Defend VAT

Taxation is never popular. But it is indispensable for governments to do its work and provide for the public good.

Value-added taxes (VAT) are especially unpopular. But this form of taxation has proven more reliable than others. In our case, VAT has provided a base for anticipating the flow of government revenues. It takes away much of the uncertainty over government’s ability to meet its revenue goals.

VAT was unpopular when it was introduced. It was even more unpopular when its coverage was expanded to provide a more secure “floor” for public revenues. Although unpopular, VAT won us a certain amount of fiscal certainty that opened the door to improved credit ratings, lower rates on the public debt and better footing for our economic forecasts.

VAT has been the single most important revenue instrument that rewarded us with cheaper debt, better fiscal management, investor trust and a more stable currency exchange rate. With VAT, the country was able to achieve sustained growth rates, larger infra investments and better public services over the past two decades.

For VAT to be effective, however, it must be a complete system that captures all transactions and collects the appropriate tax from each. It is intended as a closed net. Any exemption from the VAT system weakens its reliability as a revenue source.

Politicians, however, have made a cottage industry out of poking holes in the VAT system, introducing exemptions to the measure, in aid of raising their political stock. The populism that our politicians are heir to weakens the revenue measure that brought us fiscal stability. This threatens to collapse the VAT system and, consequently, our fiscal stability.

When oil prices spiked as a result of the war of aggression against Iran, one up and coming politician tried very hard to improve his political stock by warring against VAT. He pushed for legislation to exempt all fuel products from that VAT system. If he had his way, government revenues would have collapsed and forced us to incur unsustainable debt.

Batangas congressman Leandro Leviste was so bent on earning political brownie points, he transported some of his constituents to hold rallies before Congress after most of his colleagues ignored his fiscally irresponsible crusade.

Leviste’s crusade would have jeopardized government revenues, thereby limiting targeted social subsidies during the period when prices were at their peak. We would have incurred such debt that we could not service without sacrificing future growth.

Fortunately, most of our legislators did not buy into Leviste’s dangerous anti-VAT crusade. He was, after all, the man who benefited immensely from a solar energy super-franchise that he did not deliver on – and for which he was fined a whopping P244 billion.

Recourse

Lawyer Manases Carpio, husband of Vice President Sara Duterte, had no other recourse but to file criminal cases against Bangko Sentral ng Pilipinas and the Anti-Money Laundering Council (AMLC) for violation of the Anti-Money Laundering Act and existing bank secrecy laws. This will be a watershed case.

The justice committee of the House of Representatives, we would recall, issued a subpoena for the banking records of the Vice President – and, by extension, those of her husband. The couple’s banking records were then made public in the committee hearings purportedly held to establish the basis for advancing the impeachment complaint against Sara.

We saw this sort of cheap financial voyeurism happen before. As part of the impeachment trial of former Supreme Court Chief Justice Renato Corona, the ombudsman revealed the AMLC’s report of the defendant’s banking transactions. The sum of all debits and credits in Corona’s accounts were simply added up to (of course) produce a shocking total that unfairly condemned the magistrate in the court of public opinion. This was all part of an intense defamation campaign to achieve the partisan goal of unseating Corona.

Corona, with some help from the controversial Disbursement Acceleration Program, was indeed found guilty in the Senate trial and deposed. Publishing the AMLC records played a role in the political propaganda assisting what history will remember as an unfair procedure. The courts eventually found nothing criminal in those banking records. But it was too late to save a career and, effectively, a life.

As in the Corona case, the Vice President is now the subject of an intense defamation campaign with the end goal of preventing her from contesting the presidency in the next elections. Once again, the ruse of producing the simple total of bank transactions is used to abet the campaign of defamation. It will be noted that the House justice committee did not reveal the net of those transactions now the nature of the debits and credits. The objective was merely to defame.

The lines need to be clearly drawn on using AMLC data for purposes of mere defamation. Otherwise, such data will continue to be weaponized by intellectually dishonest political operators.

Only the courts can draw those lines. Guardrails need to be established for the partisan use of AMLC information. Bank secrecy laws need to be upheld. Otherwise, confidence in the integrity of our banking system will be undermined – with grave consequences for the economy.

Banking records need to be protected from petty political play.