Press Release
February 7, 2006


Senate Minority Leader Aquilino Nene Q. Pimentel, Jr. (PDP-Laban) today debunked the claim by administration economic managers and spokesmen that the hike in the Value Added Tax would affect the rich more than the poor.

Pimentel also said the increase in the VAT rate and expansion of coverage of VAT were imposed by the government due to pressures from the International Monetary Fund and other foreign lending institutions to ensure the payment of the countrys loan obligations.

He dismissed as hogwash the administrations claim that the higher VAT would result in minimal increase in prices of prime commodities citing the common complaint of housewives that their marketing budget could buy less and less goods due to spiralling prices.

The Filipino poor are now in a survival mode, and any increase in sales taxes on almost all commodities, such as the Value Added Tax (VAT), are bound to push the poor further down below the survival watermark, Pimentel said. So the poor, who consist of around 70 percent of the population, are at the point of drowning, Pimentel said

He pointed out that while the daily living wage for a family of six, the average family, was placed at P619.20 by the National Wages and Productivity Commission (NWPC) as of December 2005, the daily minimum wage was pegged at only P222.29 per day.

So even without the two percentage point increase on top of the 10 percent VAT, the average Filipino family was already below the survival threshold, said Pimentel. However, he averred, the rich could easily absorb the additional tax because of their much higher incomes.

The rich have flexible income based on production, trade and services, and the increased VAT would not really affect them as they merely attach the tax to the price of the goods and services that they sell, Pimentel explained. However, more families would fall into the poverty net as they would not be able to cope with the need for increased expenditures.

He also ridiculed the claim of government spokesmen that the additional tax to be raised by the 12 percent VAT would go to more government spending on infrastructure and social services, thus leading to more employment and income.

The truth is that about 70 percent of the additional revenue would go to the payment of the public debt, especially foreign loans, to enable our government to borrow more money abroad which in the future would only necessitate more taxes and more remittances from our foreign workers, said Pimentel. Only a measly 30 percent will be used for productive expenditures.

He further declared, The fact is the Filipino standard of living has been going down as reflected by the increase of expenditures over income of the average Filipino. In 2003, the total family income increased by 11 percent over that of year 2002, but the total family expenditure increased by 13 percent.

Thus, as per NWPC survey released last January 12, average income rose by only 1.9 percent, while average expenditure increased by 4.1 percent. Thus average family saving dropped by 7.9 percent.

With higher taxes, Pimentel said, the average family will be faced by higher expenditures and more insufficient income, thus forcing families in the lower middle classes to fall into the poverty net.

Pimentel also expressed fears that part of the increased VAT collections will be diverted to dubious activities intended to prop up the Arroyo presidency such as Charter Change and wholesale bribery to politicians, as well as military, police and election officials, in the same manner that the fertilizer fund and portion of the recovered Marcos loot were siphoned off to the Presidents election campaign in 2004.

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