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Thursday, November 03, 2005
Value-added tax effects can prove 'ruinous'
By Grecar Nilles
CEBU CITY -- For the "ruinous consequences" of the Reformed Value-Added Tax (RVAT) law, blame the judiciary, a Supreme Court (SC) justice said.
In his dissenting opinion, SC Associate Justice Dante O. Tinga pointed out that tax statutes may be invalidated if they pose a "clear and present danger" to the lives and property of citizens.
Shares hit an 11-week high Wednesday, as investors cheered the implementation of the long-delayed tax law, a key measure for the government to raise revenues.
Finance officials have also downplayed the RVAT's possible effect on prices, pointing out that rice, fresh unprocessed meat and vegetables, house rentals below P10,000 a month and tuition remain VAT-exempt.
But Justice Tinga said that majority of the SC justices who voted to uphold Republic Act 9337, or the RVAT, missed the point.
They failed to consider the motion for reconsideration raised by several sectors, just because the arguments they raised were "theoretical, conjectural and merely anticipatory."
"I do not share the majority's penchant for awaiting the blood spurt before taking action, even when the knife's edge already dangles. In the enforcement of the constitutional rights of all persons, common sense expectation is that the (SC), as guardian of these rights, is empowered to step in even before the prospective violation takes place," Tinga said.
He contends that the issue on the 70 percent cap on output tax for retailers and dealers assumes that "all income earned by private persons preternaturally belongs to the government, and whatever is retained by the person after taxes is acquired as a matter of privilege."
Prior to the implementation of the RVAT, there was no cap implemented on VAT-registered businesses.
'Penalty'
Under the new setup, however, businesses will have to make sure that their input tax (the tax incurred during purchase of raw materials) does not exceed 70 percent of the output tax (the 10 percent tax that you pass on to buyers of your goods).
At present, all businesses report to the government quarterly and pay VAT-subtracting the VAT of their input tax from the output tax.
If the company's input tax is lower than 70 percent of its total output tax within a quarter, then the company can claim the excess of its VAT transactions and carry this over to the following quarter.
However, when a company's input tax exceeds its 70 output tax, the company will end up paying more to the government.
"The VAT therefore excessively penalizes businesses with low margin (small value-added). Because of the cap, effectively they are slapped a higher rate on their value-added. This is distortionary and reduces economic efficiency. The VAT should be implemented in its original form. Any cap (to curb cheating) should be set close to 100 percent," said economist Roehlano Briones.
End-user
Justice Tinga also said the RVAT law "squarely holds" the end- consumer as the taxpayer liable to shoulder the VAT.
"Under the new (RVAT) law, there is precisely a legislative recognition that it is the end-user, not the seller, who shoulders the (RVAT)," Tinga said in his dissenting opinion.
He said that no less than Finance Secretary Margarito Teves expressed concerns about the 70 percent cap, saying that it may not work with all industries because of varying profit margins.
He said the SC's opinion to just leave it to the legislators to amend the law was an abdication of the High Tribunal's constitutional duty.
"I hesitate to say this, but there will be confusion, instability, and multiple fatalities within the business sector with the enforcement of the amendments of the (RVAT) law. It could have been stopped through the allowance of the (petroleum dealers') petition, but regrettably the court did not act," Tinga said. (Sun.Star Cebu)
(November 3, 2005 issue)
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