VAT as tax on other taxes

The value-added tax (VAT) as currently implemented in the Philippines is very parasitic in favor of government. The worst aspect of this law is that it is applied as a gross sales tax (GST), and not a tax on value-added by each producer in the supply chain.

Let's take the VAT on petroleum products as example. Out of the P41/liter current price of premium gasoline, my estimate is that government collects at least P14 per liter. How?

Assume an import price of premium gas of P24/liter:

(a) x 3 percent import tax, P0.72/liter = P24.72/liter landed cost
(b) x 12 input VAT, P2.97 = P27.69/liter
(c) + Excise tax of P4.35/liter = P32.04/liter
(d) + net profit of (i) oil companies, (ii) truckers and tankers, and (iii) oil dealers (or gas stations), assume they'll be happy with P1/liter each, P3/liter = P35.04/liter
(e) + implied corporate income tax (CIT)* passed on by the oil companies, truckers and oil dealers to the public, P0.55/liter each or P1.65 = P36.69/liter
(f) + 12 percent VAT, P4.40 = P41.09/liter, pump-price of premium gasoline.

* implied CIT is computed as:
Assume that the (i) oil companies, (ii) truckers and tankers, and (iii) oil dealers are happy with a net profit of P1/liter each. But since government will take away 35% of corporate income as CIT, then their after-tax profit becomes P0.65/liter only because the government has confiscated the P0.35/liter.In order to assure themselves of P1/liter net profit, their pre-tax profit should be P1.55/liter. Government removes 35 percent of this as CIT,(P1.55 x 0.35) = P0.55/liter, implied CIT passed on to consumers.

If the above numbers are correct, then government total tax take isP0.72 (3% import tax)+ P2.97 (12% VAT on imported oil)+ P4.35 (excise tax)+ P1.65 (implied CIT of oil companies, truckers and oil dealers)+ P4.40 (12% VAT, actually a gross sales tax)= P14.09/liter!

Of course, this figure is still incomplete and hence, understated. Because government also collects the following:
a) CIT from advertisers of oil companies;
b) personal income tax from employees and managers of oil companies, oil dealers, truckers/tankers, advertisers, and other enterprises directly and indirectly involved in oil importation and distribution;
c) environmental clearance fees from the Dept. of Environment (DENR) for the oil depot, oil ports, gas stations, etc.;
d) real property tax, business permit, building and sanitation permit, other taxes and fees by local government units (LGUs).

VAT is also applied actually as gross sales tax (GST) in all other VAT-able commodities and services. Take food products in restaurants, food shops and supermarkets. Say in Jollibee, McDo, BK, KFC, Max's, etc. Assuming they bought the chicken at P100/kilo. Remember that chicken, fish, vegetables, and other agri products in their raw form are VAT-exempt, according to the VAT law.

If the food chains are able to sell the cooked or processed chicken products at say, P250/kilo, pre-VAT, then
value added = P250 - P100 = P150
12% VAT payment = P150 x 0.12 = P18
total receipt = 100 + 150 + 18 = P268.

But the food chains, supermarkets, etc. apply the 12% on the whole P250, or
P250 x (1 + 0.12) = P280 total receipt.

Lessons:
(1) In petroleum products, the VAT is not only a tax on value added in each step of oil importation, processing and refinery, wholesale and retail distribution. VAT is also a tax on import tax, a tax on import VAT, a tax on excise tax, a tax on CIT, a tax on personal income tax, a tax on real property tax, and so on.

(2) Government's multiple taxes and fees, and mis-application of VAT, is the single biggest source of price distortion upwards of petroleum and other products. Which shows how government cares for the people.

(3) Misapplication of VAT as GST by sellers and suppliers works to their advantage, the consumers are worse off. Cost-conscious consumers will be well-off if they buy from non-VAT-able public markets and carinderias.