Carlos Dominguez, the incoming Finance Secretary of President-elect Rodrigo Duterte, recently announced that he wants an increase in the everyday (expanded) value added tax, from the current 12 percent to an unreasonable 15 percent. Secretary Dominguez says that his proposal is necessary because the Duterte administration needs money to run the government.
The Dominguez proposition is fraught with consequences which the Liberal Party and other anti-Duterte groups will surely exploit to embarrass Duterte when he assumes the presidency in July. Duterte should scuttle it immediately.
Although the VAT is supposed to be a “value-added” tax, it is nothing more than a expanded sales tax, that is, a tax on every first sale of any product, including food, medicine, gasoline, and other prime commodities. With the exception of senior citizens in certain very limited instances, the VAT applies to everyone, regardless of their status in life. Under the current law, each sale made at a store or similar outlet is subject to the 12-percent VAT.
A VAT on the sale of luxuries and unnecessary items like cigarettes, liquor, cinema tickets, candies and chocolates, cosmetics, perfume, and the like may not be so objectionable. On the other hand, a VAT on the sale of prime commodities like food, and imperatives like medicine, electricity, running water, and fuel, is patently oppressive.
As it is in the Philippines, the cost of medicine, branded or generic, is already prohibitive for the poor and the marginalized sectors of society. Imposing a tax, like the VAT, on the sale of medicine, aggravates their financial problem, and practically makes health care an impossible dream for the poor and very low-income families. Such a tax also renders health care, which is guaranteed by the 1987 Constitution, a teasing illusion to many.
Any tax on the sale of medicine is anti-poor. Considering the prohibitive cost of medicine in the Philippines today, nobody in his right mind, rich or poor, would want to get sick. Naturally, when one is sick, one has no choice but to buy the needed medication in order to recover his health. To impose a tax on the sale of medicine, therefore, is to tax one’s natural desire to recover one’s health.
The tax is also unreasonable. Why should the natural, human desire to recover from an illness be subjected to a tax? No matter how small it may be, any tax on the desire to get well is inhuman.
For the rich, the VAT is affordable. For the poor, however, the VAT is an additional financial burden to their already difficult lives. It is lamentable enough that the price of prime commodities is prohibitive for the poor. Worse, they must pay a VAT on each purchase. More often than not, the VAT itself bars access to food and medication on the part of the poor. Obviously, the poor are the most adversely affected by the VAT.
During the Marcos administration, the sales tax on products was pegged at a reasonable 3 percent. To make up in volume, the government encouraged more sales.
After 1986, the government abolished the sales tax and replaced it with the VAT, then in the amount of 10 percent. It was eventually “expanded” to its current rate of 12 percent. Today, a poor family’s grocery bill of P500 just for bare necessities is actually for groceries worth only P440. P60 automatically goes to the government, even if no public utility (like roads or bridges) was used, or even if no public service was involved. The P60 is embezzled by the government, or used to perpetuate itself and its minions in power.
As it is, the 12-percent VAT makes life difficult for the poor. Increasing it to 15 percent, as Secretary Dominguez wants to, is patently anti-poor. The Dominguez plan will also undermine and embarrass the administration of President Duterte.
Dominguez’ excuse—that the incoming administration needs funds—is flimsy. It suggests incompetence on his part. Of course, every administration needs funds. In fact, because of the massive corruption during the administration of President Benigno Aquino III, the Duterte government would need a lot of money to operate properly. Increasing the VAT, however, is not the solution. It will only worsen the poverty problem.
Instead of increasing the VAT, the Duterte administration should consider substantial savings in the government. The junkets, luxury vehicles, discretionary funds, and dozens of consultants which government officials under past administrations have been used to, will have to be kept to a minimum. This should also apply to senators and representatives who take luxury trips abroad, and who use several vehicles each time they travel.
In the same light, useless infrastructure projects like those road islands in Pasig City should stop. The share of local government units from tax revenues should be reduced since the funds are wasted on ghost employees at city hall and vanity structures in the city, as what takes place in Herbert Bautista’s Quezon City.
Pork barrel allocations should be eliminated outright, and revenues from natural resources, such as the Malampaya natural gas fund (worth at least a hundred billion pesos yearly) should be spent properly.
Dominguez should read his world history. Many governments were overthrown by the people on account of excessive taxation. Excessive taxation triggered the American Revolution in 1776. It was one of the reasons why Andres Bonifacio instigated the Philippine Revolution against Spain.
A twentieth-century saying posits that the power to tax is the power to destroy people and commerce. The world has changed since. People all over the world today will not hesitate to overthrow abusive governments. That is what happened in Egypt, Syria, and Libya. It’s happening now in Brazil, in Spain, and in Portugal.
Duterte was elected on the public impression that he is everything that the corrupt and abusive President Aquino III isn’t. That is why Duterte must scuttle any plan to increase the VAT.