Sunday, September 30, 2007


Given that Malacanang has a great number of allies in the Congress it is understandable that there are a number of supporters for the new EVAT law like House deputy speaker for Mindanao Gerry Salapuddin who is very much optimistic with the results of this law and said that “the strength gained by the peso and the stock market recovery are the initial positive effects on the economy of the EVAT law. Salapuddin noted that the new tax law's longer-term impact is more economic opportunities for Filipinos. However, he cautioned that this would hinge on the government's ability to effectively implement EVAT and other taxes, and thus sustain the financial market's renewed confidence.” Antique Representative Exequiel Javier on the other hand is also optimistic of the EVAT law but know that it does not simply end with the implementation of this law but says that other measures should also be undertaken for its effective implementation. “Let us take advantage of this optimism from the EVAT to work for its efficient implementation. We must follow through with better tax collection efficiency if we are to build this positive response into a sustained economic uptrend".

Still there are those people in government who are ambivalent to what the EVAT could do to our economy and to the society and still there are those who directly oppose this law. Albay Representative Joey Salceda, chairman of the House committee on economic affairs, is one of those who oppose this law saying that the DOF was being insensitive to the plight of the poor in maintaining its stand on slapping the EVAT on the energy sector. Salceda likened the possible devastation to the economy brought by the EVAT law to the wake of destruction left by Hurricane "Katrina" which struck New Orleans in the United States “Given the escalating food prices, transport fares, water rates, electricity tariffs, gasoline pump prices, LPG (liquefied petroleum gas), and kerosene even before it (the EVAT), DOF’s callous insistence on oil and power combined with the Department of Labor and Employment’s pronouncement of no wage hikes makes the specter of a New Orleans a very real risk”. The Justices of the Supreme Court on the other hand has been ambivalent when it comes to the EVAT law and they think some of the provisions within this law are unconstitutional but still none of these provisions received the eight votes needed to declare it unconstitutional. An example would be Associate Justices Reynato Puno, Consuelo Ynares Santiago and Romeo Callejo Sr. who voted to dismiss the petitions questioning the standby powers granted to the President, saying they were premature. Furthermore, Associate Justices Angelina Sandoval Gutierrez and Renato Corona believed Sections 4,5, and 6 that granted these powers are unconstitutional. Also, Chief Justice Hilario Davide, Jr. and Associate Justices Artemio Panganiban, Sandoval Gutierrez, Adolfo Azcuna and Corona said Sections 1, 2 and 3, dealing with income tax rates, were unconstitutional.

When it comes to the banking and financial sector there seems to be more optimisim with regard to the economic gains the EVAT law could bring although they fear that the poor might be severely affected with this new law unless the government places safety nets for the protection of the poor. Institutions like the Asian Development Bank and the International Monetary Fund were one in cautioning the government against possible loopholes in the system that may dilute the projected gains from the EVAT law. World Bank manager Joachim von Amsberg urged the Philippines to stay the course with the tax measure, saying it is "quite desperately needed to bring financial health back to the Philippine state."

Looking at the private sector again we see two kinds of reaction with some saying that it would not be beneficial to our economy and some saying that it is much needed by our country. The Philippine Chamber of Commerce and Industry which conducted a survey among its members regarding their outlook with this EVAT law and the Philippine economy and the rusts said that only 8% said that they think this new tax measure would improve the business conditions in the country, also the respondents are more concerned of the political crisis this law might produce having 7 out of 10 respondents saying that the political turmoil has disrupted their business operations. The American Chamber of Commerce supports the EVAT in principle but would like to raise some points to be considered by everyone involved:

A. The E-VAT is not a new system. It merely expanded the coverage of the 10% VAT which has been with us for more than 8 years. The VAT is a well tested system and has work efficiently in the European Union and in Asian countries like Korea and Taiwan. Indeed, countries in the Asia Pacific Region are moving towards VAT or a similar system.

B. VAT, if properly implemented, should simplify tax administration since VAT has replaced or is intended to replace all various kinds of excise and percentage taxes, which with different rates and tax basis would be difficult to administer, such as caterer’s tax, carrier’s tax (on goods), franchise tax, lending investor’s tax, and non-life premium tax. In terms of tax administration, the Government can thus, direct its enforcement resources only on two major taxes-income tax and the VAT.

C. The E-VAT should not, by itself, be the basis of the increase in the prices of commodities. From reports, it appears that stores and markets have jacked up the prices of basic commodities. Agricultural and marine products, in their orginal state, were exempt under the old VAT and continue to be exempt under E-VAT. Most of the basic manufactured food products are subject to VAT before, so the E-VAT should not cause any drastic increase in their prices. For example, under the E-VAT, freight for the transport of goods (freight for transport of persons is still VAT-exempt) is now subject to VAT. If the carrier will pass on the 10% VAT to the seller of these goods, it should not cause any significant increase in the latter’s prices. If the E-VAT is neutral in its application, in the sense that it should not result in lower or more income to the seller of goods or services, the carrier should take into account that before E-VAT, it was paying 3% carrier’s tax on its gross receipts without any credit for VAT paid on its purhcases of spare parts, etc. (the so-called input VAT); now, the 3% tax was replaced by the 10% VAT based also on its gross receipts but with an input VAT credit.

Furthermore, to the extent that the taxpayer has sufficient output VAT against which the input VAT on previously VAT-exempt transactions can be credited, the E-VAT should not result in additional costs to the taxpayer. To illustrate, rentals of real property were previously VAT-exempt but are now subject to the 10% VAT under the E-VAT Law. If a trader’s monthly gross sales is P10M and assuming he has no input VAT, he is liable for VAT of P1M. If the trader is leasing business space for P500,000 a month, under the old VAT, the rental is VAT-exempt. Under the E-VAT, the rental is subject to a VAT of P50,000 which the lessor will pass to the trader. The trader, in turn, can deduct as input tax the P50,000 from his P1M output tax. He pays the BIR only P950,000. Thus, effectively, no additional cost should result to the trader.

D. It is unfortunate that seller of goods and services have used the E-VAT to increase their price either because they do not understand how the VAT works or they deliberately used it to generate more income when the E-VAT is intended not to result in lower or more income to the seller.

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