According to official figures released last June 2005, the Philippines' external debt has reached a total of $56 billion though the Asian Development Bank claims in fact that it passed the $63 billion mark in 2003. In order to speed up the payment of this debt, the Philippine government has implemented Republic Act 9337 or the VAT Reform Law. Also known as the Expanded Value Added Tax (E-VAT), the law allows the government to widen the tax on goods and services subjected to VAT. Although the imposition of E-VAT would bring possible benefits to the country in the future, this is not the best and only way to mend the country’s economy because it has adverse effects to the lives of most Filipinos and there are still alternatives for the government to raise its revenues without demanding the people’s money.
The VAT Reform Law is actually a modification of the various VAT laws that preceded it. In the previous years, there were adapted laws related to VAT such as the “cost deduction method” in the year 1939. There was also the “tax credit method” and other presidential decrees that followed concerning on finance management and taxation. But effective 1988, by virtue of Executive Order 273, all percentage sales were replaced by the Value-Added tax in order to have a supposedly more organized and effective system of tax collection. The VAT system was created to add a particular percentage to the existing tax rate of a particular product. For example, if the tax rate of a certain commodity is 4% of its price, the government will add the value of 6% to parallelize it to the 10% value stated in the National Internal Revenue Code. Thus, the implementation of the VAT system hopes to make consumption of tax more equitable and within the means of each consumer group and, at the same time, to raise government revenue. The income collected would then be used for infrastructures and for public services. If successful, it can boost our economic standing and pave way for an economically progressive Philippines in the future. Apart from this, the government also vowed to guarantee that the money indeed proceeds to the national treasury to avoid cases of tax evasion. However, it has been observed over the years since 1988 that the implementation of the VAT system did not really have a notable increase in the government’s revenue.
As discussed above, the imposition of the EVAT is not the best and only way to generate more income for the country because by doing so, the government will accelerate the rate of poverty of the Filipinos and will also aggravate the plight of low-class consumers. Instead, the government should focus on the three causes of the budget deficit in the first place: tax evasion, corruption in the government, and high expenditure and salaries of government-owned and controlled corporations, known as GOCCs. It has already been known to the people for some time now that these anomalies are very rampant in the country today. However, little has been done to remedy or implement a law that will solve such increasingly alarming problems.
Last November 1, 2005, RA 9337 was implemented by the Philippine government, expanding the VAT coverage. Products and services previously unaffected but now covered by E-VAT are as follows: petroleum products, power and electricity, non-food agricultural products and even doctors’ and lawyers’ fees. Barely four months after the EVAT was implemented, consumers have already begun to feel the impact with the increase of prices, even those of the basic commodities. Restaurants have raised their VAT charge. Likewise, product prices in groceries shot out of proportions and consumers are already being bled dry of their hard-earned peso. There is no question that E-VAT would definitely have an effect on every Filipino consumer however little or tremendous this may be. As a consolation, according to the Department of Finance, the E-VAT is most likely to have a greater impact on the rich rather than the poor because those belonging in the higher-income groups, which purchase more than the lower-income groups, are the ones to pay the most VAT. However, this is opposite the case because according to World Bank, citizens who do not save are more sensitive to sudden changes in the economy for they do not have enough money set aside for emergencies. Research conducted by World Bank revealed that the Philippines has one of the lowest domestic savings rate in the whole world. The rich may be paying a larger sum of taxes but unlike the poor, they can afford to pay the extra money because it is only a tiny percentage of the actual wealth that they possess. Another support is that tax exemptions only cover the final product, so it does not include costs in manufacturing the product such as transportation and electricity. Prices of basic commodities will still increase despite the VAT exemption placed upon them and because of this, more and more people will be unable to afford basic needs especially the poor, the expenditure having to take away the smallest chunk that the poor could hardly even afford. While the government is singing its glorious hosannas regarding the initial positive after-effects of E-VAT such as stronger peso, the very grassroots of the social ladder hardly feel the improvement, and confess that they seem hungrier and more deprived than ever.
According to the National Tax Research (NTRC), the government could have earned P84.5 billion more each year between 1988 and 2002 if there was a more strict and effective tax collection system. In the year 2003, only 50-60% of the total taxes supposed to be paid were actually collected. It has also been a common knowledge that a high percentage of the citizens of the country evade their taxes. Nevertheless, according to the BIR Deputy commissioner, there has only been one person successfully convicted of tax evasion. This has something to do with how the Philippine judicial system is being managed. It is not because we lack laws but rather how these laws lack proper enforcement. In the case of corruption, there are actually two issues that are in line. First point: although the government acknowledges EVAT as “un-evadable” because the buyer would be paying for the product and tax simultaneously, this only prevents tax evasion from the consumers’ side but does not ensure that the tax collected would go straight to the government's coffers. Second point: the Philippines would not be drowning in debt right now if our government officials have conscientiously been honest and trustworthy. It has been lamented in the survey of Political and Economic Risk Consultancy Ltd. (PERC) that our country ranks number two from among the most corrupt countries in Asia. The country should have been enjoying a surplus of money instead of a budget deficit if those government officials had thought of the effect of their administrative misdeeds to the country. I find it ironic that the government is pushing the people to pay foreign debt through the EVAT when in reality, graft and corruption in the government is one of the major reasons why we are currently experiencing a budget deficit.
We may not at all know but an immense amount of money of the country goes to the expenditures of the government owned and controlled corporations (GOCCs) and the salaries of government officials. For instance, the National Power Corporation (NAPOCOR) was solely the cause of the P1.3 trillion external debt of the country. Because of the mismanagement, the government had to pay P371 billion as interest for the debt that originated from the sustenance of NAPOCOR. Junket trips also take up much of the government’s budget. Just recently, tax payers spent P1,517,904.00 for six congressmen’s trip to the Las Vegas to watch the Manny Pacquiao fight. The legislators justify that it is their duty to support and cheer the Filipino boxing champion even at the expense of using the country’s money.
Majority of the Filipinos have paid the 10% tax levied on their purchases brought about by recently implemented Extended Value-Added Tax. Also, majority have felt, in one way or another, the taxation's strains on daily living expenses plus long term investments. Although it has benefits, such as the payment of our foreign debt, the implementation of the EVAT is not the best and only way to improve the economy of the Philippines because it has adverse effects on the livelihood of the Filipinos, such as an increase in the rate of poverty and the negative effects on the local businesses, and there are alternatives that will also yield a hefty amount of money for the country, such as effecting a cutback on evaders and corrupt government officials. In a general appraisal, the boon effected by the imposition of E-VAT is far outweighed by the bane it creates at the expense of the greater mass of consumers who have disturbingly scarcer access to basic necessities.
Lastly, all will go well only if there is an honest collection of taxes, a tight watch on government officials, and strict punishment for the corrupt tax collectors.
Now, it is just a matter of choice how the Arroyo administration will handle that.
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