VAT Increase: A Crime Against the Poor, 2 Groups Say

Coming at a time when the Filipino poor experience the most trying times of economic hardship, taxing them 20 percent more can be considered a crime.

BY BULATLAT.COM

The 20 percent increase in the Value Added Tax (VAT), passed on third reading by the House early morning of Jan. 27, will affect mostly the daily consumption and expenditure of the Filipino poor, the NGO Center for Women Resources (CWR) and the militant Bagong Alyansang Makabayan (Bayan) said in separate position papers.

In a memorandum earlier sent to the House Ways and Means Committee Chair Jesli Lapus, the Department of Finance (DoF) said that the proposed 12 percent VAT rate from its present 10 percent rate will have minimal effect on the poor. (The two percent increase is equivalent to 20 percent of the current 10 percent.)

Bayan Muna (People First) Rep. Teodoro Casiño quoted the DoF’s findings that said “if the expenditures of poor Filipino families were subjected to the 12 percent VAT, their burden will only be equivalent to P65.22 per month at the most.”

However, a study by the Center for Women’s Resources (CWR), a research institute on women, shows that the VAT adds more burden to the hand-to-mouth existence of the Filipino poor.

The daily consumption and expenditure covered by the VAT increase include food such as processed meat and dairy products, beverages, clothing, footwear and other wear, communications, recreation, medical care, water utilities and house rentals. It also covers drugs and medicine, most construction materials, machinery and equipment both for manufacturing and agriculture, wholesale and retail trade, pawnshops, dining centers, employment and recruitment agencies, motion picture production, hotels and motels.

The CWR study shows that the expenses for the poor’s everyday meals such as noodles and sardines will increase by P0.10 to P0.19 if the two percent VAT increase will be approved by the Senate. 

The Filipino’s staple food, rice, is also likely to be affected. The CWR study shows that a family of five may have to shell out an additional P18.20 at the minimum to buy an average of 45.5 kg of rice a month.

Commodities that undergo processing like some agricultural products such as pork, pork liempo, beef and beef brisket, dressed chicken and even brown sugar will be affected by VAT.

And if pronouncements from the National Power Corporation (Napocor) were true, the CWR study also said that every household or establishment consuming at least 100 kWh of electricity may have to expect another round of power rate increases – about P29.86 to P40.24 more if the proposed VAT increase is imposed on power suppliers and generation companies.

Regressive measure

Since the VAT is a tax levied on every process of production of goods and services, it is the end-user or consumer who absorbs the bigger share of the tax burden, the Bayan position paper said.

Bayan said this makes the VAT a regressive measure against the poor since “people are taxed not based on their ability to pay but based on a fixed rate.”

This means that the rich and the poor pay the same VAT for a particular product with the rich actually paying less based on the percentage from his or her income.

Meanwhile, the Alliance of Legislators Against Regressive Taxes (Alert) reported that in various House deliberations, the DoF has consistently argued that the VAT is “progressive” because its liability depends on consumption rather than income. “Or simply put, the more you consume, the more taxes you pay,” Casiño countered.

Alert added that “the DoF’s logic violates the basic principle of progressive taxation that a tax should be linked to one’s ability to pay.”

IMF imposed

It must be recalled that in its Memorandum on Economic and Financial Policies (MEFP) to the Philippines on June 30, 1999, the International Monetary Fund (IMF) recommended to the Estrada administration to increase the VAT rate following the Asian financial crisis. 

The IMF revived the proposal only last year as President Gloria Macapagal-Arroyo was about to be proclaimed for a full six-year term, the Alert statement said. The IMF based its recommendations on what it called international evidence indicating that raising the VAT would significantly increase tax revenues even for a country with low collection efficiency.

However, the House representatives were not receptive to the idea then because it would only punish honest taxpayers, the Alert statement added. Instead, Alert said “the government proposed the lifting of VAT exemptions on certain sectors – the shift to Gross Income Taxation (GIT) and the tax amnesty.”

The IMF has since rejected the two measures resulting to the recent passage of the 12 percent VAT increase in Congress. The proposal now awaits decision at the Philippine Senate where it would be subject to a bicameral committee hearing before the upper chamber passes it into law.

Meanwhile, the minimum wage earners’ demand for a P125 across-the-board wage increase is at a snail’s pace in Congress. Bulatlat

CWR Facts & Figures Alert: Unmasking the VAT Myth

CWR Facts & Figures on the VAT increase

 BACK TO TOP ■  PRINTER-FRIENDLY VERSION  ■   COMMENT

© 2004 Bulatlat ■  Alipato Publications

Permission is granted to reprint or redistribute this article, provided its author/s and Bulatlat are properly credited and notified.