No escaping VAT?

Unfair taxation and improper use of taxes have helped trigger revolutions. But President Aquino and his revenue collection team already know this.

While Malacañang said the other day that the 12 percent value-added tax on road toll is on hold, it doesn’t look like the administration has given up entirely on the plan. Its tack: to present the toll VAT as a bitter pill that we must inevitably swallow, the sooner, the better. Haven’t we been told often enough that there’s no escaping death and taxes?

It does make sense to ram bitter pills down a nation’s throat at the start of a new administration, when there’s still an abundance of hope and the public is willing to give officials the benefit of the doubt.

So far, however, the toll VAT is coming down simply as bitter, and I’m not sure it’s seen by the average Pinoy as medicine for anything at all.

What people remember is the campaign promise of no new taxes, read his lips. Even if Revenue Commissioner Kim Henares emphasizes till she’s blue in the face that this is no new tax and her bureau is simply implementing an existing but unimplemented one, we’ve never had a VAT on road toll so it certainly looks new to us.

Explaining to the public why a tax has to be imposed is always complicated. Multilateral institutions and economic analysts have noted that one of the biggest headaches of the new administration is the country’s huge deficit. In its final six months, the Arroyo administration incurred a P196.7-billion deficit, exceeding the target by P51.6 billion.

Without additional revenue, the government is forced to borrow to finance its operations and projects, including anti-poverty activities. Increasing our already massive debt could push up interest rates and dampen economic activity. But try explaining this to the average Juan or Juana and the reaction you’ll get is, “Why are prices going up?”

Trying to explain the difference between a tax on goods and a tax on services is also lost on people who see a road toll as a tax, plain and simple, and VAT on the tax as double taxation.

It does not help the cause of the Bureau of Internal Revenue (BIR) that this is the position taken by several legislators who are perceived to know their tax laws.

Maybe P-Noy and his team should make a stronger case for the need to raise revenue ASAP because the previous administration has used up nearly all of the appropriation for 2010, and it’s only August.

They can also keep reassuring the people that in the new administration, taxes will be money well spent, without tong-pats, and without public officials taking credit for state-funded projects.

And still they will be confronted with people who only see the bitterness in this pill, without the promised cure.

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Selling this tax to the public could have used some finesse. There are two principal complaints against it. One is that a 12 percent jump in toll rates is too much, too soon in a new administration.

The other is that if we are going to have new, or even newly implemented or newly tweaked old taxes anyway, why not restructure excise taxes on sin products such as cigarettes instead, and raise up to P51 billion? This is what multilateral financing institutions have been suggesting for a long time.

A tax of P90 per cigarette pack, as reportedly suggested by the new secretary of health, may be a bit too much. Everyone, after all, is entitled to his own poison. But excise taxes on sin products are real bitter pills, good for the health at least of those for whom price matters in maintaining their vices. 

On the other hand, what’s the impact of the toll VAT? Merchants and transport operators have already said it would mean higher transportation fares, which would lead to higher consumer prices.

Taxpayers may actually be able to swallow this bitter pill, as suggested by P-Noy, but swallowing would be easier if his administration would do other things first.

Reports earlier this year showed that the country’s biggest taxpayers are entertainers. How is this possible, with all the billionaires in our midst?

The perception of ordinary taxpayers is that billionaires save a fortune by simply contributing to politicians’ campaign kitties instead of paying the right taxes.

If the government collected the right taxes from the tiny fraction of the population that controls the nation’s wealth, would it have to slap a 12 percent VAT on road toll? To many ordinary taxpayers, it seems several administrations have found it impossible to collect the state’s due from large taxpayers, preferring instead the lazy route of collecting from a captive base.

Back taxes alone from a businessman perceived to have successfully laundered smuggling profits over several administrations could be substantial in narrowing the yawning deficit. The businessman was widely believed to be behind the smuggling of some 40 shipping containers of dressed chicken through the Batangas port. Is he still at it, and has he found new patrons at Customs? Can the BIR compel him to pay up?

Public resistance to the toll VAT is also aggravated by the real prospect of seeing even higher toll rates in the near future, as tollway operators also want to increase their rates.

The VAT proposal has derailed the plan of operators to raise rates by a whopping 277 percent at the South Luzon tollway. But that increase is expected to be imposed eventually.

Ordinary people usually pay taxes with resentment. This is eased somewhat when they see that tax money is being spent wisely.

P-Noy is prepared to show that his administration will spend public funds judiciously. But first he needs to raise funds to finance his projects. Can he do this without the toll VAT? 

This controversy will boil down to how much public goodwill he is prepared to risk so early in his presidency.