Lethal mix of jueteng,‘Garci’ and EVAT

The jueteng and "Hello Garci" controversies combined with the EVAT and its offspring of astronomically high oil prices, increasing electricity rates, higher tool fees, etc. would have been so lethal to the tottering "strong republic" that it had to be stopped immediately. And the Supreme Court came to the rescue. And GMA lives for another day.

I’ve always held the view that we needed an expanded and higher EVAT like a hole in the head. It is a fatal prescription to the fiscal deficit. It may please the international credit rating agencies but adopting and implementing it at this stage of our economic situation will maim Juan dela Cruz irreparably.

What many had been advocating is for government to stop acting as if we are still a well-to-do country. The alternative approach is to bravely face the creditors and lay the cards on the table about our present inability to pay off debts and hammer out a restructured payment program that will free more government revenues to perk up local production and economic activities. At the same time, government should pursue more vigorously what BIR Commissioner Parayno is presently doing — going after tax cheats, the bigger and more popular, the better.

Bold Plan To Please Creditors

While Filipinos are celebrating this temporary reprieve, (say thanks to the jueteng squealers, the "Hello Garci" tapes and the Supreme Court) the country’s international creditors to be sure are not. The EVAT, after all, is the centerpiece of the Arroyo administration’s bold plan on route to a healthier fiscal position and higher international credit rating.

At the start of its term, the Arroyo administration said it needed P80 billion in additional revenues each year to bring the budget deficit to zero by 2010 or earlier.

Part of its package of bitter pills were amendments to the 10-percent value-added tax law firstly to remove exemptions to fuel and power, toll fees and domestic airfares, and finally to raise VAT to 12 percent in 2006. The removal of exemptions was estimated to bring in P28 billion to P31 billion in the next six months, while the 12-percent VAT assessment was expected to raise P105 million next year.

Jolting Reactions

While the current administration has up to 10 days to respond to the petition filed by opposition legislators, including major petroleum dealers associations, the SC order to stop the EVAT implementation would not be without jolting reactions from those in international financial markets.

The country can expect with more certainty that its debt rating will once again be tethering on the brink of another downgrade. This has always been the threat thrown at us if we don’t behave. Debt rating is very important to our economic planners whose main solution to our financial predicament is to continue borrowing. In fact, the Philippines is now the largest debt issuer in Asia, next only to Japan.

Even the peso is expected to breach the P56 mark against the US dollar after experiencing a relatively stable period at P55 to $1 during the last few months. The peso would have nose-dived during the height of the tape hearing had not the BSP moved to prop up the beleaguered currency. Undoubtedly, the peso again will be the region’s worst performing currency.

On the stock market front, the "hot money" investors that have been fueling the recent up-tick will start cashing in profits and wait for the market to bottom-out before starting another bargain-hunting cycle. According to analysts, the selling out has started to pull down the stock index by five per cent; more than $2 billion of market capital had been wiped out since the controversies started.

No Easy Way

While the petition filed before the SC simply questions the legitimacy of the EVAT law in allowing the President to raise the VAT charges to 12 percent in 2006, there are more fundamental problems with the move to widen the VAT net as provided in the suspended law.

The original VAT law as approved five years ago continues to be criticized as having too many loopholes. Collection inefficiency has reached an all-time high of 70 percent from 57 percent in 2002. Assuming that half of a gross domestic product (GDP) yardstick of P4 trillion is subject to 10 percent VAT, collections should amount to P200 billion. But since the collection rate is only at 30 percent, that means that the bulk — or P180 billion — is not being remitted to the government.

Clearly, if the government would just focus on ensuring that all VAT assessments are properly collected, there would be no need to widen the VAT net to include the power and petroleum industries. In fact, if the Bureau of Internal Revenue would just go after tax evaders (consistently as vigorous as being demonstrated now by Commissioner Parayno and his team), there would be little need to impose additional taxes.

Clearly, our lawmakers and bureaucrats have opted to take the easy way out of the government’s fiscal problem by relying on increased tax collections from the VAT on oil products and power. For them, it was easier than plugging the leaks and making the collection process more efficient.

Volatile Mix Of Politics And Economics

The SC’s temporary injunction spares consumer of higher electricity rates, increased prices of petroleum products, and hiked transportation fares. Simulations showed that consumers within the Manila Electric Co. franchise area would have to shell out an additional P0.56 per kilowatthour, or P168 more for a regular household with a monthly consumption of 300 kilowatthours.

At a time when crude oil is hovering at $60 per barrel and local pump prices are at their highest ever, businesses have enough reason to predict a slowdown in the economy in the next few years.

Heck, even as the whole world is bracing for tough times. The last thing a developing economy like ours needs is the volatile and compounding effect of new taxes and the political instability spawned by a discredited electoral process.

While others will say that there goes the SC ruling again on an economic issue, I’m not complaining about their latest decision. At least we poor consumers are granted some relief.

I just fervently pray, however, that this reprieve would not be temporary. I hope that after all these distractions, our leaders find time to address the deficit problem by putting in place a more imaginative and aggressive economic plan that will pump resources to encourage more economic activities, rather than bleed and soak dry the economy by extracting more taxes.

But of course, we have to be brave enough to face our tough creditors.

Pagcor Promotes Non-Wager Poker Tournaments

To demonstrate that it is not just into gambling games like blackjack, baccarat, and pai-gow, PAGCOR recently joined hands with the Poker Club of the Philippines to promote non-wager poker tournaments. Dubbed as the "Poker King Challenge Series," these non-wager tournaments provide the opportunity for poker game enthusiasts to pit their probability analysis and psychology skills at minimal tournament fee.

The competition is now on its 2nd leg, with four more leg tournaments before the Grand Finals scheduled at the end of the year. Watching a non-wager poker tournament is just like watching chess games where participants try to outsmart each other making use of fast analysis of probabilities and risks, and keen observation of your opponents’ body language. See for yourself on Saturday, 9th July 2005, 1 p.m. at the Airport Casino Filipino the semi-finals and finals of the 2nd leg. The Poker Club of the Philippines is also inviting poker enthusiasts to visit www.PokerClubofthePhilippines.com for more details of club activities.

The promotion of non-wager poker tournaments and other PAGCOR programs will be discussed as Breaking Barriers on IBC-TV13 (11 p.m. every Wednesday) features on Wednesday, 6th July 2005, PAGCOR President Francisco "Butch" Francisco. Watch it.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.