This is a re-posted opinion piece.
The clamor from public transport groups, mass organizations, a few politicians, media columnists, and — surprisingly — even some academics to reduce the VAT on oil products has now become so insistent that the government may just be tempted to cave in.
Doing so would be a big mistake.
It is hard to justify on first principles just why or how a solution to high oil prices should involve a reduction of the VAT on fuel. The VAT, after all, is based on the idea that all consumption must be uniformly taxed — that is, taxed at the same rate. Without good reason, the tax system should not itself be responsible for making some goods more or less expensive than others. Hence, if without taxes the price of a can of corned beef was, say,twice that of a bar of bath soap, then it should still be worth twice as much after a 12% tax is imposed on each. (Note that the ratio of X to Y is the same as the ratio of X(1.12)to Y(1.12).) That relationship is unchanged whether the uniform VAT is set at 5, 10, or 12%, as long as the rate is the same across all goods. (My colleague Ben Diokno has even seriously proposed that the VAT rate be raised to 15 percent in lieu of high income taxes — although he has curiously been reported as supporting a cut in the VAT on fuel.)
Read the full story: http://www.bworldonline.com/content.php?section=Opinion&title=The-right-thing-is-doing-nothing&id=48549
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By: Emmanuel S. de Dios – Introspective
Source: Business World, March 18, 2012
To view the original article, click here.
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