More Taxes for Less Pesos
In her SONA, Arroyo wants to tax the poor beyond their means

The Arroyo administration argues that more taxes are necessary to offset the growing budget deficit. A review of its proposed tax measures shows that there are indirect taxes that will impact more on the poor. Can the latter still bear the brunt of paying more taxes to the government, considering that purchasing power has considerably dropped?

BY DANILO ARAÑA ARAO
Bulatlat

President Gloria Macapagal-Arroyo’s State of the Nation Address (SONA) on July 26 seeks, among others, to introduce new tax measures which will raise at least P80 billion ($1.43 billion, based on an exchange rate of P56.055 per US dollar) in revenues and P100 billion ($1.78 billion) in savings.

The eight measures that the Arroyo administration wants Congress to approve are: shift to a gross income tax system; repeal of the value added tax (VAT) in favor of a simpler system; tax of “windfall profits” of telecommunication firms; increased taxes on alcohol and tobacco products; increased taxes on petroleum products; rationalization of fiscal incentives; institution of a tax amnesty program; and offer of a performance-driven system for revenue agencies.

With the budget deficit reaching P199.9 billion ($3.57 billion) in 2003, the Arroyo administration definitely needs to improve the national government’s cash position. The urgency is even more apparent if one were to consider that for the first six months of 2004, the budget deficit has already been estimated at P80.1 billion ($1.43 billion).

Dependence on indirect taxes

A closer look at the tax measures shows that the administration seems to substantially depend on indirect taxes as a way to increase revenues which reached P343.29 billion ($6.12 billion) in the first six months of the year.

The administration’s proposal to tax text messaging could easily provide billions of pesos yearly. With an estimated 150 million messages sent everyday in the country, IBON Foundation, an independent research agency, argued that even a one-centavo ($0.0002) specific tax already translates to P1 billion ($17.84 million) a year.

Rep. Danilo Suarez (Quezon) is reportedly planning to file a bill that seeks to increase the specific taxes on petroleum products by P2 ($0.04) per liter. Given a consumption of 54 million liters a day, this results in additional revenues amounting to P39.4 billion ($703.24 million) in one year.

Meanwhile, Trade Secretary Cesar Purisima said that the Cabinet-level Tariff and Related Matters (TRM) approved last July 21 the Department of Energy’s proposal to increase the tariff rate on imported crude oil and refined petroleum products from three percent to five percent. The tariff increase is projected to give the administration P6.51 billion ($116.14 million) yearly.

In a time of oil deregulation, one expects consumers to bear the brunt on increased taxes on imported crude oil and petroleum products. Independent Philippine Petroleum Companies Association (IPPCA) chair Fernando Martinez said that the proposed five-percent tariff will likely result in increased oil prices by at least P0.36 ($0.01) per liter.

Decreased purchasing power

The new tax measures will be an added burden to poor Filipinos, especially considering that the purchasing power of the peso has decreased to P0.55 ($0.01) as of June 2004.

Purchasing power of the peso refers to the buying capacity of one peso based on the fluctuations in the prices of goods and services at present compared to a given base year (in this case, 1994). That the purchasing power as of June 2004 is almost half of the peso’s nominal value means that prices have increased dramatically through the years. Simply put, a person only needed P0.55 ($0.01) 10 years ago to buy goods and services that are worth P1 ($0.02) at present.

In Metro Manila, the purchasing power of the peso was pegged at P0.54 ($0.01). The daily minimum wage of P300 ($5.35) in this region – assuming that employers follow the law - therefore amounts to only P163.05 ($2.91) in real terms.

The Autonomous Region in Muslim Mindanao (ARMM) had the lowest purchasing power at P0.49 ($0.01). This means that the daily minimum wage of P140 ($2.50) as instituted by the regional wage board is actually worth only P68.46 ($1.22).

Should a desperate administration depend on its cash-strapped people? Based on the government’s revenue program, the answer appears to be yes. The proposed tax measures reflects that everything all boils down to numbers, and that this can be done even at the poor people’s expense. The poor will be giving out more taxes from their empty pockets. Bulatlat 

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