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.


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