Why a VAT increase is necessary

THE CONTROVERSIAL bill approved by the House of Representatives to increase the value-added tax from 10 percent to 12 percent, backed by Malacañan Palace, and opposed by a wide coalition of pro-poor political parties, is a necessary bitter pill to give the President the necessary funds to help lift needy Filipinos out of poverty.

President Gloria Macapagal-Arroyo is aiming to raise an additional P80 billion from all of her new tax measures, of which the VAT increase plays a pivotal role.

The Senate has now made it clear that it will not pass the same bill as the House, because it wants to make sure that the VAT increase will not overly burden the poor. Already, some senators have suggested multiple VAT rates ranging from five to 10 to 15 percent or four to eight to 12 percent. According to Sen. Joker Arroyo, the current VAT rate of 10 percent is in line with that of other Asia-Pacific nations. The problem is that, unlike other Asian nations, the Philippines is not efficient enough in collecting both corporate taxes and personal income taxes, meaning that the government's budget has been incurring a deficit for many years now.

Raising taxes is never a popular move, but in this case I see no other way for the President Arroyo to be able to fund her economic development and social welfare programs.

Unfortunately, the president hasn't done a good job of selling a proposition that many find hard to swallow. Her touting this week of the exceptional 6.1-percent growth last year in the gross domestic product was not welcomed by some.
The militant party-list group Anakpawis blasted the economic growth as having no effect on the country's poorest sectors, namely, farmers and factory workers. They wrongly claimed that the growth was not based on production but on the growth of call centers in the country.

The obvious point that Anakpawis is missing is that the future area of economic growth, not only in the Philippines, but worldwide, is in services. Call centers provide a necessary service for the clients of hundreds of corporations across the globe. The Philippines must expand on its natural advantage of being attuned to American ways and capture more of the call center business. India is a veritable competitor in this area, and the Philippines cannot see this growth industry disappear just because some local groups cannot see the wealth generated by call centers.

Yet, pro-poor groups do have a point when they ask: "How is the growth benefiting the poor?" The sad truth is that the 6.1 percent growth in GDP has not trickled down to the poorest of the poor, who see only the prices of food and fuel rising, and the value of their hard-earned money shrinking.

I think the President realizes this and wants to implement economic development programs that will ultimately give the tools and opportunities for poor Filipinos to develop and help themselves grow financially.

The Senate is right in wanting to impose multiple VAT rates rather than an across the board increase of two percentage points. That way the products or services used most by the poor could be taxed less, while other products and services could be taxed more. Having multiple levels of VAT would more equally divide the burden of raising revenue for Arroyo's badly needed economic development programs.

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Selling the Philippines abroad

MY COLUMN of last week about how the Philippines fails to sell itself abroad as a tourist destination generated a lot of reaction from overseas Filipinos who agreed with me that the country needs to improve its roads and transportation before it can attract more tourists.

Several readers complained about the old Ninoy Aquino International Airport terminal in Manila, and the masses of taxi drivers there who compete in ripping off unsuspecting tourists.

The horrible traffic jams of Manila and the abysmal condition of inter-city roads were other complaints raised by readers. One reader wrote that while the Philippines has similar beaches to neighboring Thailand and Malaysia, it fails to sell itself to foreign tourists by failing to weave an interesting cultural tale about itself.

Look at India, it shamelessly capitalizes on the romanticism and beauty of the Taj Mahal, even though it was built as a mausoleum and the emperor who built it ended up imprisoned in the neighboring Red Fort (which by the way is far more interesting than the Taj Mahal).

Thailand uses its Buddhist heritage to weave its own tale of enchantment, while Malaysia likes to tout its multiculturalism.

The Philippines with its Muslim, Catholic, Malay, Spanish, Chinese and American heritage has endless possibilities of weaving interesting tales that could enchant foreign tourists.

One reader who disagreed with me said that the Philippines was hampered by not having an open skies policy, which means that more direct flights by foreign airlines are not happening. He said that many foreign tourists want direct access to places of great natural beauty in the Philippines, skipping Manila altogether. He also said that these foreigners could sail around islands on fully equipped cruise ships that would be virtually self-sustained.

Frankly, I find that idea rather imperialistic and condescending. A sort of "let's drop in on the natives, and see them in their unspoiled beauty, while we have all the luxuries we need on the ship."

It is true that many tourists find nothing of value in the polluted and crowded metropolis of Manila, but the fact remains that roads have to be improved not only for foreign tourists, but for Filipino tourists too. Not everyone can afford to fly around the Philippines, and thus road travel needs to be vastly improved.

The imminent opening of NAIA Terminal 3 to the flying public will do much to improve the image of the Philippines in the eyes of foreign tourists and "balikbayan."

One reader wrote to me and pointed out that perhaps the Philippines should be happy that it isn't overrun by hordes of tourists like neighboring countries are.

Sure, there are downsides to millions of tourists descending on a country, but I think the benefits, both financial and in terms of goodwill and friendship, far outweigh the negative.

Comments or questions? E-mail the writer at rasheed@arabnews.com.