Bu-lat-lat (boo-lat-lat) verb: to search, probe, investigate, inquire; to unearth facts

Vol. V, No. 31      September 11 - 17, 2005      Quezon City, Philippines

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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.

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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© 2004 Bulatlat  Alipato Publications

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