New VAT Eats into Consumers’ Already Scanty Budget

The first stage of the new Value-Added Tax law – an expansion of its coverage – could not but bring about an increase in the prices of socially sensitive food products. As this is being written, the VAT rate is set to be increased to 12 percent from the present 10 percent in a few days.

BY ALEXANDER MARTIN REMOLLINO
Bulatlat

A man waits for rushing buyers because in the next two days, prices of several products will increase from its regular price. PHOTO BY TAMMY DE CASTRO

With the percentage of the Value-Added Tax (VAT) set to be increased this February from 10 to 12 percent, the country’s consumers are now understandably at a loss on figuring out how to stretch their dwindling budgets. The increase in the VAT rate from 10 percent to 12 percent was one of eight revenue measures pushed by President Gloria Macapagal-Arroyo in 2004, when the country was hit by a fiscal crisis. Congress instead passed last year the restructured VAT (RVAT) law increasing VAT coverage to include oil, power, and transportation. However, the new RVAT law also grants Macapagal-Arroyo standby authority to increase the VAT rate from 10 percent to 12 percent in February. The bill took effect on Nov. 1, 2005.

As things were, most Filipino consumers were already having a hard time coping with skyrocketing prices of goods and services before the coverage was expanded. The expansion of VAT coverage caused a further reduction in their budgets.

Already covered before RVAT took effect were: 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; and telecommunications (including landline, post-paid and pre-paid mobile phone services).

Bulatlat did the rounds of a number of supermarkets and variety stores and noted down the average prices of food products particularly known to be socially sensitive. A comparison between prices before and after Nov. 1, 2005 revealed increases that give consumers just cause for worry. 

 A few days after RVAT took effect, Vice President Noli de Castro was photographed in the newspapers and seen on television doing the rounds of public markets and monitoring prices. Likewise the Department of Trade and Industry (DTI) issued a number of statements saying the RVAT implementation did not have to result in significant price increases, as it merely expanded the coverage and did not yet raise the VAT rate.

But De Castro and the DTI both missed the point. The first stage of the new VAT law could not but bring about an increase in the prices of the food products listed above.

Oil and power are indispensable in the processing and packaging of goods. Production costs are included in the prices of goods, as are transportation costs. Since the VAT law in its first stage included oil, power and transportation in the tax coverage, price increases as a result of RVAT should come as no surprise.

As this is being written, the VAT rate is set to be increased to 12 percent from the present 10 percent in a few days.

Macapagal-Arroyo aggressively promoted the RVAT as a revenue measure supposedly to stave off the fiscal crisis that hit the country in 2004. The RVAT was the centerpiece of the tax reform program of the Arroyo administration and its most important revenue generating measure.     

Those opposed pointed out that instead of raising the tax burden of the people the government could have reviewed the tax exemptions being provided large corporations amounting to around P229.1 billion ($4.373 billion) in potential revenues in 2003 alone according to Former Finance Secretary Juanita Amatong; reduction of tariffs costing the government losses of up to P100 billion ($1.9 billion) a year by Ibon Foundation estimates; plugging tax leakages amounting to P215 billion ($4.1 billion) to P285 billion ($5.4 billion) in lost revenues; and cracking down on corruption that siphons out 20 to 30 percent of the national budget based on a study by the National Tax Research Center. 

Meanwhile, December 2005 data from the National Wages and Productivity Commission (NWPC) show that the living wage for a family of six, the average Filipino family, now stands at a national average of P619.20. In contrast, the daily minimum wage is currently pegged at a national average of only P222.29.

The Macapagal-Arroyo government has been snubbing calls for wage increases while prices of prime commodities continuously jack up. And now, with the impending increase in VAT rates, another wave of price increases is in the offing. That would further widen the gap between the family living wage and the daily minimum wage. Bulatlat 

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