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The
public is debating on the value-added tax (VAT).
Civil-society groups have been calling for the lifting
of the additional 2-percent VAT on all products. Others
are limiting themselves to VAT on oil and oil products.
Still others demand that the entire 12-percent VAT on
all products be removed.
The
Department of Finance, think tanks and multilateral
institutions like the World Bank warn against the
removal of VAT.
Like the
little hen who shrilled, “the sky is falling!” the
President predicted dire consequences if VAT is removed.
She cited loss of investor confidence, weakening of the
peso, rise in interest rates and increase in prices. She
reserved her most ominous scenario for last: “Kung
aalisin ang VAT sa langis at koryente, mawawala
ang P80 billion para sa mahihirap. [If the
VAT on oil and electricity is removed, the P80 billion
for the poor will be lost.]”
Judging
from the histrionics generated, it would seem as if the
financial sky of the Philippines would fall on hapless
Filipinos if VAT, whether 10 percent or 2 percent, is
removed.
VAT is
not the only source of revenue for the government. We
have a wide array of taxes and other sources of revenue
at our disposal.
Social
Watch Philippines is studying the rationalization of
incentives as an alternative to VAT.
Forgone
revenues and VAT
Finance
Secretary Gary Teves informed the Senate that the
government’s forgone revenues totaled a staggering P410
billion. This consists of P60 billion to 65 billion due
to VAT inefficiency; P280 billion lost from fiscal
incentives; and P60 billion to 65 billion lost from
technical smuggling.
If
one-half of these forgone revenues were collected, this
would amount to a hefty P150 billion. Surely, the
reader does not need to be tutored in arithmetic to
realize that this amount is so much bigger than the
much-vaunted to-die-for P80 billion VAT windfall.
The
monstrous P280 billion lost from fiscal incentives is
3.5 times more than the P80 billion for the mahihirap
(poor).
Studies
on incentives
What is
the impact of incentives on investments in the
Philippines? Two studies shed light on this question.
These are “Investment Incentives and FDI: The Philippine
Experience” by Rafaelita M. Aldaba and “Toward Rational
Fiscal Incentives” by Renato E. Reside.
The
Aldaba study concluded that tax incentives were not able
to compensate for the relatively weak fundamentals and
poor investment climate. It cites an obvious effect: Tax
incentives have direct negative effect on revenues even
as some address the need to reduce economic distortions.
Reside
concludes that large amounts of incentives which the
Philippine government provides are largely redundant.
These are given to firms which will invest anyway even
without incentives.
There
are two reasons. The first is that by international and
even domestic standards, many firms were found to have
high rates of return even before receiving incentives.
The second is that large numbers of firms in the
Philippines have low sensitivity to fiscal incentives.
Tax
incentives and the poor
A major
issue raised on tax incentives is its impact on
government services to the poor. Economist Felipe
Medalla stated that due to the high cost of collecting
taxes, P1 gained by big investors from tax incentives
could be equivalent to as much as P2 worth of forgone
spending for infrastructure and social services for the
poor.
Reside
emphasizes that poor and middle-class taxpayers bear the
brunt of the fiscal cost of incentives.
A study
by Roel Landingin of the Philippine Center for
Investigative Journalism (PCIJ), “Tax Incentives for the
Rich are Harming the Poor,” deals with the issue on
incentives and the poor. Landingin cited an earlier PCIJ
study which revealed that “companies availing themselves
of incentives for the biggest projects with the BOI
[Board of Investments] are also among the country’s
largest and most profitable, and belong to its
wealthiest and powerful families.”
Landingin says, “Of the 10 companies that registered the
biggest projects, seven are owned, controlled or run by
some of the Philippines’ best known family-based
conglomerates, such as the Lopezes, Ayalas, Gokongweis
and Cojuangcos. Maynilad Water Services Inc., the joint
venture set up by the Lopezes with the French
engineering group Suez, topped the list. The Ayalas’
Manila Water Co., a joint venture with the United
Utilities of UK, was No. 3; while the family’s
telecommunications unit, Globe Telecom, was No. 8. The
Gokongweis also had two companies on the top 10 list:
Digitel Telecommunications Inc. and JG Summit
Petrochemicals Inc.”
Is there
no alternative to VAT?
Yes,
there are alternatives to VAT. The biggest of these is
rationalization of incentives. |
