INSTEAD OF VAT HIKE GO AFTER EVADERS, IMPROVE COLLECTION

MEDIA RELEASE
IBON Foundation, Inc.
3/F SCC Bldg 4427 Interior Old Sta Mesa, Manila, Philippines
Tel. +632 713-2729, +632 713-2737 E-mail: media@ibon.org
References: Rosario Bella Guzman (Executive Director)
Antonio Tujan (Research Director)
March 16, 2005

Instead of hoping for the approval of the value-added tax (VAT) bill before Senate takes its recess, government can work on other pro-people revenue measures like improving tax collection and going after tax evaders.

Research group IBON Foundation advises the Arroyo administration not to be too fixated on the VAT bill approval because there are other ways for government to raise revenues. One is to plug leakages in tax collection, as government data reveals that the average VAT leakage for the period of 1998 to 2002 was P41.6 billion. This is 30% of the country’s potential tax due.

Government data also shows that there is a high level of tax evasion among corporate taxpayers, which amounted to an annual average of P54 billion, or a tax evasion rate of 38% of potential tax due. Going after tax evaders, and thus improving direct taxation is a more reasonable measure than pushing for indirect taxation schemes like VAT.

VAT itself is inherently inequitable due to its indirect nature. It imposes a uniform tax rate on all taxpayers regardless of their incomes or ability to pay. This goes against the basic principle of taxation that it must be equitable. Worse, the income from these taxes does not go back to taxpayers in the form of social services, but to debt payment.

The Arroyo administration has vowed to match the public’s sacrifice of paying higher taxes with a commitment to cut government excess spending, fight graft and corruption and prosecute tax cheats. But these are policies that government should be pursuing rather than implementing new tax measures. It is unjust for government to offer its commitment to these policies in exchange for the public’s support for a VAT increase.

Given the increasing difficulty of making ends meet as prices continue to rise and wages remain stagnant, any additional tax burden would only serve to drive the majority of the people further into poverty and debt. Thus aside from improving tax collection and going after tax evaders, government should explore other pro-people measures like reforming its debt management, addressing graft and corruption and reimposing tariffs to specially-sensitive products. (end)