Archive | January, 2005

Taxing the people dry

Posted on 17 January 2005 by admin

Position paper of the Bagong Alyansang Makabayan (BAYAN) on the proposed increase in the Value Added Tax
January 17, 2005
The Bagong Alyansang Makabayan strongly opposes the Malacañang plan to raise the Value Added Tax from 10% to 12%. In these times of extreme economic difficulty, the plan to increase VAT is grossly anti-people and must be rejected by Congress. That the proposed bill is being railroaded in the House of Representatives speaks of the callousness of the Arroyo administration. The people are being unjustly taxed so that government can continue paying for bureaucratic corruption, inefficiency and usurious foreign debt servicing (budget). The bill is the first in government’s plan for a two step increase which
will bring VAT to 14% in the future. For these reasons alone, HB 3555, and similar proposed legislation, must be thoroughly exposed and opposed by the people.

1. The VAT hike is an unjust added burden to the people. The proposed increase of 2 percentage points or 20% of the VAT’s current rate will trigger widespread price increases affecting the most basic commodities and services. The increase is indeed
significantly since a large portion of daily consumption and expenditures are covered by VAT. These expenditure groups include food, such as proce ssed meat and dairy products, beverages, communications (ex. phone services), clothing, footwear and other
wear, recreation, medical care, water utilities and house rentals.

2. VAT is a regressive form of taxation which when increased will impact heavily on the poor. VAT is a tax levied on every process of production of goods and services wherein the end-user or consumer who buys the product absorbs the bigger share of the tax burden. It is regressive because people are taxed not based on their ability to pay but based on a fixed rate. Rich and poor pay the same VAT for a particular product, but the rich actually pay less relative to his or her income. With minimum wage nailed to the floor and with inflation at a six-year high of 7.9%, the VAT hike could not come at a worse time.

3. The government is penalizing honest taxpayers by passing to them the burden of shortfalls in VAT collections. VAT collections are low because of government inefficiency and because of huge VAT exemptions given to certain favored businesses or enterprises. Independent Power Producers (IPP’s), mining firms and export industries are some of the examples of VAT exempted firms.

The government “gave away” P195 billion in VAT exemptions last year alone. This amount is already equivalent to the P194 billion budget deficit for 2004. VAT exemption is also the biggest among the different tax and duty exemptions granted by the government. It is simply oppressive to give huge tax relief to favored businesses while increasing the tax burden of the poor. Given also the regressive character of the country’s tax system, loopholes in the VAT implementation will always occur.

4. The VAT increase is a long-overdue imposition of the International Monetary Fund so that the country can raise revenues and continue paying odious foreign debt. Government has consistently used the fiscal crisis, which is the inability of government to raise revenues and pay debts, as the main reason for implementing new tax measures like the VAT hike. As early as 1999, the IMF has recommended an increase in VAT rates as outlined in its Memorandum of Economic and Financial Policies. The proposal was revived last year in the aftermath of government’s declaration that the nation was facing a fiscal crisis. It is safe to assume that the revenues that will be generated by the VAT hike, like the revenues generated from other new tax measures, will be intended to pay for maturing foreign loans. The new revenue measures are not intended to increase the budget for social service which will benefit the people. Government intends to raise some P25-30 billion from the VAT hike.

5. The majority in the House of Representatives is trying to railroad the passing of the VAT hike bill. Some legislators have complained that there were no public consultations conducted before the House Ways and Means Committee approved the tax measure and that the approval of a substitute bill, HB 355, was done in haste and without benefit of thorough discussion.

6. House Bill 3555 must be junked. It is patently unjust for government to shift the fiscal crisis to the people. The current fiscal crisis, gargantuan budget deficit and debt problems are the result of government policies that favor foreign big businesses and banks; of unbridled bureaucratic corruption; of a regressive tax system that enables big taxpayers from evading tax duties with ease, and from an all-around underdeveloped economic system that results in a narrow tax base and an over reliance on foreign borrowings. The agrarian and pre-industrial character of the economy, one that is export oriented and import dependent, does not allow significant capital accumulation and does not lead to genuine economic growth. The country only manages to stay afloat with the influx of exploitative foreign investments, usurious foreign borrowings and the influx of OFW remittances. Continuous foreign borrowings have resulted in huge obligations which are again being passed on to the people in the form of new taxes, rate increases and costcutting measures. The roots of the fiscal crisis are systemic. These problems must be addressed if government truly wants a long-term solution to the fiscal crisis. The VAT is a quick-fix solution that will ultimately cause more harm than good for the majority of the people.

7. The Arroyo government must be made accountable for driving the country into a prolonged financial crisis. The regime must be opposed in its efforts to bleed the people dry. The people must fight for an economic system that upholds national development over foreign vested interests. The people must fight for a government that promotes the people’s welfare over those of the few.

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