01 September 2005

VAT's All Folks

As expected, the Supreme Court lifted the TRO on the VAT today and markets will heave a sigh of relief that President Arroyo's much touted fiscal reform program is not completely in shambles. But that sense of relief will be short lived.
If they're lucky or if they actually try, the VAT will allow the BIR to pick up P15 billion in additional tax revenues this year. That is, if their estimates are correct. Do i sound I skeptical?
Well, despite warnings by almost every single economist in the country, the sin tax measure--which the government estimated would bring in P15 billion in additional revenues this year --has only brought in some P800 million in incremental revenues.
Excise tax collections on tobacco products actually went down. At the rate they are going, the higher sin taxes will bring in a measly P2 billion in added revenues this year...if they are lucky.
Why the dismal revenues? Ask the UP 11. Ask former undersecretary of Finance Nene Guevarra. Ask the Foundation for Economic Freedom. Ask anyone with a college degree in economics. Just don't ask President Arroyo, former finance secretary Cesar Purisima, Senator Ralph Recto, or Congressman Jesli Lapus. After all, a multi-tiered tax rate based on cigarette prices in 1997 was their idea.
Now repeat after me: "We told you so!"
Given the discrepancy between government estimates and actual collections on the sin tax, any logical person must now take the estimates of the revenue from the VAT with a gigantic grain of salt.
The problem is, when those revenues start falling woefully short about a year from now the authors of those brilliant tax measures will come back to us...the middle class taxpayer...and
look for ways to raise taxes once again in order to prevent the national government from going bankrupt.
With more than half of the country believing the president stole the election and the outrage in many parts of the country over the way the impeachment was handled, will President Arroyo have the political will and the capital to go back to ordinary people and ask them to pay more taxes?
Even without the Garci tapes hanging over her head it took a full year for her to convince Congress to enact her deeply flawed tax measures. And these measures were only passed after special interests found ways to ensure that they would bear a disproportionately smaller share of the tax burden.
Now with the issue of election cheating unresolved in the public mind, fears of another public backlash, a largely hostile senate, and an opposition sure to challenge her, can President Arroyo muster the political courage to come up with new taxes to impose on the public before its too late?


At 9:17 AM, Anonymous Anonymous said...

Vat is the wrong solution for the problem. Stop the stealing. 40% of the annual budget is stolen according to varied studies from IMF World Bank and others. 40% of 900 billion is 320 billion. You do not need new taxes. You just have to make government lessen or stop the stealing.

At 4:31 PM, Blogger Econblogger said...

EVAT is not the solution, but suspending it will certainly worsen the problem. Even if the revenue estimates from EVAT are bloated (and I agree they are). I think the focus should be on how to keep and build upon this gain, insufficient though it may be.

At 9:25 PM, Anonymous Anonymous said...

Wrong math in my previous post. 40% of 900 billion is 360 billion. I stand corrected. I am sorry.

At 2:09 AM, Anonymous Anonymous said...

evat is confiscatory period.

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