What is the origin of E-VAT?

Question

Philippines

Answer 1

According to Dimaampao (2005), “taxation is a mode of raising revenue for public purposes.” Taxes are not given voluntarily but are dictated by laws, and people are required to pay taxes in proportion to their income or some other source. These taxes are then used to fund government projects and other public needs. Without taxes, the government will not have funding for public services and the like. One such example of tax is the Expanded Value Added Tax (EVAT), which was fully implemented last November 1, 2005.

This new law, according to de Vera et al (2005), “expands the tax base to include the electricity, fuel and transport industries and other previously exempt industries.” The old Value-Added Tax (VAT) Law covered mostly food industries, and its tax rate was only ten percent. The EVAT law, apart from expanding the tax base, is also expected to increase the tax rate to twelve percent by January 2006 (de Vera et al, 2005). All revenues collected from the EVAT in the first 6 months, according to Finance Secretary Margarito Teves, will be allocated to debt service. After the first six months, only seventy percent will be allocated to debt service (Padua, 2005). In line with this, the EVAT is expected to raise 100 billion pesos a year (Macasaet, 2005).

The implementation of the EVAT law was delayed by one month due to a temporary restraining order (TRO) imposed by the Supreme Court in line with complaints filed by the United Opposition (de Vera, 2005). Many opposition leaders have said that the EVAT would not help solve the fiscal crisis. Other government officials have suggested alternative means of collecting more revenues. I agree with them, and I believe that the EVAT law is not beneficial to our country.

One reason why the EVAT does not benefit our country is that is further reduces people’s purchasing power. Since the prices of many commodities and services, including fuel, electricity and transportation, have increased and will continue to increase because of the EVAT, people are discouraged to buy things. Some people have also resorted to buying cheaper but not necessarily better items just to save money. When the people’s purchasing power goes down, some business establishments are forced to close due to lack of profit. These same business establishments sometimes produce or sell low quality products at higher prices just to cope up with the “demands” that the EVAT law brings.

The EVAT law also forces people to do away with things that have been a part of their daily lives. According to a statement made by Senator Mar Roxas, “The public is anticipating drastic changes in their lives…From taxi, FX na lang or back to the jeepneys…From bigger size de lata dinners, some will now have to settle for small cup noodles.” (Dairo et al, 2005) It will greatly affect people’s way and standard of living. Avid moviegoers might have to resort to buying pirated copies of the movies they want to watch instead of watching the movie’s premiere in the cinema. People who love shopping might have to shop at Divisoria or other tiangges instead of Greenbelt or Alabang Town Center. Basically, the EVAT law can force some people to adapt to certain things which they are not used to.

Another reason why the EVAT is not beneficial to the country is that there are other ways to solve our budget deficit and debt problems. Senators Aquilino Pimentel and Panfilo Lacson agree that what the government needs to do is to “improve its revenue-collection and allocation efficiency, instead of relying on the revenues that would be generated from the EVAT” (de Vera, 2005). Also, Pimentel said that in 2004, there was approximately 30 percent in uncollected VAT amounting to 65 billion pesos. Data from a study conducted by the National Tax Research Center together with the Department of Finance showed that only 139 billion out of a targeted 204 billion pesos was collected from VAT in 2004. (n.a., 2005) From this data, a deduction can be made that the EVAT may suffer the same fate. That is, its collection may also be inefficient like the VAT of the previous years.

Another way to solve our budget deficit and debt problems is to eradicate or at least lessen corruption. Under-the-table transactions in government agencies like the Bureau of Internal Revenue and Bureau of Customs should be done away with. The pork barrel of the senators and congressmen should be scrapped, since this can tempt them to use the money for personal gain. It will save the government billions of pesos, and these could then be used to pay off our debts. Also, allocation of funds to different projects should be monitored because some government officials deliberately ask for more money than what is really needed and pocket the rest of it for themselves. Another technique they use is using substandard materials or equipment for their projects, thus making these last for merely a little more than a year when it should last more than that. One more thing that the government should watch out for is what many call “15-30 employees” or “ghost employees.” These are employees who come only on the 15th and 30th days of each month to get their salaries. For the rest of the year, they don’t come to work. These people are also wasting billions of pesos which they don’t deserve to earn.

One more reason why the EVAT is not beneficial to our country is that families will become poorer. Even without the EVAT law, many families in the C, D and E classes of society are trying their very best to make ends meet by working all day and night. Despite the fact that prices of many commodities have shot up because of EVAT, the minimum wage hasn’t increased. Some companies have justified this by saying that if they increase employees’ salaries, they might as well close the company or lay off some employees. Although these companies have a point, they should at least experiment with the idea first before they can conclude that raising wages will not benefit the company.

Since the EVAT resulted to an increase in expenditures, other taxes might also be raised to augment for other losses. According to Makati Mayor Jejomar Binay, “…EVAT will clearly force an increase in expenditure and affect allocations for public services and new infrastructure…this could compel other local government units to raise local taxes in order to make up for the shortfalls due to the EVAT.” (Padua, 2005). Also, according to Malaya, “The law also raised corporate income tax from 32 percent to 35 percent which will be in effect for three years…” (de Vera et al, 2005). Thus, apart from the EVAT, families have to pay for more taxes.

Some might say that the EVAT is not that bad since it will increase the revenues received by the government by hundreds of billions of pesos, and thus “close the gap between revenues and expenditures” (Macasaet, 2005). Although the EVAT does aim to do this, it is not the best and most beneficial way to gain more revenues to pay off our debts. As stated earlier, we should instead improve on revenue-collection and allocation efficiency. Even though we may be able to collect 100 billion pesos a year, it would all go to waste if we don’t distribute it properly.

Others might argue that by implementing the EVAT, the country’s credit ratings will go up, and thus the banks who lend us money will have more confidence in our capability to pay them back. Credit ratings, however, are not a measure or assurance of economic prosperity. Credit ratings only measure our capability to pay off our debts and nothing more. They cannot measure how progressive our economy is, and they also can’t reflect how our revenues are effectively allocated.

The EVAT is currently being implemented all over the country, and according to the government, measures have been made to cushion the impact of rising prices. However, with only a few weeks remaining until the tax rate is increased further, Filipinos will hardly feel the cushion if there is any. They currently have no choice but to bite the bullet and pay the correct amount of taxes. Still, many of us think that the EVAT is not as beneficial as the government wants us to believe. By raising taxes, the government should have provided us with better services, infrastructure and the like. We, however, are not receiving what we deserve, and we are sick of it. The EVAT will just make Filipinos poorer, and some of us would have to do away with what we are used to. It’s not as easy as many would think. The Filipinos have sacrificed more than enough.

Sadly, despite the people’s clamor to have the EVAT law scrapped, it is highly unlikely that it will be removed anytime soon. The government obviously thinks that it is the best way to reduce our budget deficit and debt problems. Somehow, they have forgotten that by implementing the EVAT, people would become poorer and it will further reduce their purchasing power. The government should focus on other, more effective means of solving our budget deficit and debt problems before deciding on a solution like the EVAT.

References:

Dimaampao, J. (2005) Tax principles and remedies. Manila: Rex Book Store.

De Vera, E. (August 30, 2005) SC ruling on frozen EVAT law out today. Retrieved November 30, 2005, from http://www.malaya.com.ph/aug30/news4.htm

De Vera, E., Bengco, R., Reuters (September 2, 2005) Tribunal upholds EVAT law. Retrieved November 30, 2005, from http://www.malaya.com.ph/sep02/news1.htm

De Vera, E., Montemayor, J., Dairo, J. (September 20, 2005) SC extends freeze of EVAT. Retrieved November 30, 2005, from http://www.malaya.com