With EVAT, workers eye wage increase

With the temporary restraining order (TRO) on the implementation of the expanded value-added tax (EVAT) law due to expire, workers are now contemplating its possible effect on their take-home pay and considering a demand for an immediate wage hike.

The moderate Trade Union Congress of the Philippine (TUCP), the country’s biggest labor confederation, said workers might be left with no option but to seek wage adjustments unless the government comes up with measures to lessen the impact of the EVAT on prices of petroleum products and electricity.

"The coverage of oil and electricity would result in a regime of high prices and force workers to demand for more wage adjustments," TUCP spokesman Alex Aguilar said.

He pointed out that, currently, many workers can hardly make ends meet and the price hikes likely to result from the EVAT imposed on fuel and electricity will put a further strain on their finances.

Aguilar said oil and electricity account for a substantial portion of production costs, particularly in the manufacturing and food sectors, and could eventually force employers to retrench workers or simply shut down.

However, Aguilar said workers are willing to defer plans to seek a salary increase if the government would exclude socially sensitive consumer products from the EVAT coverage.

He said the suspension of the EVAT implementation on oil and electricity could be achieved by Congress through legislation while the other provisions of the law remain in effect.

The Supreme Court ruled on Thursday that Republic Act 9337 or the EVAT law is legal "in its entirety" but did not lift the two-month-old TRO on the implementation of the controversial tax measure.

‘Bitter Pill’

The business community and the tourism sector, meanwhile, expressed support for the EVAT, which they said is necessary to restore the country’s economy to its feet.

Lawmakers also lauded the Supreme Court for upholding the legality of the EVAT.

But Sen. Francis Pangilinan said the EVAT is a "bitter pill we need to swallow," likening the country to a patient who needs to take medicine dispensed by a doctor he may no longer trust.

"The looming fiscal crisis has been compounded by the crisis in leadership. Until we get out of the current political stalemate, we all suffer," he said.

Tarlac Rep. Jesli Lapus and Eastern Samar Rep. Marcelino Libanan, however, proposed that a package of "emergency tax and administrative measures" should be put into place to cushion the impact of surging oil prices.

Lapus urged President Arroyo to remove the five-percent duty on oil under the EVAT.

"The (oil) industry should be closely supervised and sanctioned (considering it’s) the savings from the repeal of franchise tax of power distributors, the removal of gasoline excise taxes and other subsidies," Lapus said.

The lawmakers stressed that with the unmitigated oil prices hikes, the "executive department must adopt immediate, albeit temporary, measures to mitigate consumer prices of petroleum products and power."

Libanan said the country would now be ready for recovery following the Supreme Court ruling on the EVAT.

He said the ruling was a vindication of the government’s efforts to boost revenue collection, which means the "President’s economic and tax reforms have been on the right track all along."

Libanan said Congress should now focus on legislating measures to cushion the impact of the EVAT.

‘Timing Is Terrible’

Even with the Supreme Court ruling in favor of the EVAT law, the government is faced with a more difficult task because soaring oil prices are putting pressure on inflation and hurting the poor, problems which could worsened by an increase in VAT from 10 to 12 percent next year, a provision of the EVAT law.

An analyst at Standard & Poor’s, one of the credit rating agencies that downgraded the Philippines in the wake of the VAT suspension on July 1, said the Supreme Court ruling would not warrant an immediate upgrade.

SP credit analyst Agost Benard said it remains to be seen whether the government will implement the new law in its entirety given the political crisis still confronting Mrs. Arroyo.

"We have yet to see how the law is going to be implemented, how much revenues it would generate and how these additional collections would be spent," Benard said.

He stressed that his agency’s downgrade on the Philippines’ credit rating was due more to political uncertainties caused by the widespread clamor for Arroyo to be removed from office over electoral fraud allegations rather than the EVAT suspension.

INGBank in a note to clients said the decision was a major victory for Mrs. Arroyo but warned the real test will come "when the painful measures must be implemented," such as higher taxes on politically-sensitive oil products.

Fears of higher prices have been stoked by soaring crude oil prices, which have le to higher pump prices almost weekly.

"The inflationary effects may be felt by consumers after three months," said Gomer Tan of Regina Capital Development Corp.

"Revenues will definitely increase and it will improve investor confidence," Tan said, but politically the new EVAT provisions could hurt Mrs. Arroyo.

The law "has both short- and long-term impacts," Jose Vistan of AB Capital said, with the economy having to take "one step back (to) move two steps forward."

Implementing the EVAT law now, alongside higher oil prices, will not look good politically, Vistan said.

"The timing is terrible... but we must show the international community that we have the political will" to take the unpalatable but necessary steps to put the economy on track, Vistan said. — With Delon Porcalla, AFP