The VAT and
the ‘Underground Economy’
Those in the so-called “underground
economy” are not income taxpayers, but they are taxpayers nonetheless. The
Value Added Tax (VAT) sees to that. The recent passage of the Expanded VAT
(EVAT) bill is sure to make a deeper dent into their already measly
earnings.
BY ALEXANDER MARTIN REMOLLINO
Bulatlat
Vendors along the railways in Caloocan
Photo by Dabet
Castañeda |
Mang Benny’s voice is
one of the things that are likely to rouse late risers in Pacita Complex,
San Pedro, Laguna. As early as 7:30 in the morning, his booming voice
rings “Tahoooo!” on the streets of Pacita Complex.
He has a set of
regular customers of taho (a sweet dish made of soybean mixed with
syrup) in this suburban area 31 kms south of Manila. From them and a few
chance customers, he earns about P150 ($2.68 based on a $1:P56 exchange
rate as of Sept. 9) a day, he told Bulatlat. “Not enough to feed a
wife and three children,” he laments.
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On the side, he has
recently been working as a fishball vendor to earn extra income. After
selling his taho for the day, he goes home to have lunch and a
brief rest, and in mid-afternoon he again plies the streets, this time to
sell fishballs. From selling fishballs he gets an additional P100 a day.
From selling taho
and fishballs everyday – including Sundays and holidays except
Christmas, New Year, Holy Thursday and Good Friday – he earns some P250 or
$4.46 each day.
By all standards,
Mang Benny and his family are definitely not well off. On the national
level, a family of six – the average Filipino family – now needs a total
of P598.60 to survive daily, based on July data from the government’s
National Wages and Productivity Commission. In Region IV, the Southern
Tagalog region – which includes Laguna – the daily cost of living for a
family of six is P596.
But an independent
estimate by IBON, a private think tank, reveals that the daily cost of
living in Metro Manila has risen to P637.24 as of August, a nine percent
increase from the same period last year.
As Mang Benny himself
says, with P250 a day it is hard for them to make both ends meet.
It is difficult to
say if Mang Ver, a full-time fishball vendor, is luckier than Mang Benny.
From mid-morning till
noon, he stands by near the Pacita
Complex Elementary School, where he
has a throng of buyers – from schoolchildren to mothers waiting for their
children to tricycle drivers. By 1 p.m., he goes around the subdivision
and his earnings for the rest of the day are from chance buyers. This way
he earns some P150 a day, he tells Bulatlat.
The good thing about
this, he says, is that he has only himself to worry about. His children
are grown up and now have their own means of livelihood, he reveals.
But they are in his
native Lucena
City, about four hours away from San
Pedro, and he rarely gets to visit them. “Much as I want to be able to go
home there more often,” he explains, “I can’t because the fare from here
to there and back is no laughing matter.” His limited earnings rarely
allow him the luxury of going home to Lucena
City, he says.
Underground
economy
Mang Benny and Mang
Ver are among those who make up the Philippines’ so-called “underground
economy,” the unregistered “businesses” that nevertheless play an
important part in the country’s economic life.
The Department of
Labor and Employment (DoLE) classifies those in the underground economy as
among the self-employed workers, i.e. persons who operate their own
businesses and do not employ paid workers in the conduct of their economic
activities. Together with employers, self-employed workers are grouped
under the category of own-account workers based on classification by the
Philippine Institute for Development Studies (PIDS), a quasi-government
statistical center.
Based on PIDS data
for the second quarter of 2005, own-account workers comprise 12.3 million
of the country’s 32.2 million-strong employed labor force.
The likes of Mang
Benny and Mang Ver are supposedly unburdened by income-tax concerns, as
they are unregistered. So they are not taxpayers? Let’s look again.
VAT
They may not be
income taxpayers, but they are taxpayers nonetheless. The VAT, an indirect
tax on the sales of goods and services, sees to that.
In his book, The
Globalization of Poverty, world-renowned economist Michel Chossudovsky
describes the VAT as an imposition of the International Monetary Fund (IMF)
and the World Bank (WB) on debt-ridden
Third World
countries. The VAT, he says, is a mechanism for producing needed revenues
for debt servicing.
In their
“businesses,” Mang Benny and Mang Ver both use products that are
VAT-covered. Presently covered by the VAT are: food products (processed
meat, canned fish, coconut and vegetable oil, bakery products, noodles,
milk, dairy products, coffee, sugar); clothing, footwear, tannery and
leather products; drugs and medicine, furniture, pulp and paper; glass and
glass products; cement, steel, iron, wood and most construction materials;
electrical lamps and equipment; machinery and equipment both for
manufacturing and agriculture; wholesale trade and retail trade;
pawnshops; restaurants, cafes and other eating and drinking places;
employment and recruitment agencies; motion picture production; hotels and
motels; and telecommunications (including landline, post-paid and pre-paid
mobile phone services).
The sugar that Mang
Benny uses for his arnibal (taho syrup) is VAT-covered. So
are the processed fish meat and cooking oil that he and Mang Ver use for
their fishballs.
Last year President
Gloria Macapagal-Arroyo pushed for an expanded VAT law as one of eight
revenue measures supposedly needed to stave off a fiscal crisis that hit
the country. The fiscal crisis has been generated by a ballooning foreign
debt, trade deficits and a general decline in the economy for which
Filipino taxpayers are being asked to remedy in the form of new tax
impositions.
Nearly half of the
yearly national budget is shaved off for automatic debt repayments.
Revenue losses
But former Finance
Secretary Juanita Amatong revealed late last year that the government lost
P229.1 billion in potential revenues in 2003 alone due to tax exemptions
for large corporations. The socio-economic think tank IBON Foundation
estimates revenue losses from tariff reduction at P100 billion a year.
A 2004 study by the
United Nations Development Program (UNDP) placed the yearly revenue losses
from corruption at 13 percent of the national budget. However, the
National Tax Research Center (NTRC) estimates annual corruption losses at
20-30 percent.
Meanwhile, yearly
losses due to tax leakages ranged from P215 billion ($3.92 billion) to
P285 billion ($5.20 billion).
The EVAT bill was
signed into law but was challenged before the Supreme Court. The Supreme
Court, however, voted 15-0 on Sept. 1 upholding the constitutionality of
the EVAT. The Constitution prohibits “regressive taxes.”
The EVAT law expands
VAT coverage to include electricity, fuel, and transportation among other
previously VAT-exempt sectors. It also gives the President standby
authority to raise the VAT from the present 10 percent of the sales of
goods and services to 12 percent in January, subject to certain
conditions.
With the VAT, the
likes of Mang Benny and Mang Ver have been paying taxes even without
having to register their “businesses.” The expansion of the VAT coverage
makes a deeper dent on their already limited earnings, and raising the VAT
from 10 to 12 percent in January would hurt them even more.
Asked separately for
their opinion on the passage of the EVAT bill, they gave the same answer:
“That is no good. The corrupt politicians are the only ones who will
benefit from that.” Bulatlat
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