VAT Hike Will Stir
Social Unrest – Economist
‘Government has lost its power to tax’
A noted nationalist
economist said that an increase in the value-added tax (VAT) rate from the
present 10 percent to 12 percent will stir up social unrest. Because of
plunder, anomalies, and economic mismanagement, the government “has lost
its power to tax,” he also said.
BY ALEXANDER MARTIN
REMOLLINO
Bulatlat
A noted nationalist
economist believes that an increase in the value-added tax (VAT) rate from
the present 10 percent to 12 percent will stir up social unrest.
Reacting to a recent
study by the socio-economic think tank IBON Foundation showing, among
others, that a VAT increase will hit the poor hardest, Dr. Alejandro
Lichauco said in an interview with Bulatlat that he agrees with the
observation. “Of course, there is no question about that because that is
an indirect tax,” Lichauco said. “It is going to hit the consumers,
regardless of their income bracket.”
Lichauco is a
long-renowned economist who has written several books and papers promoting
nationalist industrialization and opposing U.S. neocolonialism.
The economist’s
argument is similar to the views expressed in a Jan. 17 position paper of
the Bagong Alyansang Makabayan (Bayan or New Patriotic Alliance). In its
paper, Bayan said that a VAT increase will trigger widespread price
increases “affecting the most basic commodities and services,” which would
be significant since the tax covers a big part of daily consumption and
expenditures.
The VAT-liable
sectors include 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, telecommunications (including
landline, post-paid and pre-paid mobile phone services.)
In a separate phone
interview, Bayan secretary-general Renato Reyes, Jr. said a VAT increase
would enhance the country’s “regressive” tax system. “It is a system in
which large corporations enjoy tax exemptions,” he said, “while the
ordinary citizens carry heavy tax burdens.”
Lichauco also
dismissed as “crazy” the recent claims by businessman Raul Concepcion, who
chairs the Consumer and Oil Price Watch (COPW), that a VAT increase will
have only a minimal effect on the prices of consumer goods.
Concepcion’s
arguments are being cited by Malacañang in its efforts to convince the
public of the VAT hike’s supposed merits. “These are all based on research
and not on emotion and grandstanding of others that we know what kind of
agenda they are pushing,” Press Secretary Ignacio Bunye had said in a Jan.
30 radio interview.
Lichauco said however
that because a VAT increase will hit the poor the hardest it may spawn
social unrest. “You cannot tax hungry people,” he pointed out.
Political analyst
Luis Teodoro of the Center for People Empowerment in Governance (CenPEG)
agreed with Lichauco. “A VAT increase would trigger price increases
everywhere, which will hit the masses,” he told Bulatlat. “So I
absolutely agree.”
Social
consequences
Lichauco said that
the possible social consequences of a VAT hike may be the reason the
American Chamber of Commerce of the Philippines (AmCham Philippines) came
out in August 2004 with a position paper also opposing a VAT hike.
In the AmCham
Philippines paper, Cirilo Noel, who chairs the business group’s Taxes and
Tariff Committee, said that a VAT increase will “weigh heavily” on the
poor sectors of Philippine society.
“Increased
VAT rate merely translates to higher prices of goods to consumers and
end-users,” Noel wrote. “With the current minimum wage rates, it is highly
doubtful if the Filipino wage earner could absorb price hikes to be
triggered by the increase in VAT as well as other taxes.”
A
recent IBON study showed that the average daily cost of living for a
family of six – the average Filipino family – amounts to P492.19 ($8.79
based on a $1:P56 exchange rate). IBON used data from the National
Statistics Office for its study.
Conversely, the daily minimum wage amounts to only P202.59 on the average
nationwide - P289.60 short of the
national average for the daily cost of living for a family of six – based
on data from the National Wages and Productivity Commission (NWPC).
Lichauco said that
even foreign investors are going to be hit hard by a VAT increase. “If
government insists on a VAT increase, the political and social climate
will become more unstable, so how can they operate?” he explained.
The results of the
Social Weather Station (SWS) survey for the last quarter of 2004 revealed
a prevalence of pessimism about the economy – a phenomenon that previously
occurred only in March 2003, the beginning of the U.S.-led attacks on
Iraq; September-October 2000, the explosion of the “Juetenggate” scandal
involving then President Joseph Estrada; and 1984, a year after the
assassination of Sen. Benigno Aquino, Jr. Estrada was ousted through a
popular uprising in 2001 – thus repeating the 1986 fate of Ferdinand
Marcos, who was president in 1984.
The results of an
IBON survey for end-2004 also revealed that 79.89 percent of the
respondents rated President Gloria Macapagal-Arroyo’s performance as
“unsatisfactory.”
No more taxing
power
Asked to comment on
the Malacañang line that the VAT hike is needed to raise revenues and
rescue the country from the fiscal crisis that gripped it last year,
Lichauco said:
“What everyone needs
to understand is that government has lost its power to tax. After all the
plunder committed, all the anomalies, the mismanagement of the economy, it
has no more power to tax.”
Reyes agreed with
this reasoning. “The government has no more moral authority to go on
taxing the people, because taxes do not go to productive use: they instead
go to debt servicing and bureaucratic corruption,” he said.
Foreign debt payments
eat up as much as 40 percent of the annual budget. Rep. Eduardo Zialcita
(1D Parañaque City, Lakas-Christian Muslim Democrats) estimates that with
a P3.35-trillion foreign debt, every Filipino now owes P40,000 to
international creditors. He further computes that a renegotiation of the
country’s odious loans could generate an additional P200 billion for the
government.
A 2004 study by the
United Nations Development Programme (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.
Former Finance
Secretary Juanita Amatong also revealed last year that in 2003 alone, the
government lost P229.4 billion in potential revenues due to tax incentives
for large corporations. IBON, for its part, estimates an annual loss of
P100 billion in potential government revenues due to tariff removal
policies imposed by the World Trade Organization (WTO).
Meanwhile, yearly
losses due to tax leakages amount to P215-P285 billion.
“Of course we need to
raise revenues. But if they want to raise revenues, they should tax the
rich. Why tax the poor? Is it their fault that the government is
bankrupt?” Lichauco said. Bulatlat
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