Govt. & Taxes, Philippines

Sunday, July 20, 2008

Amending VAT law?

As domestic oil prices continue to rise, with gasoline prices above P60 a liter and diesel almost P60 a liter (Metro Manila prices only; prices in the provinces are higher by at least P0.50 per liter compared to MM's prices), the call to amend the VAT applied to oil products never cease to die down.

Understandably so. Because a 12 percent VAT is high, considering that there are dozens of many other taxes slapped on the people's pocket, both directly and indirectly, like

1. tax on income and profit -- personal income tax, corporate income tax, capital gains tax, inheritance tax
2. tax on savings -- final withholding tax
3. tax on oil, tobacco, alcohol products -- excise tax
4. tax on various documents, public and private -- documentary stamp tax
5. tax on owning a car -- vehicle registration tax, road user tax, plus CTPL
6. tax on owning a house and lot, condo unit, building -- real property tax, special education fund tax
7. tax on business and investment -- business permit tax, franchise tax, percentage tax, common carriers tax, barangay clearance tax or fee,
8. tax on imported commodities -- import tax, VAT on imports
9. tax on travel and amusement -- travel tax, amusement tax
10. social security tax -- SSS "contribution"
11. housing tax -- Pag-IBIG "contribution"
12. health tax -- PhilHealth "contribution"
what else...

Then there are dozens of other fees: driver's license fee, passport fee, terminal fee, NBI clearance fee, PNP clearance fee, birth certificate fee, marriage certificate fee, death certificate fee, etc.

That is why our group, Minimal Government, opposed Gloria's VAT hike in 2004 unless Gloria would also cut taxes somewhere, especially income tax. Personally I would have supported Gloria's VAT hike from 10 percent to even 14 or 15 percent, provided she'd also cut income tax down to 10 percent. But Gloria only wanted tax and tax, spend and spend, including commissions and commissions.

Nonetheless, the windfall revenue is already there. Government's tax revenue increases as the suffering of the public increases. That is "public service", and we pay them lots of salaries, travels, pension, projects and pork barrel for such public service they have rendered.

Gloria can minimize the pain of the public if she will use the entire windfall tax from VAT to retire public debt, reduce current and succeeding years' borrowing, and cut some current taxes and fees that are earmarked to pay those public debts.

But more than cutting VAT from 12 percent to something lower, a better option is to cut income tax, both personal and corporate. Commodities' prices are "high" mainly because many households have low take-home pay because of high personal income tax, even after the recent "tax relief" law. Companies also have lower pay for their workers, lower shares for their stock owners, and high price for their consumers, because the cost of corporate income tax, both the actual payment and cost of compliance (hiring accountants, lawyers, etc.) are high, and all those costs are ultimately passed on to consumers.

Thursday, July 10, 2008

"Sec, may SSS ka dito"

From the House of Representatives' CPBO to NEDA to DBM back to NEDA to ZTE este CHED, now to SSS. Mr. Romulo Neri has really a fantastic political clout.

Former Speaker Mitra, the one who put Neri to Congress limelights in 1990, has rested in peace.
Former speaker de Venecia, the one who retained Neri and put more and longer glitter to him in Congress, has rested in political influence.
But their protegee continues to bask in political chandeliers, alive, well-lighted, glimmering.

From Abalos' "Sec, may 200 ka dito",
to PGMA's "Sec, may SSS ka dito".
See here,

Ad it might not be the last political position for Neri.
There is no limit to someone with high political and bureaucratic ambitions.
Next stop could be DOF or BSP? Who knows?
As long as GMA or her appointed presidential candidate are in Malacanang.

Meanwhile, woe unto taxpayers and SSS members. The lust for multi-billion robbery too, has no limits for those in power. When the administrators of tax money and SSS contributions are intent on stealing the money, what can they really do? Can they remove, much less put to prison, those officials?

Go ask the cross-eyed fly (Sa Ilongo pa, "Ambot sa langaw nga libat")
Maybe Tarzan and Spiderman know the answer.

VAT on oil products

As the price of petroleum products keep rising, the call for the lifting or abolition of value added tax (VAT) on these products gets louder. While the goal of such measure -- help reduce the price of oil products -- is laudable, the policy tool being proposed is wrong.

The single most important element of the "rule of law" concept is that the law applies to everyone and exempts no one. Any exemption to the rule immediately invalidates the "rule of law" and automatically becomes "rule of men". When applied to commodities, the law should apply to all sectors or products and exempt not a single sector or product.

In the crafting of the current VAT law that was enacted in 2005, a few products were exempted from coverage of VAT. These include agricultural and fishery products in their original forms, meaning raw vegetables, meat, fish, fruits, etc. Once they are processed, like dried mangoes or canned sardines, the processed product is covered by VAT.

The exemption of these products, and the attempts by many other producers that the products or services they produce be exempted from VAT, was both a proof and indicator that the 12 percent VAT rate was high, so that almost everyone wanted exemption from the tax law.

Now that it is a law, the spirit of "apply to everything and exempt nothing" should be retained. In this sense, I am not in favor of lifting or abolishing VAT on oil products. Or any other products and services.

And yet I also want the prices of those VAT-covered products and services be made lower, so how can it be done considering that VAT is one of those significant price inflators?

One of my favorite alternative policy options is the abolition of import tax (if it is not abolished yet) of all petroleum products, and abolition of excise tax on gasoline products. Current excise tax is about P5.60 per liter. These will help reduce the price of oil products.

Another policy option is a lower, flat income tax, especially on personal income tax. Any tax cut is equivalent to "salary increase". Such de facto "pay hike" especially for fixed income earners, will enable many people to better adapt to higher oil prices since it is a global phenomenon anyway, and other commodities with higher prices with higher take-home pay.

How "low" should the flat tax be to have a maximum positive result to the people? Zero income tax is the best. But the best is not always the most practical and feasible. A 10 percent flat income tax, to my mind, is the second-best alternative. At this rate, many people, from public school teachers and policemen to private sector ordinary employees to struggling small entrepreneurs, will benefit. And the State will still collect taxes at a much broader tax base as more people will be encouraged to pay income tax because the rate is lower and complying with it is simpler.

I hope that many of the country's politicians and legislators will shift their attention away from reducing consumption-based taxes like VAT, towards reducing income tax. This is the single best fiscal policy tool that will greatly enable the public cope with high oil and other commodity prices.