This is a re-posted opinion piece.
The Philippines did it again—fell in an international ranking. This time it is the World Bank’s Doing Business Report.
The country fell from 134th to 136th out of 183 countries; there’s not much further to fall. Thailand, which I’ve always considered the most comparable country to the Philippines was, get this, 17th. 17 vs 136!
I’m not going to bother to say why, or what needs to be done. I’ve been doing it for over a quarter century, and nothing has changed. Every administration says it recognizes what needs to be done, promises to do it, then nada. Nothing is done. Oh, a few things under Ramos, he at least did get some action. But overall, the faults known in the 1980s are the faults known today.
So I ask this administration just one thing: Are you going to act?
ARE YOU GOING TO ACT? That is the only question to be answered. President Aquino, your answer please. Because I sense a level of frustration among businessmen and women who want to grow faster and more cost-effectively, but can’t because the supports are not there.
They retain a high level of confidence in the President and are strongly behind his call for honest dealings. But it must go beyond that. Business needs infrastructure and a fast-acting, simplified bureaucracy.
There’s much, much else, but those three things would be enough for now. But they must happen, not just be promised.
Over the past 30 years spending on infrastructure has been a miserable 3.1 percent of GDP versus the Asean average of 6 percent. The budget for 2012 is even worse, not better, allotting only 2.4 percent to building infrastructure. Virtually no better than this year’s 2.3 percent—it’s just not enough.
It has to be at least at the regional average. If this government truly wants to address poverty by creating jobs (the only real solution to poverty) it should be spending no less than 6 percent of GDP over the next five years to just begin to catch up.
Efficient, comprehensive infrastructure systems that get people and goods from one place to another quickly, and provide competitively priced electricity, coupled with an honest bureaucracy where simple and transparent processes exist would work wonders for the creation of wealth in this country. The world would, finally, take notice.
Contracts and commitments must also be honored. Where a previous administration’s deals are questioned, they must be investigated and resolved, and resolved very quickly. No one disputes that dishonest contracts should be cancelled, but this must be decided in weeks, not months, let alone years.
We all fully support the President’s “Kung walang corrupt , walang mahirap” (no corruption, no poverty). But it’s not sufficient in itself. Reducing, even eliminating corruption will not of itself bring people out of poverty. You must have infrastructure. Secretaries Manuel Roxas II, Rogelio Singson and Jose Rene Almendras are the key people today. They must build.
There’s one international ranking where RP does well though, and that’s on equality of the sexes (it’s good to know men are finally catching up). Eighth in the world is remarkably good, and is what comes from what is one of the freest, most open democracies in the world. The Philippines has had two women presidents in recent times (We may have wished it were only one, but that’s another story), the US has had none.
And there’s another where there was some, albeit it slight, but any improvement brings a sigh of relief, improvement. And that’s in the quality of life as measured by the U.N. Human Development Report. Mind you it’s an improvement from well down the scale, and still leaves the country far behind where it should be. 112th out of 187 countries lumps it pretty much in the bottom one-third. Nothing to be too proud of, it’s instead a call for government to work harder.
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Value-added tax on tollways has aroused much argument on not only taxing expressway tolls but on VAT itself.
Let me start with the tolls. Can someone please explain to me why they should be exempt? What’s so special or essential about tolls that they should be tax-free? I can think of lots of things that are more necessary that ought to be exempt before tolls are even considered. For instance, basic food items, medicines, basic health care services and, maybe, electricity. Tolls should be taxed just like everything else.
Then there’s VAT itself. I saw one article that said the government only gets 3 percent of the 12 percent while the toll company gets the rest. Not true. VAT is “Value Added Tax”. It’s a tax not on the selling price but on the difference between the buying price and the selling price. And is applied at EACH STEP.
A manufacturer of wire pays, let’s say, P100 to buy copper and the insulation materials, he spends P50 on salaries, P20 on electricity, and so on. Let’s say another P100 so his total operating costs are P200.
He then sells the copper wire to a wire harness manufacturer for P250.
He pays 12 percent VAT on the gross value of P250, or P30, but he can deduct from this payment the VAT on inputs, which is P24 (assuming all inputs are VAT-able), so the net VAT he pays is P6.
The wire harness manufacturer has operating expenses of P100. He adds that to his cost of P250=P350. He then sells the harness to a motor car company for P400.
He pays a net VAT of P6 (P48 for gross VAT on the P400 sales, less P42 input VAT for the costs and expenses of P350).
The car manufacturer puts the harness in a car plus everything else. He ends up with costs that include that harness. He applies a margin of 20 percent to his car, which includes the harness. So 20 percent of P400 is P80. The selling price of the harness in the car is P480.
His net VAT on the selling price is P9.60 (12 percent of P480 or P57.60, less P48 input VAT on the wire harness and other inputs worth P400; or, alternatively, 12 percent of P480 selling price less P400 costs and expenses).
So the total VAT paid to the government is P6 + P6 + P9.60=P21.60, and not just P14.40 or 3 percent of the harness in the car price that others claimed to be the only amount that goes to the government.
Overall the government gets its VAT, but at each step. The idea is to catch the cheats there being a gap in the steps if VAT wasn’t paid. This doesn’t happen if it’s a gross sales tax—a major weakness of GST. A gross sales tax allows the middlemen to cheat, and be very hard to find. VAT identifies the middlemen and makes cheating more difficult.
It’s a theoretically clever system, but needs full computerization and effective investigative personnel to work successfully. It’s also good because you pay when you spend, not when you earn —a much fairer thing to do. So surely the answer is not to junk VAT, but to make sure it works.
I, in fact, would like to take it a step further—and increase VAT. Increase it to 20 percent. Now before you scream I’d like at the same time to greatly reduce personal and corporate income tax. Surely it’s much more sensible, and fairer (to us) to pay when you spend not when you earn. The rates would be set to be net neutral, that is government would generate the same revenues, but in a different format.
There’s the added advantage that you have a larger pay check and can actually save some money. And given the very low saving rate in the Philippines, that wouldn’t at all be a bad thing.
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You have to be careful with English if you are not to be misunderstood or do the authors not understand? The Philippines did not get 4 rating upgrades. It got one upgrade from 4 different agencies. Still good, but vastly different.
Suddenly the Philippines wasn’t performing better because of a 10 notch upgrade by the World Economic Forum (WEF) (the ranking before was 85 shifting to 75 this year), 6 countries fell automatically raising the Philippines those 6 notches. The real measure of whether the country improved, or not, is not ranking but score. And there it did poorly, there was not such change—a mere 0.12 points, while its more developed neighbors Malaysia and Singapore saw theirs improving by 0.20 and 0.15 points, respectively. Both nations outranked us, belonging to the top 15% of the countries surveyed. Unsurprisingly we were behind Thailand (39th), Indonesia (46th) and Vietnam (65th). Also, there has been no marked improvement in the following areas: corruption (PH placed 127th), physical security (117th), quality of seaports (123th), quality of airport infrastructure (115th), labor market efficiency (113th), and quality of primary education (110th). So government can’t pat itself on the back as though it had done something, it hadn’t. Action still has to happen.
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By: Peter Wallace – Like It Is
Source: Manila Standard Today, Nov. 4, 2011
To view the original article, click here.
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