Two faces of taxation
The US-Arroyo regime's ruthlessness is on overdrive. Aside from raising the present 10% VAT to 12%, the reactionary congress has also removed this March all remaining exemptions to it. Compared to the 20% VAT increase, the elimination of exemptions has even more lethal consequences.
Among the items that would now be subject to VAT are petroleum products (except liquefied petroleum gas) that would be levied progressively higher rates starting with 4% in the first year to 12% on the fourth year, and "poor people's common fare" like instant noodles, sardines and other canned goods that would be imposed a 6% VAT. Doctors and lawyers' services will also slapped with a 10% VAT.
Even the oil companies do not deny that prices of petroleum products will go on an upward spiral once they are subject to VAT. Electricity charges will definitely rise because power plants use oil as fuel. According to NAPOCOR, the price of electricity that it sells to distributors would go up by a minimum of P0.70/kWh. If independent power producers (IPP) are subjected to VAT as well, Meralco will be adding P0.80/kWh to P1/kWh to electricity charges because aside from what it purchases from NAPOCOR, part of the power Meralco sells to the public is supplied by IPPs.
Funds raised by government from the removal of VAT exemptions come on top of the taxes that it already collects from petroleum products like diesel (P1.63/liter), fuel oil (30 centavos) and kerosene (60 centavos). Price increases in these items are in addition to Meralco's P0.0929/kWh hike approved by government just this February based on the deferred accounting adjustment�meaning the company is allowed to recover losses expected in the next two years.
The VAT increase has an immediate and direct effect on the people because it is a tax imposed on consumers and not on producers. It is one of the bills that the US-Arroyo regime has certified urgent because of the amount and extent of tax revenues that can be siphoned in from it. In contrast, the government has neglected to impose VAT or any additional taxes on luxuries such as expensive watches, imported food items, jewelry, yachts, private planes, perfumes, travels abroad and high-tech toys.
Even as the people are faced with ever heavier tax burdens, big foreign and local companies continue to enjoy reduced tax obligations. Take note of the following:
From the Comprehensive Tax Reform Program of 1998: The income tax of both foreign and local companies was set at 34%. On January 1, 1999, this was reduced to 33%; and on January 1, 2000, to 32%.
From the Omnibus Investment Code of 1987 (for companies in "investment priority areas" like mining) and the Export Development Act (for companies inside export processing and special zones): Companies enjoy four- to six-year income tax exemptions. Instead, they pay the equivalent of 5% of their gross earnings. They also enjoy tax exemptions on imported machinery, and tax discounts on local equipment. Up to 50% of their labor and training expenses may be deductible from their income taxes. They enjoy various exemptions and tax discounts as well on other foreign and local services and equipment, including the transport, distribution and importation of finished products. No taxes are levied on 100% profit remittances.
Special for foreign mining companies: In addition to all of the incentives stated in the Omnibus Investment Code, foreign mining companies will enjoy exemptions from all national taxes starting from the construction and development stage of their operations until the time they recoup their investments.
With the huge amount lost due to these exemptions, where does the government get most of its tax revenues? Studies show that the richest bureaucrats, compradors and landlords do not pay the appropriate income taxes. Businessmen and compradors paid only P7 billion in taxes in 2003. In contrast, workers and government employees paid up to P76 billion in income taxes. Up to 18% of government's gross revenues comes from income taxes and almost 27% of this comes from wage and salary earners.
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