – such as air travel and jewelry – are unjustifiably VAT

exempt, a matter discussed further below.)

Table 4.
VAT paid by expenditure percentiles
Percentile
Share (%)
of total
spending Percentile
spending
liable to
VAT (%) Share (%)
in total
VAT due
Poorest 1% 0.1 44.2 0.1
1-10% 1.9 45.9 1.4
10-25% 5.2 48.4 4.1
25-50% 13.2 53.0 11.5
50-75% 22.1 58.4 21.2
75-90% 22.3 61.9 22.7
90-99% 25.0 63.8 26.3
Richest 1% 10.1 75.8 12.6
Sources: FIES 2000, Fletcher [2005] and own computations

The net result of both factors is that almost 40 percent of the VAT is due from the

richest 10 percent of the population, while only 17.1 percent is due from the

poorest half. As a proportion of spending, the effective VAT rises from 4.6

percent of spending for the poorest decile to 7.6 percent for the richest one

percent. In this sense the existing VAT is actually progressive and probably more

so than some forms of income tax, which are progressive in principle but barely

collected in practice. The bulk of personal income taxes, for example, is paid by

many non-rich wage- and salary-earners who are captured by the withholding tax

system; meanwhile many rich non-wage earners slip through the cracks.

Even as an indirect tax, the VAT is less regressive than other indirect taxes (e.g.,

the “sin” taxes). Indeed, as demonstrated above, the VAT is actually mildly

progressive. Still, of course, it cannot rival the potential progressiveness of a direct

tax. Difficulties in the collection of income and wealth taxes in the Philippines are

legion and well known, however, so that large changes in direct-tax collection are

unlikely to be forthcoming soon. So this brings up a general point about tax

collection in the Philippines that turns textbook prescriptions on their heads: an

effectively collected indirect tax can be more progressive in practice than a poorly

collected direct tax. From this viewpoint, the VAT does not come out looking too

bad.

Those parts of VAT that make it progressive would undoubtedly be further

enhanced if unconscionable exemptions of some goods consumed by the rich

were withdrawn. These can and ought to be done. There was no compelling

economic or social reason, for example, that a resort to law suits and to botox

injections and liposuctions should have been exempted from a consumption tax in

the first place. The removal of exemptions favouring affluent consumption is

certain to enhance progressiveness and should be vigorously pursued. But even if

redistributive equity were not served, they should still be removed simply because

doing so would raise more revenue and reduce economic distortions. (As an

aside, it is an alarming aspect of some current proposals that even as they remove

some exemptions, they retain other unjustifiable ones, including such a luxury as

air travel.)

Still it should be remembered that it is not the main purpose of a consumption tax

to be progressive but rather, in being uniform, to raise revenue in the simple and

less distortive manner for the economy. A consumption tax would fulfil its function

of simple and minimally distortive revenue generation, even if it were simply

proportional, or perhaps even mildly regressive. The particular virtue of a single

rate is that it makes compliance easy to monitor and hence more collection more

effective. The application of a uniform rate also means that no particular types of

consumption or of stages of production activities are privileged.

Mangling a simple proposal
By contrast, current proposals appear to have lost sight of the original purpose of

a value-added tax and seek instead to address everyone’s pet-issue in a single

measure – as if the government had no other tools at its disposal to address the

various social problems being raised.

The economist Jan Tinbergen originated the well-known adage in macroeconomic

planning that one cannot have more goals than the number of instruments

available. For the same reason, no single measure can be expected at a single

stroke to effectively raise revenue in an unbiased manner and also alleviate

poverty, redistribute income, provide safety nets, help small businesses, and

define industrial priorities to boot. Yet it is precisely this gargantuan task some

legislators would have VAT achieve. In truth, however, to hold out the illusion that

the VAT measure can and should do all these is to perpetrate a sham upon the

public. Behind it all can lurk only either ignorance, tokenism, vested interests – or

all these.

As an example, apart from the obvious demand that the VAT should raise sizeable

revenues, the measure is now also expected to serve as an anti-poverty

programme, in addition to being its own safety net! On this argument, proposals

have been made to exempt instant noodles and canned sardines from the VAT or,

in the senate version, to increase their presumptive VAT input credits (Table 5,

item 6) on such things as sardines, mackerel, cooking oil, and refined sugar.

The folly and tokenism behind such proposals become apparent once one

considers the following: First, not all who are poor consume only instant noodles

and canned sardines. What about those, for instance, who eat wheat not as

noodles but as cheap baked products? This is the problem in poverty-alleviation

called inadequate scope. Second, not all instant noodles and canned sardines are

consumed only by the poor (the “leaky-bucket” problem). Should premium

Japanese instant noodles and premium canned sardines (imported and local

ones) also be VAT-exempt? Who is to say which is which? Third, another leaky-

bucket problem, not all who consume instant noodles and canned sardines are

poor. Does a rich person addicted to instant noodles, whether cheap or

expensive, deserve an exemption? Finally a lower VAT rate or a higher VAT

exemption on specific goods is hardly the only way to help the poor, and likely not

the best, either. A reallocation of spending towards better social priorities would

probably do more good. More importantly, ad hoc rate-discounts and exemptions

detract from the main function of a consumption tax, which is to raise revenue.

Overburdening the VAT revision with such impossible subsidiary goals only risks

its failure in its principal task. In particular, a multi-tier system (such as the 4-6-8-12

proposal from the house) that seeks to achieve these “pro-poor” objectives

unnecessarily complicates the collection of the tax as well as encourages evasion.

Worst of all, however, any further addition to the list of exemptions runs the risk of

capture by vested interests. It should be remembered that virtually no tax – not

even a consumption tax like the VAT – is ever paid entirely by consumers alone.

Producers must also typically bear part of the burden to the extent that the higher

price caused by a tax compels them to raise prices, lowers demand, and leads to

lower profits. Hence it will always be in the interest of producers to lobby

vigorously to exempt themselves from the VAT, or to be spared any increase.

Under the guise of providing protection to the unfortunate and poor, for instance,

VAT exemptions in the past have been used to give privileges to some fortunate

non-poor sectors of the economy, including big publishing outfits, housing

developers, lawyers and law firms, and doctors (not to mention entertainers and

sports personalities in the past).

Table 5.
New exemptions and other
revenue-losing measures considered
Remarks
Zero-rating
1. Services for persons doing business outside RP
2. Sales to persons engaged in international shipping
or international air transport
Higher exemptions
3. Sale of real properties not greater than P1.5 million raises existing

ceiling from P1 million
4. Lease of residential units rentals up to P10,000 monthly raises existing

ceiling from P8,000
5. Entities with gross annual sales of P750,000 or less raises existing

ceiling from P550,000
6. Higher presumptive input tax in processing of sardines, mackerel, milk, refined

sugar, cooking oil
Reduction of non-VAT taxes
7. Raising the corporate income tax from 32 to 35 percent and lowering it to 30

percent beginning 2009
8. Deleted 3-percent tax on quarterly gross receipts of international air carriers

doing business in RP
9. Deleted 3-percent tax on quarterly gross receipts of international shipping

carriers doing business in RP
10. Exempting electric utilities (e.g., Meralco) from paying the franchise tax equal

to 2-percent on gross receipts
11. Waiving amusement taxes on cabarets,
night- or day-clubs currently taxed at 18%
Reduction of petroleum products excises
12. Lower tax on naptha to P4.35 from P4.80/litre
13. Zero tax on kerosene from P0.60/litre
14. Zero tax on diesel fuel from P1.63/litre
15. Zero tax on bunker fuel From P0.30/litre


It is well and good that the removal of some of these is being sought, although in

the next section we shall warn against careless tinkering. It is disturbing however

not only that many exemptions will remain, that new ones are being inserted.

(a) Except for the first item, none of these proposals in Table 5 is unequivocally

justified on economic or equity grounds. One of the most controversial of these

new exemptions is the proposal under HB 3705 in favour of international air

transport and shipping operators (Table 4, items 2, 8, and 9). A BIR ruling currently

allows such operators to impose no VAT on international passengers and cargo

(in lieu of which there is a travel tax), and they are charged no VAT on their inputs

either. The proposal, if accepted, would not only exempt these operators from

VAT but also allow them to (a) refund any VAT paid on their inputs, (including

imports or lease of aircraft or ships, imports of petroleum, and aircraft and

shipping parts and supplies) or ( credit this against their income-taxes and other

duties (zero-rating). In addition, the three-percent tax on quarterly gross receipts

from such carriers will no longer be charged. The question, of course, is why?

There is a valid economic reason for exempting international carriers from VAT in

principle. It is the same reason one VAT-exempts exporters who must sell their

products abroad, namely to put them on equal footing with the foreign competition.

To the extent that these operators serve foreign passengers and handle foreign-

related cargo, they are exporters and should not charge a VAT on foreigners. On

the other hand, it would also be unfair to national carriers to subject their inputs to

VAT if they did not have an output VAT against which to credit it. Thus far, the

current system.

But the proposal goes too far. First, it maintains the VAT-free status of these

operators. Second, it rescinds an already-existing gross-receipts tax. Third and

more significantly, however, it zero-rates their inputs. That is, they are not merely

exempt from paying VAT (as they already are under the existing system), now they

may instead pay the VAT on their inputs then credit this amount against income-

and other taxes. This is especially beneficial to carriers doing both domestic and

international business, since then the VAT input-credits might be set off against

taxes on profits arising from both sides of the business.

It is a sad commentary on this entire discussion that the proper distinction among

consumption,` intermediate inputs, and export of services has been lost. For

example, a personal trip taken by Filipinos to Boracay or to Hong Kong is (luxury)

consumption and should be taxed. On the other hand, a foreigner’s trip to Boracay

is exports and should be exempt. This confusion is what comes from taking the

industry rather than the transaction as the unit of analysis.
A simpler and superior system would have been simply to subject both national

and foreign carriers to a VAT when selling to Filipinos, exempting sales to

foreigners, and allowing VAT credits on foreign sales. This would remove both the

disadvantage to national carriers when selling to foreigners, whether at home or

abroad. It would also give away no more revenue than is absolutely required by the

demands of competitiveness. At the very least, however, given the complex

issues involved, this matter should have undergone further study and discussion,

rather than being merely smuggled in given the rush to pass the VAT

amendments.

( The justification for the remainder of the proposals is even more tenuous. We

have already discussed the folly of favouring selected goods supposedly

consumed by the poor (item 6). These are as likely to benefit the non-poor

(including their producers) as the poor in whose behalf they have supposedly been

proposed.

The rationale for adjusting the ceilings on VAT-exempt sales, “low-cost” housing,

and “low-rent” housing, for example, (items 3, 4, 5) might be described as sheer

inertia. Although these were justified in the past as being “pro-poor”, the incidence

or impact of these pre-existing exemptions has never been investigated to begin

with. What has been the distribution of housing sales in the relevant ranges, say,

P50,000-P1o0,0000, versus P1 million-1.5 million? How many poor and non-poor

people fall under each category? How have these patterns changed since 1995?

Have any studies been conducted that justify raising these ceilings? Finally, how

much of this is really the result of special pleading on the part of real-estate

contractors and housing developers with strong backers in congress?

© Even more incomprehensible is the decision by congress to co-mingle

proposals unrelated to VAT with discussions of the VAT measure. Hence among

others there are proposals to scrap already existing gross receipts taxes on

international carriers (Table 5, items 8 and 9) as well as the franchise taxes on

electric utilities like Meralco (item 10). Of course the most outrageous measure –

risible were it not so brazen – is the inclusion of a proposal to scrap the

amusement tax on cabarets and night-clubs (item 11). What the urgent motivation

for such a measure and its relationship to VAT could be is anyone’s guess.

Almost as frivolous and ill-conceived is the proposal first to raise then to lower the

corporate-income tax rate (item 7). Again this is no more than tokenism and

pandering. As it is, the country’s the country’s corporate income tax rates are on

the high side in a context where the rest of the world’s are on a downtrend. They

are also among the most plagued by tax evasion. Raising rates merely further

penalises those who are already complying and allows evaders simply to get away

with more. Moreover, the time-bound promise to first raise and then lower taxes

can only be feckless or downright harmful: feckless because it assumes it can

credibly bind the policies of any future administration; and harmful to the extent that

the uncertainty it creates could induce a postponement of investment decisions.

Such proposals are unworthy of the legislature and should not be taken seriously.

These brazen attempts at log-rolling not only sabotage the government’s plans at a

critical time when it is pressed to earn more revenue, they also profoundly

undermine faith in the seriousness and objectivity of the entire legislative process.

The inclusion of non-VAT-related items is particularly deplorable, first, since they

unnecessarily give up revenue already earned by the government; but secondly,

they risk placing the process in a legal limbo, for the farther the senate bill deviates

from and improvises upon the bills already passed by the house, the greater is the

likelihood that constitutional questions will be raised and that the emanating law will

be challenged in the courts, creating a logjam on the issue that the economy can ill

afford.

Eliminating exemptions: some difficult issues
While the principle of broadening the base of the VAT by removing exemptions

cannot be denied, a good deal of apprehension and uncertainty has attended the

proposal to subject two major items to the VAT system, namely, petroleum

products and electricity generation. There is good reason to be circumspect

regarding these products and services, first, since these are almost universally

used commodities; hence large increases in their prices could have potentially far

-reaching effects in the economy. Second, however, these commodities are

already the subject of specific taxes and other impositions, which themselves

need to be re-examined.

Petroleum products
The current set-up exempts final and raw petroleum products from VAT, instead

imposing various levels of specific taxes on them, ranging from P4.35 per litre of

unleaded gasoline to P1.63 per litre for diesel to 60 centavos and 30 centavos per

litre of kerosene and fuel oil, respectively. In the case of unleaded gasoline, the

specific tax is as much as 19 percent of the value of the product, although even

P4.35 (about 8 US cents) per litre is still less than what other countries impose on

similar products (e.g., about 10 and 15 US cents and for Thailand and Malaysia,

respectively).

Estimates of the revenues to be earned from including petroleum products and

their inputs in the VAT system vary from P20 billion to 29 billion, depending on

what one assumes about collection efficiency. There are, however, sound

reasons apart from generating revenue for subsuming petroleum and its raw

materials to VAT, which incidentally is common practice elsewhere in the world.

For one, unlike the present system of excises, the VAT would give users of

petroleum products (notably electricity generators) some relief in the form of tax

credits. By the same token, the crediting of VAT inputs creates a paper trail that

facilitates monitoring and efficient collection. Finally, unlike a system of specific

taxes, an ad valorem tax like VAT makes the revenue system more buoyant, i.e..,

rising or falling with the product’s value as a matter of course. As with the “sin

taxes”, the failure to update specific taxes on petroleum is one of the major

reasons that revenue effort has fallen off.

In principle, the specific excises themselves need updating; these have not been

adjusted since 1996. Indeed we have gone on record as supporting an increase in

the current excise on gasoline (excepting fuel used by electricity generators) by

P2 per litre, a move we estimated could generate P12 billion. This option need not

be given up. As a matter of principle, both should be in place, i.e., a VAT on

petroleum products for uniform treatment, and an excise tax to reflect the

additional cost to society imposed by the use of fossil fuels, as is also the case

with tobacco and alcohol products.

In practice, however, the current specific taxes on final petroleum products were

functioning in lieu of VAT. For this reason and as a transitional measure while

world oil prices remain high, it should suffice for the moment simply to capture the

entire petroleum sector in the VAT net without cutting the excise on petroleum.

One roughly makes up for the other: just as an initially bloated excise tax used to

fulfil the consumption-tax functions of a VAT, so too can inclusion in the VAT

system replace the updating of an outdated excise.

The complication posed by current proposals from the senate is that they remove

the excises on bunker, diesel, and kerosene even as they subsume these

products to the VAT. Hence against the prospective gain from including these

products in the VAT system, one must set off the losses from the removal of the

excises. One must be careful not to double count the VAT revenues, since the

amounts that will actually be credited as input-VAT are highly uncertain. It is not

difficult to construct plausible scenarios in which the additional revenues, after

netting out excise-tax losses and input-VAT, are negative or minuscule.

Timing moreover is essential. If gasoline is included in VAT, it is not unlikely that,

contrary to the senate’s proposal, the excise on gasoline, just like that on diesel,

will also be reduced. Doing this at a time when petroleum prices are high and

rising increases the political cost and makes revenue-slippage even more likely. A

wiser course would be to affirm the principle but to postpone the actual inclusion

of the entire petroleum product sector until a time that the economy will have

adjusted to higher world oil prices.

Electricity generation
Like petroleum products, power-generation has thus far also been VAT-free.

There are no special reasons on equity or efficiency grounds why it should be.

The complication presented by the taxation of this commodity is largely one of

timing and circumstance. The entire power sector is currently undergoing a major

transformation under the electrical power industry restructuring act. An essential

element is the imposition of a universal charge (UC) on all power generated which,

under the Electric Power Industry Reform Act (EPIRA), is expected to be in place

by next year. There are various valid purposes this impost will serve , but its

principal component will go toward amortising the huge residual debt (“stranded

costs”) remaining after the privatisation of that national tragedy that is the National

Power Corporation (NPC). This passing-on of the burden of NPC’s mistakes to the

electricity users will mean that for a significant period of time, electricity will be

priced artificially higher than it should be.

The big difference between petroleum and electricity, therefore, is that unlike the

former, whose pre-tax domestic price is broadly in line with world prices, electricity

is already artificially expensive even before it is taxed. For this reason, there can

be a genuine debate about whether power ought to be folded into the VAT system

as long as the universal charge will be levied. To impose both a universal charge

and the VAT in this case would unduly discourage power consumption and impose

an additional burden when there is no economic or social reason for doing so.

Nor is this conclusion altered by the simple-minded attempt of the house to

prevent a pass-through of the proposed VAT on power to consumers. Apart from

being deplorable economics – it turns a consumption tax into a tax on producers –

this stratagem is in any case unlikely to prosper legally and smacks frankly of a

crude show to please the gallery.

The choice then is clear: if the VAT is to be imposed, the UC must be given up; if

the UC stays, then VAT-inclusion must be foregone, or at least phased in only as

the UC diminishes. The equivalence between the two imposts becomes even

clearer if one considers that the purpose of collecting the UC hardly differs from

that of raising the VAT, which is to reduce the government’s indebtedness (which

in turn includes the indebtedness of NPC). As a corollary, in the larger picture of

raising revenues to stabilise the debt, the proceeds from a possible VAT on

power cannot be regarded as an undiluted gains; they must be set off against a

possible loss of the proceeds from the universal charge.

Clearly then the case for including power and petroleum in the VAT system exists,

but it may be tempered by other considerations – a transitory circumstance in one,

a political one in the other. In the immediate term, there may be good reasons to

hold off on the inclusion of these sectors. For petroleum, government may want to

wait for an opportune time when the price of petroleum is on the downtrend. For

power, government may wish to calibrate the VAT against the eventual phase-out

of the universal electricity charge. In the event, that two important candidates for

exemption-delisting are problematic suggests at the least that a more careful study

and that a precipitate decision is unwise. In turn, a postponement of a decision on

these matters only underscores the importance of raising the VAT rate now on

items currently covered.

Beyond these, new proposals to exempt certain industries from VAT or to grant

them lower rates will generally impair either revenue collection or redistributive

equity. In this case it is poised to do both, losing revenue and serving the rich,

therefore it should be viewed with extreme suspicion. Caveat civis! The guideline

to observe at this time should be the following: if one is unable to reduce the

scope of exemptions, one should at least not add to them.

The plea then is to keep things simple: the VAT is bound to bite into consumers’

pockets – if it did not do so, it would not be a consumption tax. But it does so for a

larger purpose – to stave off a crisis and contribute funds for social development

and infrastructure. Congress should just let the tax do its job of raising revenue as

simply, uniformly, and universally as possible. This means raising rates and

reducing, not increasing exemptions. In the meantime there is no shortage of other

means to alleviate any ill effects the tax may occasion. Helping the poor, helping

small businesses, even helping big airlines may be priorities that congress deems

important. Income and wealth taxes, implemented effectively, can redistribute

income; well-targeted social subsidies and programmes can alleviate poverty. And

government has certainly found other effective ways to help people like Mr. Lucio

Tan both in the past and more recently. For now, therefore, they should do well to

leave the spirit and structure of VAT alone.

The chimera: expanded coverage in lieu of a higher rate?
In this entire debate, the most seductive suggestion has come from those who

contend that it is a real option not to increase the current VAT rate, if only the

coverage of VAT were expanded and exemptions removed. As already argued

above, any expansion of the scope of the current VAT should be generally

supported. What is wrong and misleading, however, is to think – given the

magnitude of the fiscal problem – that an increase in the rate can be avoided.

Adequacy demands that the VAT rate be raised and that exemptions be

withdrawn.

Proponents of the broadening-only idea contend that just casting the VAT net

more widely would yield an additional P24 billion which, in addition to the

exemptions in Table 2 worth P27.6 billion would yield as much as P51.6 billion,.

i.e., the first line in Table 2 replaced by the last line in Table 4 gives (27.64 + 24.12

= 51.6). Table 4 details the additional Senate proposals. It is evident, however that

virtually all of this expected additional revenue (94 percent) is supposed to come

from a single item: the “spreading out” of the crediting of the VAT on capital

equipment.

Table 6.
Senate proposals for additional withdrawals of VAT exemptions
VAT exemptions to be withdrawn from: Yield
P bn
Nonfood agriculture products 0.74
Services by agricultural contract growers 2.95
Personal & household effects and professional instruments negl.
Water and air transport of passengers 1.54
Spread out the crediting of input-VAT on capital equipment 22.58
Total 24.12
Source: Department of Finance, March 2005.

Considering the saliency of this proposal in the argument over the necessity of a

higher rate, it is worth dissecting. Under the current system, companies that invest

are allowed to immediately credit the VAT they paid on their capital-equipment

purchases. It may then occur that a firm’s input-VAT credits may exceed its VAT

due on sales so that it remits nothing to the government in the current year.

Suppose for example that a company would normally remit P100,000 as its VAT

payments for the year; it could happen however that in this very year, it purchased

a piece of equipment worth P1 million, a price inclusive of a VAT of 10 percent , or

P100,000. Current practice then allows the firm to offset this VAT on capital

equipment against the VAT remittance it would have made, so that the firm does

not remit any VAT at all this year.

The senate proposes to prohibit this practice. Hence a business would no longer

be allowed to credit – as it normally could – the entire VAT it has paid on its

investment purchases (e.g., machines, construction) in the same year these are

made. Rather it must credit these only in instalments over a five-year period.

Hence, the company in the example above would be prevented from claiming

P100,000 as a VAT credit immediately in the current year; rather it could claim only

P20,000 in additional VAT credits annually over the next five years. In purely

nominal terms, of course, the sum of all credits is the same over five years.

Effectively, however, any company making an investment would be forced pay

VAT on its purchases up front without immediate offset. This amounts to

extending a loan to the government equal to the opportunity cost of the funds tied

up in its impounded VAT credits. The size of this compulsory loan increases with

the investment being made and the prevailing interest rate. For interest rates

between 15 and 25 percent, for example, a business could forego an additional

23 to 33 centavos for every peso of creditable VAT compared with the present

rules. The upshot of this is to penalise investment by effectively taxing it. Between

two otherwise identical firms, one of which makes an investment while the other

does not, the latter by not investing can avoid tying up its funds unnecessarily in a

forced loan to the government.

In their zeal to show that revenue can be earned without a VAT higher rate,

proponents of this shrewd measure have accomplished the seemingly impossible:

they have managed to employ a consumption tax to tax investment instead – all

this in a bid to rescue a somewhat desperate notion. Yet even then it fails to

deliver honestly, since the estimates of potential gain to the government are

probably overstated. First, the initial rise in revenues from this measure will not be

an annually recurring one. The one-time revenue boost comes from the fact that

companies will not be allowed to credit their input-VAT all at once and must

therefore in the meantime remit a larger amount to government. Eventually

however they will be allowed to use those credits, albeit gradually, so that the

government stands to earn a smaller amount in all succeeding periods. The

government’s gain consists merely in getting some revenue up front rather than

later; it gains liquidity in the present but this is not sustained into the future.

Second, given the disincentive to investment that the measure represents, one

should wonder whether the estimated take is likely to be as large as its proponents

make it out to be. Such a measure is more than likely to reduce the appetite to

invest, and therefore at least partly reduce the base from which it intends to

collect.

The most important objection to this proposal, however, is that it threatens to

knock out one of the major props to long-term confidence in the economy. The

“consumption-led” character of recent growth has been a cause for concern, and

the government itself has pointed to a need to shift the sources of growth towards

spending that has a greater impact for the long term. By imposing a hidden

investment tax – which is what the measure amounts to – the government can only

interrupt the momentum of nascent capital spending in many sectors and imperil

the sustainability of the very growth it is so ready to proclaim.

In the end, therefore, one must again confront the hard fact that there is no magic

bullet, no painless potion that will allow the country to evade a higher VAT. The

alternatives are either worse (a sudden slip towards crisis, or a slow squeeze on

social spending) or – as this measure turns out to be – largely illusory.
To reiterate, therefore, our proposed approach to the issue of VAT amendment is

to “keep things simple” and may be summarised as follows:

(a) first and foremost, increase the VAT rate to 12 percent from the existing

10 percent;
( support the principle but postpone the inclusion of petroleum products

and electricity generation under the VAT system;
© accept all other proposals to reduce the number of exemptions to the

VAT;
(d) reject all other proposals to lengthen the list of VAT-exempt, zero-rated,

or VAT-privileged goods; in particular reject any attempt to experiment with a multi

-tier rate system;
(e) resist proposals to implicate or “trade-off” with VAT any other revenue-

losing measures, particularly those involving downward adjustments of excise

taxes, franchise taxes, or income taxes

Fiscal crisis revisited
It is appropriate, at this point, to step back and look at the big picture. In late

August last year, some of the present authors co-wrote a paper that raised the

warning that the economy could confront a financial crisis a few years down the

road if the government failed to take bold steps to fix the fiscal mess. Using

historical trends, the “UP-11” paper estimated that the government needed to

raise additional revenues equivalent to 2.9 percent of GDP. That amount explicitly

provided for an added one-percent of GDP earmarked for social services and

infrastructure. The increment needed to avert a crisis was thus put at 1.9 percent

of GDP , which as needed to obtain a primary surplus (i.e., budget surplus

excluding interest payments) equivalent to 2.5 percent of GDP needed to stabilise

public debt.

The course taken by revenues, primary spending and balances since then is given

in Table 7. On the face of it, the economy made progress in approaching its goal

of sustainability: between 2003 and 2004 the primary surplus in fact rose from 0.6

to 1.5 percent of GDP (Table 1, line 3). Moreover, if the approved budget for 2005

is implemented, this trend is bound to continue so that by the end of this year,

particularly if one includes the revised “sin” taxes and the passage of a serious

VAT bill, the country stands to “over-achieve” its fiscal sustainability targets for

2005 and possibly attain a primary surplus in excess of 3.5 percent (Table 7,

Column A). Indeed even without the VAT, a primary surplus of almost 3 percent

might be attainable (Column .

Table 7
Fiscal crisis redux
(items reported as percent of current GDP)
2003 2004 Scenarios
A B C D
1. Primary spending 13.95 12.86 11.26a 11.26a 13.95 13.86
2. Revenue 14.58 14.41 15.07b 14.21 15.07 16.21
3. Primary surplus 0.63 1.55 3.73 2.95 1.12 2.35
Broken down as follows:
4. Previous primary balance -- 0.63 1.55 1.55 1.55

1.55
5. Plus: cut (or: rise) in primary spending 1.09 1.61 1.61

(1.1) (1.0)
6. Plus: new revenues -- 0.86b 0.12b 0.86b

2.0
7. Less: regular revenue slippage (0.17) (0.2)c (0.2) c

(0.2)c (0.2)c

a = based on approved 2005 budget
b = sin taxes equal to 0.12 and and VAT 0.74 percent respectively of 2005 GDP
c = revenue effort assumed to slip annually by 0.2 percent without new measures

Column A: assume primary-spending cuts in 2005 budget and passage of VAT

and sin taxes
Column B: assume primary-spending cuts in 2005 budget without VAT
Column C: restore 2003 levels of primary spending and pass VAT and sin taxes
Column D: restore 2003 levels of primary spending with recommended 2-percent
additional revenue

Some could choose to interpret these data in reassuring terms to say that the

crisis is over; indeed, others might utilise them to argue that no new revenues –

not even the VAT amendment – are really needed. But all such inferences would

be self-deceiving, since as already noted in the beginning, this “feat” is founded

on a single stratagem: spending compression. This fact makes it artificial and

unsustainable. For it is unreasonable – indeed anti-people and anti-development –

to believe that such low levels of government provision of public goods can be

indefinitely maintained. One only needs to look in on the physical and intellectual

state of basic public education to see how, by this means, Filipino children are

daily being robbed of their future. Nor do we need to mention the deplorable state

of primary health, the penal system, and transport infrastructure in this country. At

the other extreme, one might also wonder how long congress can reconcile itself

with a reduced-pork budget.

An indication of how tenuous the fiscal situation remains may be seen from the

following thought-experiment: suppose levels of primary spending were only to be

restored to those of 2003 (ca. 14 percent of GDP). Then the primary surplus

would shrink to no more than 1.1 percent of GDP (Column C), a figure well below

the 2.5-percent benchmark for fiscal sustainability. At which point the wolves would

again be baying at the country’s door. This simple Gedankenexperiment also

demonstrates that the revenue efforts thus far – even with a VAT revision passed

–are barely enough to provide the needed cushion for sustainability. Things would,

of course, be even worse if no VAT revision was passed (primary surplus

shrinking to about four-tenths of a percent of GDP). Such precarious numbers are

almost certain not to impress financial markets, for they are bound to see that the

only consequence of such self-injurious actions in the long run is either crippled

development or political unrest, or both.

Our preferred scenario would have been to front-load the raising of additional

revenues of as much as two percent of GDP, while simultaneously raising primary

spending by one percent of GDP. As a result (shown as Column D) revenue effort

would rise to 16.2 percent and primary spending to 13.9 percent, yielding a

primary surplus of about 2.3 percent. On the one hand. the credible rise in revenue

effort would serve to reassure the international finance community; on the other

hand, the people’s present and future needs would not be unduly sacrificed.

Current developments do not however point to this preferred scenario. Instead

what is immediately shaping up – assuming crucially that the VAT amendment

passes – is that deep spending cuts may serve to stabilise financial expectations

– for the moment, anyway. The threat of a crisis will have been postponed for a

year, though that will still leave the government to deal with people’s frustrations

over the inadequacy of public-goods provision. Then the situation would still be

serious – but not hopeless.

Conclusion
In the experience of countries that have recently confronted fiscal and financial

crises – Argentina, Turkey, and Brazil – the difference between deliverance and

collapse often revolved around no more than two percent or so of GDP. Historians

of such events may find it curious that the steps needed to avert tragedy were,

upon hindsight, relatively minor when set off against the severe crises that those

societies subsequently had to endure. But situations are not unknown – bank runs

are a related phenomenon – when even small changes suffice to decide between

vastly different outcomes.

At bottom is always the issue whether an adequate deal can be brokered that will

be regarded as fair and acceptable by important parts of the population. But when

political institutions have typically delivered only biased and flawed results in

normal times, they cannot be expected to command trust and support when they

demand sacrifices of the populace in a crisis. Much of this unfortunately applies to

the Philippines as well. The question is, first, whether the country’s political elite

can look beyond their smaller concerns and realize the gravity of the situation and

second, whether this leadership can craft a package that the rest of the country

can accept. The latter entails that the proposals must be viewed as fairly

apportioning the burden. On both counts, in the Philippines, the record thus far has

been mixed.

Yet the stakes have never been more tantalizing. For the economy now genuinely

seems to be on a cusp, an odd moment during which things could just as easily

turn for the worse as get better. Ironically the financial markets are almost aching

to favour the Philippines; this fact that can be partly seen in the peso’s recent

strength, as well as in the relatively mild treatment the country received from

ratings agencies. What is required to complete the job, however, is a convincing

fiscal turnaround, an indispensable component of which in turn is a credible VAT

measure. The Philippines could then become one of the few sovereign borrowers

in the world that offered attractive premiums without the concomitant risk of default.

The high cost of the last bond issue has not dispelled the impression that the

country’s offerings have junk-bond status. We might then cash in on one case of

positive history: the country’s reputation of never having reneged on its debt (not

even during the debt crisis of the mid-1980s). From that point on, any or all of the

following would be plausible: (a) avoidance of a further downgrade and instead an

improvement to ASEAN standards of the terms at which government borrowed

abroad; ( a new stage when the government might simply borrow in local

currency, purchasing foreign exchange it needed from current account surpluses

and foreign portfolios moving into holding domestic paper. It is not far-fetched to

imagine the side of the cusp where the economy starts to become burdened by an

over-strong currency, bid up by foreign inflows. That situation would present

problems of its own which need not be confronted now.

On the other hand, that scenario could just as easily vanish if the government failed

to seize the moment and to act decisively. The economy could just as likely slide

down the cusp’s other half if no credible revenue measure was passed – more

specifically if the much-awaited VAT amendment carried no increase in rates, or

was seriously impaired by major exemptions, or entailed such innovations that its

effective implementation was placed in doubt. Then the scenario would revert to a

gradual or rapid deterioration in credit standing, increasing debt, further spending

contraction, all of which would bring this country that much closer to a real

payments collapse.

Increasing the chances of a favourable scenario involves not only the current

question of passing a credible VAT amendment. Beyond this, it involves moving

away from the overworked and short-sighted device of simply compressing

spending to meet a fiscal exigency. What is required, arithmetically, is a significant

and permanent rise in the revenue effort in the order of at least 2.0-2.5 percent of

GDP, an amount that would permit a palpable increase in spending on human-

development and infrastructure priorities. Given the widespread cynicism about

government, however, such resources will be forthcoming only if the political

leadership, particularly the chief executive, can articulate a coherent and reliable

plan regarding where exactly such new resources shall be directed. In particular,

the eventual inclusion of fossil fuels and electricity generation in the VAT system,

the adjustments of vario

If I recall recent history correctly, the same was said about land reform and oil deregulation as being the closest thing to a panacea for the country's economic ills.

I believe that the optimal solution for the government to augment its reveneues is really increasing it tax collection effectivity rather than simply increasing VAT,
thus penalizing responsible citizens who pay taxes...

Peso to perform better when VAT is passed, says BSP
Manila Times


THE Bangko Sentral ng Pilipinas expressed confidence that the peso will perform better this year when the value-added tax bill will finally be passed, Bangko Sentral deputy governor Amando M. Tetangco Jr. said.

Although the BSP projected the peso to reach P55 to P57 to the dollar this year from an average of P56.2821 in 2004, Tetangco said the agency will review its peso forecast this year.

He expects the market will respond positively to the fiscal reforms. The passage on value-added tax is crucial in maintaining the budget deficit target this year, he said.

The government is targeting a budget deficit of P180 billion this year, from the original target of P184.5 billion, thus lowering the projected gross domestic product (GDP) ratio to 3.4 percent from 3.6 percent.

An additional P60 billion in revenues from VAT reforms will further reduce the government’s budget deficit this year and would support to balance the budget deficit earlier than 2010.

Other factors that would improve peso this year is the increase of portfolio investments and foreign direct investments (FDIs), Tetangco said.

Portfolio investments would reach $2 billion this year, a significant growth from $488 million in 2004 due to markets perception in government’s continuous efforts in addressing the fiscal problems.

In January, portfolio investments started to post significant growth at $543 million. However, the February 14 bombing incident in Makati City has reduced the market confidence in the same month, thus bringing down investments to $253 million during the period.

The peso improved to P54.770 to the dollar Wednesday from P54.650 with a total volume of $309 million.

The peso posted an all time high of P54.18 this year, but went down due to market’s negative reaction the delayed approval of the bill in the increase of VAT rate to 12 percent from the current 10 percent.
--Maricel E. Burgonio

the immediate passage of the eVAT is necessary to prevent further downgrade in the nation's creditworthiness resulting to loss of confidence among foreign and domestic investors. the challenges to the economy have not diminished and seeks immediate relief. the passage of the eVAT at the soonest possible time would assure the world that the Philippines has the will and the momentum to put its fiscal house in order.

There is no guarantee that the passage of the eVAT (or any bill) into law would avert any of these so-called "credit downgrades".

I think those who think that this measure is the panacea for the country's economic and fiscal ills are affected by a severe form of myopia that cannot see the bigger picture of the economic quagmire that the nation is in. Corruption is rampant, tax collection effort is negligible and there is a general apathy in society because the population cannot see any hope in the improvement of their living conditions under the set of clowns running government.

Why do you think there is a significant number of the population that dreams of greener pasteurs in foreign lands? Because there is no eVAT in place? Because our credit rating is going down the gurgler? No, it is because these people see no opportunity in this nation of ours to improve their lot in life.

For those who want to expedite this bill so that it can be rammed down our throats, be careful what you wish for, you just might get it.

there is full awareness of the problems besetting the nation. corruption is addresssed with resolute vigor by this administration. several anti-corruption measures were already implemented like the e-procurement which will reduce opportunities of irregularities in procurement of govt goods and services; and the lifestyle checks where investigations are conducted on government officials who allegedly amassed wealth thru the use of their position. PAGC is currently investigating 50 suspected corrupt govt officials. a coalition was also formed composed of the ombudsman, pagc, coa, office of the executive secretary, civil service commission, doj, nbi and various ngos and civil society groups which will spearhead the campaign against corruption. the relentless anti-corruption drive would initially target 10 of the government’s most graft-prone agencies. recently, the anti-corruption swift action team (SWAT) was formed headed by chief presidential legal counsel, Merceditas Gutierrez. she is tasked to oversee the government’s overall antigraft drive.

BIR has been very aggressive lately in its revenue collection efforts thru stricter implementation of tax laws and an intensified campaign to prosecute erring tax payers (RATE program). known hair stylist Jessie Mendez, fitness expert Tina San Juan, basketball player Paul Asi Taulava; former AFP comptroller Gen. Carlos
Carcia and his wife Clarita, PT&T officials, and Excellance Weaving Mills corporate officers have pending cases against them for either under-declaration or non-declaration of their taxes.

our media has the tendency to report only allegations of corruption and tax collection inefficiencies. it's unfortunate that the reports on the government’s successes in the removing the corrupt from the government as well as it's efforts for efficient tax collection isn't highlighted at all, thus the general apathy you claim is prevalent.

Yes, the government has had numerous success stories splashed on the front pages in terms of cases filed against the personalities and companies mentioned. I for one know that Guillermo Parayno is a straight shooter and will not succumb to temptations of corruption, but the inefficiencies of BIR and customs lie not (only) with top management, but is most pronounced in the culture of corruption rampant in the beaurocracy up to the rank and file.

I sincerely hope that the tax collection effort would improve, but still do not believe that (1) VAT is the only solution to the fiscal crisis (if it is even part of the solution) and (2) an increase in the VAT rate and coverage would make any dent if the culture of corruption persists.

what some do not realize is that given the magnitude of the fiscal problem, an increase in the rate cannot be avoided. VAT rate should be raised AND some exemptions should be removed. the government needs to raise additional revenues to avert a crisis and provide funds for social development and infrastructures. to do otherwise would result to our sliding towards a crisis and the delivery of basic services and education would deteriorate. the country's development will be hampered and there will be growing unrest.

there is already a crisis... and it has been here for quite some time now. doesn't matter what the spokesperson of GMA says, hindi naman ata bulag ang mga tao to realize that. ewan ko lang, maybe i'm being too cynical but it seems to me that there hasn't been much delivery of government services and the public school system has been deteriorating. the country's development has been stunted and unrest has been existent for some time now.
the thing with the VAT bill is that how sure are the millions of filipino taxpayers that their money will truly be used for whatever the government says they will be using it for? gasgas na ang linya na yan! sabi nila hindi daw gaanong maapektuhan ang mga mahihirap, sinong niloloko nila? sa lahat ng matatamaan, sila ang pinakakawawa no. isang malaking kalokohan ang sabihing walang gaanong magiging epekto sa pamumuhay ng mga mahihirap ang pagpasa ng VAT bill. i agree with most of the posts here that suggest the gov't improve its tax collection methods first. lucio tan, somebody who has been suspected of tax evasion since time eternal, was given a tax refund amounting to P 1B, yes 1 billion pesos. hindi ba malaking kagaguhan iyan?

'nuff said...

government spending has declined - spending on education dropped from 3.39% in 1999 to 2.7% in 2004. spending on health fell from .44% in 1999 to .23% in 2004 and spending on infrastructure went down from 1.85 in 1999 to 1.06% in 2004. it will get worse if no new or additional revenues are raised.

it is the task of the BIR to collect efficiently the taxes and remit them to the national government. there are unrelenting efforts to purge corruption in this agency thru lifestyle checks of its officials. it's only in this administration that earnest efforts like such are implemented.

as citizens of this country, we have a duty to contribute to the nation's development, even save it from fiscal doom. we must share in the burden if we want a better philippines for the future generations.

as VAT is a consumption tax, the more one spends, the more one is taxed. statistics say that the richest 10% of the population accounted for almost 40% of all spending in the country while the poorest accounted for only 17%.

Correct on the issues of the spending statistics and on the decreased spending by government. However, even the UP 11 as the media has monickered them to be did not specifically indicate that an increase in the VAT is the solution. Reading Winnie Monsod's column at the Inquirer last weekend, I am more convinced that this government through its spin doctors is hell-bent on ramming this measure down our collective throats.

The statistics on spending by the population shows the spending power of the Filipino. The richest 10% will not feel the effects of the increased VAT rate. It will be the poorest that was mentioned in the previous post that will feel the brunt of it and therefore decrease their spending as well. So, it may translate to increased revenue, but at the expense of the poorest in the population. Oh, and I don't buy that crap that Malacanan is saying that it will not affect basic necessities (noodles and the such). Maybe not the final product, but what about the raw ingredients which are also subject to the increased VAT? That will indirectly jack up the prices of these commodities as well. And who will feel the increased prices?

most of the goods consumed by the lower income group are VAT exempt. agricultural and marine products in their original state such as vegetables, meat, fish, fruits, eggs and rice are VAT exempt. even if they had undergone simple processes of preparation or preservation like freezing, drying, salting, broiling, roasting, smoking or stripping.

the VAT system also allows manufacturers of sardines, milk, sugar and cooking oil to credit against their output VAT a presumptive input VAT equivalent to 1½ % of the value of their purchases of primary agricultural products used in the production of these goods.

any consumption tax is more likely to fall on the rich. goods consumed by the rich are more liable to be subject to VAT than those consumed by the poor.

a recent survey of Pulse Asia show that a large majority of Filipinos say they might support an increase in the VAT if the government reduces corrupt and wasteful spending. furthermore, only 38% say that “increasing taxes is not justified
at present," contrary to the extreme perception by some observers that the entire population will always be opposed to any increase in taxes without qualification. that leaves the majority believing that the VAT increase is justified.

the public cannot overlook the urgency of passing the VAT bill. as it is, its delay in Congress is getting investors restless. non-passage of the bill, or further delays in its implementation, could be devastating to our economy. recent good news in regard to investments could very quickly subside.

it's just been passed....

yahoo!!!