‘Katas ng VAT’ Covers up How Largest Part of VAT Revenues Do Not Go to Social Programs

Press Statement
IBON Foundation, Inc.

The administration’s “Katas ng VAT” is a pretense to cover up how the largest part of reformed value-added tax (RVAT) revenues do not go to social programs but rather to paying off debt, militarism and political patronage to prop up Pres. Gloria Arroyo’s unprecedented unpopular rule.

The so-called pro-poor subsidies also do not mean any lasting effect for the people who suffer record joblessness, rising prices and worsening poverty.

The government deceitfully lumps together the share of social services with infrastructure in RVAT revenues when it reports on the share going to social programs to make these appear larger than the reality. The government claims that 40% of RVAT revenues in 2008 will go to “social services and infrastructure” but it is still unclear how much will really go to social programs.

For instance the Department of Finance said that, in 2006, “30% or P23.5 billion (of additional RVAT revenues) went to social and infrastructure expenditures”. However the actual amount that went to social services was just P8.4 billion: health programs (P2.7 B), resettlement and housing programs (P2 B), educational & training programs (P1.9 B), hunger mitigation programs (P1.8 B). This means that only 11% of additional revenues from RVAT went to social programs.

The administration’s lack of concern for social programs is even underscored by how it is not even using the whole amount of windfall RVAT revenues due to high oil prices for supposedly “pro-poor” programs. Based on the administration’s announcements on the “Katas ng VAT” so far, only P9.3 billion or just half of the estimated P18.6 billion in windfall RVAT revenues is going to subsidies. This leaves another P9.3 billion unaccounted for inasmuch as another P2 billion in “subsidies” that had been hyped are merely loans that still have to be repaid.

Indeed, the administration has yet to fully explain where its massive windfall RVAT revenues are going which can only stoke suspicions that this is going to corruption and building a political war-chest for the 2010 elections or even a renewed Cha-Cha campaign.

In contrast the administration still insists, in the face of the people’s worsening problems, on allotting some 24% of the national budget to interest payments on debt. The government is paying P634 billion in total debt service in 2008 covering interest and principal payments. Pres. Arroyo also said earlier this month that the government is using RVAT revenues to “finance much of (the military’s) modernization” and that it “has been able to set aside billions of pesos for the purchase of new helicopters”. The Capability Upgrade Program (CUP) of the Armed Forces of the Philippines (AFP) alone already has P5 billion allotted for it this year even as the economic plight of the people is more urgent.

The Arroyo government is running out of excuses to justify the continued imposition of the VAT on socially sensitive products such as oil. Pres. Arroyo has to heed to the people’s clamor to remove the VAT if she wants to reverse the perception that her SONA speeches is a simply a litany of meaningless promises.

IBON Foundation, Inc. is an independent development institution established in 1978 that provides research, education, publications, information work and advocacy support on socioeconomic issues.