FDC calls for a stop on debt payments, says freed funds enough to cover for VAT suspension

MANILA, Philippines – The Freedom from Debt Coalition (FDC) today lambasted the World Bank (WB) regarding its recent statement that the removal of the Value Added Tax (VAT) on oil is “regressive and would compromise the country’s revenue objectives.”

In a statement, the debt watchdog said the World Bank as well as the International Monetary Fund (IMF) has no moral ascendancy whatsoever to give recommendations or forewarnings particularly on VAT as its intrusive economic recommendations were proven to be flawed, unsustainable and also to blame for the current economic quandary.

VAT Regressive, Debt Compromises Fiscal Standing

“We remind World Bank that it is in fact VAT which is regressive in the first place. We also remind them that it is their strong push for this tax measure which is one of the major factors why the public’s purchasing power has been diminishing,” FDC Vice President Lidy Nacpil said.

Nacpil, who recently took part in a roundtable discussion with the World Bank on Illegitimate Debts in Washington DC last April, also asserted that the government’s revenue standing has already been compromised by Mrs. Gloria Macapagal Arroyo policy of continuous accumulation of colossal debts and faithful payment of illegitimate debts.

“The claim that the removal of VAT from oil is compromising our fiscal standing is deceptive. It deflects from the one of the fundamental reasons why we are so vulnerable to the economic crisis, which is the country’s enduring debt burden,” Nacpil said.

FDC said the amount of debt service eclipses all other expenditures, including all the subsidy programs of the governments. It said the government this year would be releasing P624.09 billion for these debts. Compared to the P 282.81 billion for social services. The Department of Finance said the national government spent P331.53 billion in the first five months of the year to service maturing debts, 1.1 percent more than the P327.95 billion it paid in the same period in 2007.

“The Arroyo government is trying to maintain its good credit standing by pursuing the IMF and WB’s prescriptions of under-spending and regressive tax measures to guarantee uninterrupted debt payments,” Nacpil said.

Taxation and Under-spending

FDC traced the government’s “policy of under-spending” from the austerity measures during the fiscal crisis of 2004, when debt-service-to-tax ratio reached as high as 99%. The group also recalled that this was coupled with a “policy of regressive taxation” with the imposition of the Reformed Value Added Tax (R-VAT) measure in 2004.

Furthermore, the group believes that the under-spending on social services resulted in the deterioration of the social support system while VAT resulted into the exacerbation of the price crisis.

“Under-spending in social services erodes the capacity of households to survive the inflation, now a record-high at 11.4%. This inflation is partly due the VAT levied on commodities.” Nacpil explained.

“On the other hand, while the government is aggressively collecting money from the people through consumption taxes like VAT, it refuses to give anything back to the public except through meager dole-outs”, she added.

FDC blames debt service for the “under-spending in social services” and for the need “to rely heavily on indirect, regressive consumption taxes like the VAT on oil and electricity.” The group asserted that the “onerous debt-servicing requirement” remains to be the main factor why the administration is cash-strapped in the first place.

Drop the VAT, Drop the Debt

“If the government is truly sincere in addressing the current economic crunch, then it must immediately halt it religious policy of honoring onerous debts,” Nacpil said.

FDC explained that the freed funds earmarked for debt service would be enough to cover revenue shortfalls if VAT is lifted. “A moratorium alone in interest payments, pegged at P295.75 billion for 2008, is more than enough to cover for the expected revenues for ‘General Sales Tax, Turnover, or VAT’, pegged at P204.88 billion,” Nacpil said.

“Truly, a resolution to the economic crisis without addressing our regressive taxation system and moreover, our lingering debt problem, is like treating a cancer patient with aspirin,” Nacpil quipped. -30-

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