January 28, 2005

VAT: What's Wrong With It And How To Deal With It

January 27, 2005: a quarter past three in the morning, the august chambers of the House of Representatives passed to the Senate their version of the amended VAT bill. On this amendment, the original 10% added to the original price of the product or service would be changed to 12%. Although 2% seems small, it makes a big difference. For example, when you are gunning for valedictorian, the margin between valedictorian and salutatorian usually comes to within less than 1 percentage point. When you run the 100-m dash, several milliseconds separate the winner from the losers. Certainly, 2 percentage points can, and will, make a difference.

So right, the government can raise taxes; they have that power. Taxing power, The government's power to have a portion of your hard-earned cash in exchange for efficient and quality service. Looks good to me. This holds true only if the definition is truly applied. In our case, it is common perception (and holds true most of the time) that most of the money spent on taxes goes to corruption and red tape. Nobody would dispute the fact that government officials are lured into this kind of activity.

Value added tax, or VAT, has been a way of life for both consumers and capitalists. This kind of tax is added upon a product or service. So for example, if you’d buy the Chickenjoy value meal which costs P62, 10%, or P6.20 goes to the government. Now if you’d raise that ceiling to 12%, the new price would be P62.496. Therein lies the rub. Since Jolibee can’t charge you P62.496, they’d round off that amount to the nearest whole number, P63. So okay, just one peso, it doesn’t make any difference. These capitalists have some of the best minds in the business. They’d spin this figures around until they’ll find a better number. They’d capitalize to the maximum the opportunity to earn profits, under the guise of increased VAT collection. And if the public does not notice this, they’ll be laughing their way to the bank.

Now to those 126 mostly administration representatives, they spun off these new tax bills as urgent. The government is losing money, and if nothing is done, the government can’t spend money for projects, salaries and their pork barrel allocations. Money is of essence to the Arroyo government, especially since after Fitch downgraded our sovereign credit rating to BB-, having negative outlook. Lower credit rating means higher interest rates for our enormous national debt. More money would be needed to pay these outstanding debts, and if we can’t pay, we would be defaulted. If a country were defaulted, the government would be cash-strapped. One recent example was Argentina during early 2002.

Now those who oppose any rise in tax levels say that the government can still raise sufficient amount of money by improving tax collection, by keeping a close eye on companies who have records of tax evasion, by raising our tariffs (which is a kind of tax, by the way), and by closely monitoring any event of smuggling. But the administration lawmakers shrug it off by saying that since the country was in the midst of fiscal crisis, and the government is still experiencing cash shortages, increased taxes would be the only quick solution to avert another fiscal crisis. And these administration lawmakers further say that any hike in taxes would not affect the poor. Susmaryosep! Everything you buy has VAT. Even the products you buy at your sari-sari store. Where did those products came from? From the supermarket, and these establishments charge VAT. The gas station at the corner levies VAT. Your school (except religious ones) adds VAT to your fees. VAT is everywhere. The cigarette guy on the street bought those yosi from marketplace that add VAT to their shelf prices. We can’t escape it. VAT is everywhere. Now the simple fact that VAT is everywhere means all of us is not exempt. Oh wait, the IPPs are exempt, and other sensitive industries. But if Congress would charge them new taxes, they’d pass those taxes to consumers. We can’t break away from this reality. VAT haunts us like death.

Now what can we people do about this? It starts at the elections. These 126 congressmen betrayed their constituents, and by that simple reality we can prevent them by taking office by not voting for them. We can choose another candidate, or even another political party. The elections in this country are a mockery, however, by the vigilance of the citizens, we prevent people like these from being elected into office. The power is in our hands. Rallying on the streets, aside from making your sentiments known won’t do anything, especially if those at fault are the ones running the government. The power is on our hands, it has been there since we are emancipated. And if we don’t manipulate this power, then we will deserve another burden in an already encumbered society.

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