Katas ng VAT for the poor: the data and the math

""It's easy to understand why many would want to see taxes on oil and electricity removed. [But] if [the] VAT on oil and power is lifted, how do we replace about P80 billion in revenues, mostly used for the poor?

"Won't scrapping the VAT on energy benefit mainly the well-to-do, who consume 84 percent of oil and 90 percent of power, while depriving the poor of billions [of pesos] in programs now funded by VAT?"

---GMArroyo, Inquirer, July 18, 2008

Although not new, still It is a clever  idea: tax the rich and the well-to-do since they allegedly use most of the oil and power, and then use the billions  to subsidize the  poor. That is why Arroyo bandies it around as "Katas ng VAT para sa mahirap".

What does the hard data from the Dept of Energy (DOE) tell us?. In 2007, electricity sales by sectors were as follows:

Industrial       - 34.41%
Commercial  - 28.02%
Others          - 3.42% (street lighting, public buildings and the like)
Residential   - 34.11%
 

The industrial and commercial sectors consumed 62.4% of the electricity. The companies promptly passed on the VAT on power to the buyers of their products and services  -- the consumers, which include the poor and the vast majority of the people. Thus, the consumers themselves, not the owners of the companies, ultimately paid the VAT on power

The 3.4% consumed by street lighting, public buildings and the like and the VAT paid for them came from the people's taxes. Therefore, the VAT on the total of the three items, 66%, were paid indirectly by the people, not the rich.

That leaves us the 34% residential consumption. What percentage of this was used by the well-to-do and the rich?

DOE has no breakdown of the residential customers but Meralco has. We can take Meralco's latest data since it is indicative of the figure for the whole Philippines.
 

The well-to-do are presumably those consuming more than 500 kwh.  This group consumed 28% of the total power delivered to homes.  That means that relative to the nation-wide power consumption in the DOE data only about 10% of the VAT on power were paid for by the well-to-do and the rich, i.e., 0.28 x 34%.

We can now say that the vast majority of the people, which includes the poor, pay 90% of the VAT on power.  Only a fraction of the collected VAT is doled out to the poor as subsidies under the signboard "Katas ng VAT para sa mahirap". Correct math on hard data tells us that the people are better helped by removing the VAT on power, and with the bonus that they have their dignity intact.
 

As for Arroyo's claim that 84% of the VAT on oil is paid for by the well-to-do and the rich --- I would leave that as a homework for Arroyo and her economic advisers. I could give them a tip though: check out how much of the oil is consumed by the commercial and industrial groups whose VAT on oil are passed on to consumers. Check out also the oil consumption by government.
 

Arroyo will deliver her SONA tomorrow. She still has time to go over her data if she intends to repeat her claim and justify the VAT on power and oil. Otherwise people will say that her claim does not reflect the reality of concrete. People call it as not being truthful, or lying, or pagsoSONAngaling.

-- AGHAM/POWER Research

   July 27, 2008

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