No VAT, no glory

Damned if we do, damned if we don’t! That is where we are today. Never in the history of this country have we reached this low point in our financial picture where we now have to pay for all the sins that have been committed over the past 50 years. The wages of sins of commission and omission have finally caught up with us. We can blame everyone, past presidents like Quirino, Marcos, and Erap, including our neighbor’s dog but the reality is – this is where we are today and if we don’t do anything about it the price we will pay is unimaginable. The Argentina-like scenario is like a Christmas party compared to what can happen to us because we have more people today living in this country below the poverty line. The inescapable fact is our numbers will hit 100 million within the next eight years.

The senators and the congressmen can argue till kingdom come whether the additional 2 percent VAT is good or bad but the bottomline is: Do we have a solution to our financial crisis or not? Pardon my German but - VAT else can we do? The economic indicators today are good but that is only because there seems to be signs of our trying to solve the crisis. The peso was able to breach the P54-to-$1 mark last week, the highest in more than a year. CALPERs or the California Public Employees’ Retirement System retained its $85-million worth of investments in the country. Moody’s even hinted that the Philippines could get an upgrade with improved investment and political environment, as well as better tax administration and revenue enhancement. The Philippines even posted a robust 6.1 percent growth in its GDP last year, the highest since 1996. No one can argue that political will can get our financial house in order because the signs of an uptick in the economy are there. Some even project that stock market activity will double or triple within the year and that investments will finally start coming in. What surprised many is the fact that the Philippine stock market was adjudged the second best-performing in East Asia next to Indonesia, and besting Singapore, Thailand and China.

The opening of the mining industry is a great move to pump-prime the economy tremendously. All of these positive developments are welcome but at the end of the day the challenge will be in the implementation of economic reforms. In a dinner for a small group of people hosted by businessman Michael Escaler for Cesar Purisima the incoming Finance Secretary, Cesar explained to us the importance of the VAT and how we need to raise revenue. He said that all businessmen have to pay their taxes and that he wants to go after those who don’t pay taxes and make them an example. He wants to hang them but not literally, though. These are all great plans but we could end up biting off more than we could chew. What we need to do is to apply a quick-fix solution at the moment. And it seems to me that the only way to raise revenue at this time is to increase the VAT unless some smart guy has a better solution. We really need to concentrate on where we want to go. Making a sample of everyone is great, but first and foremost government must be able to show to the public, especially the taxpayers, that money is being spent properly and corruption is being curbed. The bottomline is people just don’t trust the government because they believe that their taxes go to the wrong pockets. This has been embedded in their minds for so many decades which is the reason why Filipinos love to play the game of palusutan and that is to make palusot on their taxes. The big fish want to be exempted from VAT too. VAT a way to go!

In most countries, death and taxes are inevitable. In this country, only death is inevitable and taxes are questionable. This is the classic Catch-22. Government, obviously, has to extract more money to be able to afford more services. And I have told this to a lot of my Chinese businessmen friends during the height of the kidnapping spree that the reason why they were getting kidnapped is that they have to pay backtaxes. Literally, paying through the back in the form of ransom. But another emerging problem in the country today is the growing strength of the NPA. Our friend Edno Joson told this to me at a US Embassy event. Edno, is a former congressman of Nueva Ecija, a known NPA stronghold. He has set up the Kilusan ng Bagong Demokrasya (KBD) as a non-violent grassroots alternative to the NPA. In fact, SGV Partner Manny Reyes told me the other night also that Bulacan, which is only 10 miles out of Manila, is already an NPA stronghold. This disturbing trend is driven by extensive poverty, the lack of jobs, and a fast-growing population.

Those who are batting for the passage of the VAT point out that the two percent increase will give the country additional P34.9 billion to P50 billion in revenues and could halt an impending fiscal crisis. It will also strengthen the peso and move it closer to the P50-to-$1 level. Moreover, the income it will generate for the government could significantly narrow the budget deficit. It will enable the government to deliver basic services such as education, housing and medical assistance, among others. Against it are those sectors that are only protecting their own interests by lobbying for exemption. They argued that imposing a two percent increase on the VAT will only hurt the poor more because the burden will be passed on to them. Maybe they are right but this is only for the short-term. To shield the poor, Mar Roxas’ proposal for a sunset provision that will allow a cut back on the VAT when our financial situation stabilizes is a good idea. A lot of people like myself think that the VAT can start off as a top-of-the-line measure for luxuries then it can move down to individuals if its implementation proves to be successful.

Time is of the essence in getting this bill passed on time. Cesar Purisima feels that it will take the political will from all sectors of society to enable the VAT to alleviate our financial situation and finally begin the process of solving it. No VAT, no glory - and it doesn’t necessarily mean no Gloria - It only means we will never see the kind of glory we want for this country.

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