Name:
Location: Makati City, Metro Manila, Philippines

Tuesday, May 09, 2006

VAT hike + high income taxes = diswelfare

(The following is a portion of a statement by Minimal Government Movement (MGM) last January 2005 on the government-proposed expansion and hike in value-added tax (VAT) in the Philippines]

... One major reason why many sectors have lobbied hard and succeeded in being exempted from the current VAT is because 10% is already high. For those who are slapped with the 10% VAT, tax evasion becomes a natural act towards self-preservation. The President and the legislators should slash VAT instead, and then couple it with a policy of zero exemption in order to attain higher tax collection. A higher VAT only therefore strengthens the resolve of many sectors to dodge taxation. The incentive to voluntarily pay the correct tax is not there.

Moreover, there is a burgeoning public distrust of the politicians, from the President to the legislators, to the administrators of state corporations, and to the bureaucracy in general in view of the general knowledge that the state is currently too big for its purpose. The Office of the President (OP) alone is a perfect example of a bloated office -- 3 Senior Deputy Executive Secretaries, 3 Deputy Executive Secretaries, 3 Assistant Executive Secretaries, and 40 Presidential Advisers/Assistants. For all we know, many of these officials and bureaucrats do not even care about the shrinking spending power of Filipino taxpayers so long as they benefit directly from their political ties with the President.

Many lenders of government-issued treasuries and other debt papers also show no mercy in asking for higher premium for their money because they see government leaders as having no intention of implementing serious belt-tightening measures within itself and will just pass off the fiscal burden to the taxpayers. There are currently over 120 government-owned and controlled corporations (GOCCs) and government financial institutions (GFIs), and the figure would actually be obscenely higher if the sub-subsidiaries of subsidiaries are included. Many of these state-owned enterprises were given interest-free capitalization but had been through the years mere cost centers. They only survive because of annual subsidies taken from the taxpayers, particularly the helpless fixed-income earners, by the national government.

It becomes absurd further, knowing that a good number of these GOCCs are into real estate, trading, transportation and shipping, media and entertainment, banking, and even scuba diving! What "market failures" are being addressed by these state enterprises? What justifies their continued existence? Are they such holy cows that the food allowance for the children of an ordinary office messenger has to be reduced in the form of withholding tax, so those enterprises can continue operating even at a loss?

The government also holds substantial ownership shares of a few big private corporations -- San Miguel Corporation, Meralco, PNB, among others. The government ownership in these corporations should be sold back to private hands because the government has no business getting into matters where the private sector has already shown great competence in. Government can use the privatization proceeds to retire a big portion of the public debt, so that succeeding interest payment will be smaller.

Large-scale privatization is a major long-term solution to the country's burdensome fiscal situation. While it is true that we cannot fully privatize many of those state corporations and banks, as well as government shares in big private companies immediately and in one big swing, the government must show explicitly now that it is dead set on starting the ball rolling towards that direction. This will send signal to the international financial community that we shall have the capacity to pay those gargantuan loans progressively through the years. This in turn will result in lower interest rates and hence, lower interest payments in the future. Whatever potential savings will be tantamount to revenue hikes without further raising already high taxes.

Responsible parents will not send their children to work prematurely, even stop schooling, so the children can help pay their family's debts. Thus, the parents must sell off whatever non-core family assets (extra car, extra appliances or house/lot) to reduce the debt burden without sacrificing their children's education.

Responsible government leaders will not further burden their citizens' economic plight with more taxation if they can sell off assets -- whether losing or earning at the moment -- which can help reduce the debt burden. But callous and irresponsible government leaders will keep those assets for their political and personal egos, including using them as carrot to those that they wish to buy their continued support, and to bring to their side of the fence some of those who are potential critics.

For many years now, the government has been looking for ways to increase the revenue side only, but has done very little to cut the expense side. No definitive action towards slashing the bloated bureaucracy, no explicit plan to let go most, if not all, of those pampered state enterprises. There are just more than a dozen alternatives to raise revenues other than increasing VAT.

How about Malacanang saying that "We will issue a zero coupon bond for P xxx billion for the full privatization of Land Bank and DBP and their respective subsidiaries, other financial institutions, in 10 (or 15 or 20) years". No additional taxes there, yet you raise revenues, you borrow money to pay maturing obligations this year and the next, and you cut political patronage for the power-trippers in those institutions, both the administrators and the politically-connected borrowers.

Or Malacanang telling creditors, "Lend us $4 billion this year; we will shrink the number of agencies by a quarter (or a third or half), privatize or corporatize a quarter (or a third or half) of those state universities and colleges (SUCs), and privatize at least a quarter of those 120+ GOCCs and GFIs, within 10 to 15 years time. The savings and proceeds of those measures we will use to pay you back 10, 15 years from now, so give us a lower interest rate"...

No burdensome additional taxes needed. We can even have an income tax cut. And you are telling creditors that the government is willing to bite some hard bullets, particularly shedding the excess fat in the bureaucracy, just to get out of the impending fiscal crisis, without further shrinking the Filipinos’ pockets.

Retiring at least P1 trillion of the P5 trillion+ public debt through large-scale privatization, at 8% interest rate, means annual savings of P80 billion per year in interest payment from the annual budget. That’s more than double the projected additional revenues from VAT hike.

These are just some of other clear alternatives with immediate returns in the form of savings in expenditures due to lower interest rates, benefits which we can tap right in 2005, not in 2006 or later. Unfortunately, these are out of the dictionary of current government leaders, and that's horrible.

...Significant cut in individual Income tax system is a "public service" which we should have done yesterday, not tomorrow. A public service which for many salaried people, is a lot more meaningful than "more government services". Bigger take-home pay is a dozen times more preferable than "more pork barrel, more state bureaucrats, more subsidies to government corporations, more perks to the President and her advisers, and more subsidies to less-responsible parents and individuals who cannot plan their lives well."

When the citizens have more purchasing power in the form of significant income tax cut, then higher VAT and other forms of consumption taxes will be meaningful and more acceptable. But it is unacceptable for Malacañang and Congressional leaders to tell us that we should pay more taxes to the state when many of what we see is profligacy, waste and power-tripping in the government. So long as the state continues its confiscatory income tax system and keeping a bloated bureaucracy and pampered state enterprises, a VAT hike is unacceptable.

But by virtue of the near tax-dictatorship powers of the big Philippine state now, Malacañang, the DOF and the ruling party legislators will soon ram that higher VAT against our will. We are screwed!

In ancient times, witches used cauldrons in human sacrifice. The victims were often drowned in them and boiled or had their throats cut over the cauldron. Fast-forward to 2005 and the witches across the river Pasig are back with a vengeance in the cauldron called VAT. We Filipinos will soon be stewing in our own VAT, naturally adobo-style. It is inevitable. Bring your spices. It will be slow, simmering and sick. VAT hike is surrender. It is surrender to a monstrous bureaucracy that needs to be slashed, rendered of fat and stewed to lean tenderness. Stew the pigs called bloated government. You won't need confiscatory income taxes and VAT hikes after that.

Minimal Government Movement (MGM)
www.minimalgovernment.org
January 27, 2005

0 Comments:

Post a Comment

<< Home