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All Filipinos, except the rich, are suffering from
today’s grossly inflated prices of food, fuel and commodities.
As usual, the poor, who make up about 40 percent of the population,
are suffering the most.
Good-hearted people, among them
the Catholic bishops, urge the government to take large steps to
alleviate the poor’s suffering. One of the suggestions—made with
urgency by the bishops, Leftist groups and populist politicians
(most notably Sen. Mar Roxas)—is to suspend the 12-percent
expanded value-added tax (E-VAT) temporarily on oil products.
Indeed, doing so would immediately drive down prices.
It will, however, in the
long run cost us Filipinos much more than today’s sufferings. For
tinkering with the E-VAT—which can only be done by passing a
law—will plunge the Philippines back into the dream world it lived
in before. This will cause the Philippines to become less able to
compete against other developing countries in selling products to
the world and attracting foreign investors.
For decades—until, in the mid
90s, the government was forced into accepting the reality that the
rest of the world was turning into a global economic village—we
did not earnestly devote ourselves to the work of making ourselves
more globally competitive. We Filipinos had not realized, because we
were floating in an unrealistic world, that we must play by the
rules favored by the rich and advanced countries who are our
customers and investors.
The good done by E-VAT
Then, starting with the Ramos
administration, government economic managers were empowered to
establish more realistic policies. This led in 1998 to the inclusion
of the Value-Added Tax in the Tax Code. It was amended into the
Expanded-VAT law in 2005. The purpose of the law was and continues
to be to gather as much money for government to use in launching and
completing major infrastructure and socio-economic modernization
programs. These would make the Philippine economy rise from
stagnation, compete more ably with other developing and emerging
economies and thereby make the Filipinos a more prosperous people.
The VAT, which in simple terms is an overarching sales tax, was to
become a major vehicle to finance government plans and
programs—including poverty-reduction, health-enhancement,
educational-system improvement and infrastructure-construction
programs. The VAT would also substantially reduce deficit-spending
and its destructive chain of consequences on the economy.
It can be said with certainty
that the achievement of the Arroyo administration to raise the
country’s GDP growth rate in 2007 to a record 27-year-high of 7.2
percent was, to a large extent, owed to the E-VAT.
The government, having enough
money—thanks partly to the E-VAT collection and the overseas
Filipino workers’ contribution to it, in the first months of 2008,
could immediately blunt the effect of suddenly very costly rice and
essential commodities. The administration handed out P500 each to
some poor families and, through the National Food Authority, sold
imported rice at subsidized prices.
Temporary measures turn
permanent
Tinkering with the E-VAT, even if
only temporarily and just on oil products, will threaten the
completion of major infrastructure vital to industrial and
tourism-related projects begun by foreign direct investors.
Schoolhouses and hospitals that are being built to greatly elevate
the level of basic education and health care in our most depressed
areas will be left unfinished. Budgets for the support of scientists
and their research work aimed to launch a dramatic rise in
world-class technological achievement in Philippine universities
will no longer be available. Poverty-reduction and
livelihood-creation projects in slums will have to be dropped. More
and sadder consequences would happen if the E-VAT is suspended.
And, as shown by our own and
other countries’ experience, temporary measures once instituted
tend to take root and become permanent. And they also grow, like
cancers. Before long, we could find the whole E-VAT abolished—and
the government perpetually in a large budget deficit.
Finance Seceretary Gary Teves is
right. The Catholic Bishops’ Conference of the Philippines’
suggestion to exempt oil products from the E-VAT would mean
depriving the government treasury of P73.1 billion to help the poor
cope with rising food and oil prices. He correctly points out that
it is the rich and the upper middle class that will benefit from
suspending the E-VAT on oil because they are the biggest users of
oil products—not the poor. The poor use their money, because they
cannot help it, mainly to buy rice and agricultural food products
that are VAT-exempt.
Windfall E-VAT collection
Some, like Sen. Juan Ponce Enrile,
will have the 12-percent E-VAT limited and pegged to the assumed
price of oil products when the international price of crude was only
$70 per barrel. Now the price is climbing to $150 and some experts
think it might shoot up to $200 per barrel.
What a great challenge this
method would be to carry out. How much of yesterday’s P161.20
price for a liter of unleaded gasoline would correspond to $70 per
barrel of crude?
The proponents of this compromise
want to deprive the government of “windfall” E-VAT collections
from the grossly inflated cost of oil products. Yes, the
“windfall” E-VAT collections only deepen the misery of the poor.
But let us look at it another way: The “windfall” earnings could
go to more poverty-reduction projects. They could be invested in a
permanent solution to Metro Manila’s traffic problem: A
world-class train system such as Hong Kong, Singapore, London and
Frankfurt have.
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