This story
was taken from Bulatlat, the Philippines's alternative weekly
newsmagazine (www.bulatlat.com, www.bulatlat.net, www.bulatlat.org).
Vol. V, No. 8, March 27-April 2, 2005
Analysis
Bleeding the Poor is UP-11 Professors’ Least
Concern
The 11 UP economics professors
who prepared a discussion paper on the proposed 12 percent value-added tax (VAT)
are definitely experts in economics. But what framework did they use in coming
up with a study in support of the measure? What does one make of the arguments
raised by those opposed to it?
BY DANILO ARAÑA ARAO When Congress resumes its
session on April 11, pro-administration legislators are likely to push for the
approval of the 12 percent value-added tax (VAT). There are now several
proposals on the refinements of the VAT. Regardless of its final version, the
Macapagal-Arroyo administration has already embarked on a media campaign to make
the VAT acceptable to the people. In an attempt to make the
administration’s voice heard in the ongoing debate, 11 University of the
Philippines School of Economics (UPSE) professors whom media called the “UP 11”
prepared a treatise in support of the 12 percent VAT and proposals to make it
more contributory to economic development. A cause-oriented group
branded it as using outdated data. At this point, there is a need to analyze the
framework used to better appreciate why conclusions turned out to be in support
of what the former deems as an anti-people measure. The arguments raised in the
17-page UPSE Discussion Paper 05-05 titled “The Economy on a Cusp: The Proposed
VAT Amendments and Their Larger Significance” only prove that those who support
the increase in the VAT accept the latter as a necessary measure to, among
others, raise government funds and make the tax collection more efficient. Their
reformist tendencies are also exposed by the acceptance of macroeconomic
policies and programs, recommending only changes that, in the view of the 11
professors who prepared the paper, would result in the perpetuation of an
economy that is export-oriented, debt-driven and investment-led. While the UPSE paper
disagreed with the government’s claim that the fiscal crisis is over, it
stressed the need to increase the current VAT from 10 percent to 12 percent and
to broaden its coverage as proposed by some sectors, except for petroleum
products and electricity generation whose inclusion must be properly timed in
order not to earn the people’s ire. It also rejected any trade-off as a result
of the passage of a 12 percent VAT, particularly the lowering of other direct
and indirect taxes. Lastly, the paper urged Congress not to impose a multi-tier
VAT rate system (i.e., different rates for particular products and services). These conclusions are not
surprising since the authors were just adhering to the original idea of a VAT as
a uniform taxation system which economists Paul Samuelson and William Nordhaus
described as “essentially the same as a national sales tax.” In the case of the
United States, the two economists argued that VAT is a “tax on consumption and
many economists think that the (U.S.) should change its tax structure toward one
based on consumption and away from one based on income.” As a uniform taxation
system, it made sense for the 11 UPSE economics professors to make sure that the
VAT does not have varying rates. That it called the VAT “mildly progressive” may
also be attributed to their view that the VAT is collected from those who
consume, which means that the more an individual buys VAT-covered products, the
more he or she has to pay this particular tax. This implies that the rich who
have higher purchasing power will shoulder the VAT in the end and that the poor
will not be affected much. What
about the poor? Since its implementation in
1988, cause-oriented groups and individuals have opposed the VAT given that it
directly affects the poor. It covers, after all, products and services mainly
consumed by them. Worse, the VAT gives an opportunity for those engaged in
export to avail of tax credits since their transactions are zero-rated. In other
words, the VAT is biased for exporters and this sends a message to domestic
industries that in order for them to benefit from VAT, they should forget about
the needs of the Filipino people and focus instead on export. The authors of the paper,
not surprisingly, did not see such situations as alarming. In proving the point
that VAT is not anti-poor, for example, they argued that the VAT-covered noodles
and canned sardines are not just consumed by the poor since the premium items of
these are patronized by the rich. They failed, however, to provide data as to
the consumption of these products along different household incomes. They also
did not take into account that while the rich will indeed pay for VAT-covered
goods and services they avail of, their higher purchasing power will make the
impact more bearable to them. On the other hand, the poor will end up
shouldering the burden of increased prices as they have less purchasing power
mainly due to low wages. As regards zero-rated VAT
transactions, the authors were silent on this issue apparently because export
orientation is seen as a key to development. VAT, therefore, can be used as an
incentive to ensure that more local and foreign businesses will engage in the
export sector. Cause-oriented groups and
individuals, however, have a different take on the matter. For them, it is
ironic that the VAT penalizes local manufacturing as the processing of products
through various stages are subjected to this indirect tax. The more a
VAT-covered product gets developed (i.e., with more value added to it), the more
VAT is collected by the government. Reading the 17-page discussion paper, this
irony was glossed over and was apparently not seen as a problem. A
challenge to the UP 11 Through the paper, the
authors prove that they are experts in economics and that they have studied in
great length the nuances of the VAT. However, the question remains as to how
much they have invested in learning the nature of opposition to the VAT. Since
they accepted as a given the implementation of the VAT, they did not see the
need to analyze the views of those who are calling for the junking of the VAT
altogether. Their “hard sell” of the 12
percent VAT does not take into account the nature of the VAT when it was
implemented in 1988 and expanded in 1996 and the years after. The challenge at
this point is for the authors to deeply analyze its impact since 1988. Perhaps
only then can they truly appreciate the anti-poor character of this indirect tax
and why the opposition to the VAT is growing. Bulatlat © 2004 Bulatlat
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