This story
was taken from Bulatlat, the Philippines's alternative weekly
newsmagazine (www.bulatlat.com, www.bulatlat.net, www.bulatlat.org).
Vol. V, No. 30, September 4-10, 2005
E-VAT, High Oil Prices to Drive Poor Deeper in
Debt Coupled
with skyrocketing world oil prices, the E-VAT would hike prices of basic goods
and services, forcing Filipinos to borrow heavily just to meet their basic
needs.
By Joseph Yu The country's poorest
families will find themselves even more indebted once the expanded value-added
tax (E-VAT) law is finally implemented. The E-VAT is the
centerpiece measure of the Arroyo Administration's revenue generation package to
address the government's fiscal crisis. It is estimated to generate P28-30
billion from July to December 2005 and P97-P105 billion in 2006.
Coupled with skyrocketing world oil prices, the
E-VAT would hike prices of basic goods and services, forcing Filipinos to borrow
heavily just to meet their basic needs.
Although the Supreme Court issued a temporary
restraining order (TRO) in July halting the law's implementation, it is expected
to lift the TRO soon.
Increasing expenditures, debt
The immediate effect of the E-VAT law's
implementation will be to remove VAT exemptions on petroleum, electricity and
professional fees of doctors and lawyers, among other vital sectors. This will
automatically mean higher pump prices and electricity bills, not to mention
charges for legal and medical services.
A study by the government National Statistical
Coordination Board (NSCB) showed that removing VAT exemptions and zero-rate
privileges on petroleum products, independent power producers (IPPs) and medical
and legal fees will increase household consumption expenditures by 1.9 percent.
Using data from the 2003 Family Income and Expenditure Survey (FIES), this would
increase the average expenditures of the poorest 10 percent of Filipino families
by some P40, the poorest 20 percent by P61 and the poorest 30 percent by P77.
Since these families are already in debt, any
additional increase in expenses as a result of the E-VAT will force them to
borrow even more.
The poorest 10% of families, for example, would
see their monthly debt grow from P155.25 to P195. For a family who may be eking
out an uncertain and irregular livelihood in the informal economy, this amount
is substantial.
To further add to their woes, these families
only have access to credit from informal sources, usually the neighborhood
usurer who lends money under the 5-6 scheme (or 20% interest).
It should also be noted that the NSCB estimate
is "above the 'normal' inflation rate," meaning that expenditures would be
further bloated by the inflationary effect of hikes in these vital sectors apart
from the effect of the E-VAT itself.
The E-VAT law, moreover, allows the president to
increase the vat rate to 12 percent in January 2006 from the current 10 percent
if the following conditions are met: the budget deficit accounted for more than
1.5 percent of gross domestic product (GDP) or if VAT collections surpassed 2.8
percent of GDP. Both of these conditions are certain to be met; in fact, the
Department of Finance had already expressed its intention to hike the VAT rate
next year.
The NSCB said the additional 2 percent VAT rate
hike will increase the cost of household expenditures by 1.4 percent. For the
poorest 10 percent this means yet another increase in monthly expenses of P29.
Thus, the E-VAT will hike the monthly expenses of the country's poorest families
by at least a combined P70, raising their average monthly debt to P224.
High oil prices
Many Filipinos may also have to turn to charcoal
stoves, since the prices of liquefied petroleum gas (LPG) are expected to rise
the highest among petroleum products as a result of the removal of E-VAT
exemptions.
According to Department of Energy (DoE)
estimates, LPG prices will rise to P422.92 per 11-kg cylinder from the present
P392.50, a 7 percent increase. Prices of unleaded gasoline were also seen to
rise substantially, from P32.43 per liter to P35.23. Diesel, however, would have
the lowest increase, from P30.45 to P31.15 per liter. Note that these hikes
already take into account the "mitigating measures" government has put in place
to soften the impact of the E-VAT, such as reducing import duties and excise
taxes.
The DoE also admitted that the estimated prices
are still below international prices for petroleum prices, which may be further
adjusted depending on the prices of crude oil in the world market.
DoE figures showed that the regional benchmark
Dubai crude surged to an average of $56 a barrel in the first 18 days of August,
more than $3 higher than the July average of $52.83. Dubai crude had hit a
record high price of $57.80 a barrel on August 12.
Since the start of the year, domestic gasoline
and diesel prices have both increased 15 times by a total of P7.85 and P7.55 a
liter respectively. Pump prices of gasoline may increase further by P2.50 to P3
a liter, and diesel by P0.50 a liter, if oil prices remain at present levels.
Consumers also have to contend with higher
energy bills. The National Power Corporation (Napocor) has estimated that
consumers will have to pay an initial P0.203 per kilowatt-hour generation charge
once the TRO on the E-VAT is lifted, which is seen to be reflected in October
billings. But after three months this would increase to P0.228/kWh because of
the 70 percent creditable input VAT cap.
This increased charge is on top of iniquitous
charges (such as the purchased power adjustment) in electric bills to service
the onerous contracts of the IPPs, which have contributed to their
near-doubling.
At the expense of the people
Despite widespread popular disapproval, the
Arroyo administration still insists that it will implement the E-VAT, calling it
a necessary sacrifice. This only highlights how government remains occupied with
improving its fiscal condition along lines most acceptable to foreign ratings
agencies and creditor institutions, even at the expense of the people's welfare.
Because of Arroyo's pro-foreign and pro-elite policies, Filipinos find
themselves poorer, hungrier, sicker and more ill-educated and badly-housed than
ever.
In order to make E-VAT acceptable to the people,
government claims that the additional revenues generated will be used for social
services. But the finance department has already earmarked 100 percent of E-VAT
proceeds for 2005 towards debt servicing, 70 percent in 2006, 60 percent in
2008, and 50 percent by 2010. And this may be subject to further adjustment due
to the delay in E-VAT's implementation.
Government considers the passage of the E-VAT
law as a major achievement towards fiscal stability. But this only highlights
how far the local economy is from the ideal of serving the people's needs. The
E-VAT will bring more suffering to millions of Filipinos. This is not an
achievement but a very real economic failure. IBON Features / Posted by
Bulatlat © 2004 Bulatlat
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IBON Features
Posted by Bulatlat