The Commission on Audit (COA) should step in and examine how the Arroyo government has been spending its Value-Added Tax (VAT) collections in light of accusations that there is no law that allows President Arroyo to allocate these funds for her allegedly pro-poor programs and projects.

Congresswoman Risa Hontiveros, representative of the citizens party, Akbayan, requested the COA Tuesday to "review and investigate how the revenues generated from VAT" are being used by the executive branch.

In her 8th State of the Nation Address (SONA) before the joint session of Congress Monday, President Gloria Macapagal-Arroyo defended her policy not to scrap, suspend or lower the 12% VAT on oil products, saying these revenues were needed to help the poor cope with high oil and food prices. She also said these revenues were being used to finance key projects on infrastructure and food production.

Hontiveros said there should first be an accounting of how these funds are being spent before Congress decides on whether to lift the VAT on socially-sensitive products such as oil, power, and medicines.

"Before Congress accedes to GMA's demand for VAT to remain untouched, the government should make a clear accounting of how the VAT money was spent," Rep. Hontiveros said. "There are fears that the VAT revenues are being used for GMA's political survival as a source of projects for her allies and to buy back her popularity."

'Sin' taxes in lieu of VAT

She said the VAT could be lifted on socially-sensitive products since there are other sources of revenues that can make up for the revenue loss on the lifting of VAT. 
 "Aside from plugging the drain caused by corruption, the government can strengthen the collection of sin taxes, an option that was avoided to please Lucio Tan. In short, tax collection should not be hurtful for those who have less, but should actually target those who can and should pay more," she said.

Rep. Hontiveros also "expressed frustration" over the failure of government agencies, such as the Department of Finance and the Bureau of Internal Revenue, "to provide an accounting" of how the VAT revenues are being spent. She also alleged there were "leakages" in the VAT collection system which need to be plugged.

Hontiveros, who is also deputy minority floorleader in the House of Representatives, reiterated her party's demand that the VAT on socially-sensitive products be reduced or scrapped altogether.

"We cannot allow the government to profit from the people's misery," she said.

Hontiveros said alleged corruption in government is also affecting the government's drive to raise more revenues from taxpayers. 

"It is the height of insensitivity and madness to ask citizens to pay more for inefficient, irrelevant, or non-existent government projects when the government itself is doing nothing to address corruption. It is plain extortion," she said. 

Hontiveros urged Congress to decide on "the fate of VAT with independence and integrity."

"What President GMA did during the SONA was practically a pre-emptive veto on the proposals on VAT. Akbayan challenges the members of Congress to take a principled stance and review the effectiveness and impact of VAT with the plight of the people in mind," she said.

Other options to VAT

In response to Arroyo's defense of the VAT, Senator Manuel 'Mar' Roxas criticized Arroyo's defense of the VAT, saying there should first be consultation on whether to keep the VAT before making a policy announcement.

"I’m very disappointed and a bit confused. The President wanted to project herself as a caring leader but clearly what she deeply cares about the most is keeping the oil VAT," Roxas said.

“Wala pa ring malinaw na plano kung papaano tayo makakatawid sa panahon ng krisis. Obviously, patuloy pa rin ang mantra ng Palasyo: ‘squeeze the people then spend the VAT.’ Walang debate, walang konsultasyon," the head of the Senate committee on trade and commerce said.

Senate President Manuel Villar told ABS-CBN News Channel Monday that there are other solutions to funding pro-poor programs other than VAT.

Villar said the government had the option to temporarily suspend the VAT in order to give relief to consumers.

House Minority Floor Leader Rep. Ronaldo Zamora (San Juan-Mandaluyong) said Arroyo was not being truthful in her defense of the VAT on oil.

He noted that in Indonesia, the government had reduced its VAT on oil from 7.5% to 3%, which means that Indonesia's sales tax on oil is only one-fourth of the Philippines.

Even if Indonesia reduced its VAT on oil, Zamora said capital markets have not punished Indonesia for taking this step.

A good case

Allies of the president, on the other hand, said Arroyo gave a good defense of the need to maintain the 12% VAT on oil products.

Administration Senator Miriam Defensor-Santiago said made a "good case" of why lifting the VAT would only lead to short-term gains but would "prejudice the poor."

She said Arroyo showed "maturity in her insight," adding that the president, with her doctorate in economics, has the credentials to back up her economic arguments.

Executive Secretary Eduardo Ermita said Arroyo was able to support, through facts and figures, that the country needs the VAT "so we can go over the hump".