vat, value-added tax, senior citizens, exemption, revenue

One finds it hard to debate with senior citizens when they called on President Gloria Macapagal-Arroyo to sign the proposed Expanded Senior Citizens Act which Congress passed on third and final reading last January 27.

The objectives of the bill (based on Sec. 2 of Senate Bill No. 3561) are very much pro-senior citizen and takes off from the constitutional provision that it is the duty of the family to take care of its elderly members while the State may design programs of social security for them. How can one find any problems with the following points in the bill?

1. "To recognize the rights of senior citizens to take their proper place in society and make it a concern of the family, community and government;
2. "To give full support to the improvement of the total well-being of the elderly and their full participation in society, considering that senior citizens are integral part of Philippine society;
3. "To motivate and encourage senior citizens to contribute to nation-building;
4. "To encourage their families and the communities they live with to reaffirm the valued Filipino tradition of caring for senior citizens;
5. "To provide a comprehensive health care and rehabilitation system for disabled senior citizens to foster their capacity to attain a more meaningful and productive aging; and
6. "To recognize the important role of the private sector in the improvement of the welfare of senior citizens and to actively seek their partnership."

Of course, one can always argue that these are general statements that can be misinterpreted, abused or ignored based on the whims of the powers-that-be. Nevertheless, the 13-page Senate bill truly provides additional benefits that can be enjoyed by senior citizens. One can safely conclude that it is an expansion of the Republic Act No. 9257 or the Expanded Senior Citizens Act of 2003.

For example, if President Macapagal-Arroyo signs the bill into law, senior citizens who are minimum wage earners will be exempted from paying income tax. Indigent senior citizen patients will be able to avail of free vaccination against the influenza virus and pneumococcal disease. In addition, indigent senior citizens will be entitled to a monthly allowance of PhP1,500 (US$32.11). The nearest surviving relative of a deceased senior citizen will get at least PhP2,000 (US$42.82) as death benefit assistance. The bill also mandates  government hospitals to have a Senior Citizens Ward so that the medical needs of the elderly are better taken care of.

What hogged the headlines, however, is a benefit of senior citizens in relation to the value-added tax (VAT). Sec. 4 of SBN 3561 clearly states that not only are senior citizens entitled to a 20% discount in the availment of goods and services; they will also be exempted from paying the 12% VAT as they avail of the following:

1. "Purchase of medicines, including the purchase of influenza and pneumococcal vaccines. The Department of Health shall establish guidelines in the sharing of burden of discount among retailers, manufacturers and distributors;
2. "Professional fees of attending physician/s in all private hospitals, medical facilities and outpatient clinic;
3. "Medical and dental services, diagnostic and laboratory fees in all private hospitals and medical facilities, and outpatient clinic, in accordance with the rules and regulations to be issued by DOH in coordination with the Philippine Insurance Corporation (PhilHealth);
4. "Actual fare for land transportation travel in public utility buses (PUB), public utility jeepneys (PUJ), taxis, Asian utility vehicles (AUV), shuttle services and public railways, including light rail transit (LRT), mass rail transit (MRT) and Philippine National Railways (PNR);
5. "Utilization of services in hotels and similar lodging establishments, restaurants and recreation centers; and
6. "Admission fees charged by theaters, cinema houses and concert halls, circuses, carnivals and other similar places of culture, leisure and amusement."

While this may be welcome news to senior citizens, it must be remembered that the VAT has been opposed by concerned individuals and cause-oriented groups since its imposition in 1988. Ironically, this unpopular measure was signed into law through an executive order by the late President Corazon Aquino two days before the opening of Congress. Right from the start, there had been criticisms about the Executive branch arrogating unto itself the power of taxation, a power which should belong to Congress. The latter, after all, is the one that deliberates on and approves the national budget.

In two articles I wrote in 2005 ("Understanding VAT leads one to oppose it" and "VAT spurs exportation at the expense of domestic needs"), I already raised the following arguments against the VAT:

1. As an indirect tax that covers almost all goods and services, the poor are affected most because they have lower purchasing power.
2. Even if the VAT is a tax on consumption and not on income, poor families still bear the brunt as basic necessities are covered by the VAT; the government unwittingly sends a message to the poor that they should eat less (or not at all) if they do not want to be affected by the VAT.
3. The VAT is primarily meant as a more convenient way to collect government revenues as it is easily reflected in business transactions.
4. When the government argued for the increase in the VAT rate for 10% to 12% (a measure that was eventually passed in 2005 through RA 9337), it was found out that it has not been efficient in collecting taxes, including the VAT, through the years, as evidenced by data from the National Tax Research Center. At that time, questions were raised as regards the capacity of government to reduce, if not eradicate the average leakage from VAT which resulted in losses of PhP352.1 billion (US$7.54 billion) from 1998 to 2003.
5. The VAT also seeks to encourage local investors to engage more in exports to avail of zero-rated VAT. Exporters are not only exempted from VAT; they can also avail of tax credits from the VAT they paid for various VAT-covered transactions. In other words, those engaged in export stand to earn more through the VAT.

These age-old arguments against the VAT need to be mentioned again in the light of the impending VAT exemption to senior citizens. In the struggle to change the regressive tax regime of the Philippines, the issue should have nothing to do with expanding exemptions but repealing the VAT altogether. It is hoped that senior citizens will also be involved in the campaign against this repressive tax measure, notwithstanding the benefits they stand to get once the new Expanded Senior Citizens Act of 2010 becomes a law.