This story
was taken from Bulatlat, the Philippines's alternative weekly
newsmagazine (www.bulatlat.com, www.bulatlat.net, www.bulatlat.org).
Vol. V, No. 31, September 11-17, 2005
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 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 © 2004 Bulatlat
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