UK parents could find themselves struggling financially as a result of government plans to abolish the tax break on childcare vouchers.
The cuts are set to be imposed in order to fund the placement of 250,000 two-year-olds into childcare.
The move has been criticised by Parentsoutloud.com, which suggests that the move will only put hard working parents under increased pressure.
Losing the tax relief on childcare vouchers could prove to be one bill too far for some families struggling to cope in the recession and adoption of bankruptcy-avoidance methods such as individual voluntary agreements (IVAs) could increase.
Speaking of the policy change, Margaret Morrissey of Parentsoutloud.com said that parents would most likely fund themselves spending more, despite working really hard to survive the downturn.
She commented: "It is probably going to cost all parents more. In total, 450,000 parents who currently take part in the voucher scheme will lose, with most receiving no help in future with their childcare costs. How can this be a positive way forward?"
She went on to say that parents that were "working their socks off" should be helped rather than hindered.
Source
Monday, December 28, 2009
Tuesday, December 15, 2009
Could John Barnes opt for an IVA?
Former Liverpool and England footballer John Barnes has been declared bankrupt by Her Majesty's Revenue and Customs.
While Barnes has suggested that the issue is nothing more than a "tax oversight" and applied to have the bankruptcy order annulled, his assets are currently being evaluated by the official receiver, according to the Insolvency Service.
Should the ex-midfielder's claims of an ability to pay the overdue tax bills not come good, he could consider entering into an individual voluntary agreement (IVA) in order to pay back the money owed.
Earlier this year, Barnes made clear his aversion to bills when he said: "I don't like dealing with taxes, of course. I just hate not having enough money. Apart from that, I don't like dealing with bills and never have done."
The former Jamaica national team boss was sacked as manager of Tranmere Rovers earlier this month.
Source
While Barnes has suggested that the issue is nothing more than a "tax oversight" and applied to have the bankruptcy order annulled, his assets are currently being evaluated by the official receiver, according to the Insolvency Service.
Should the ex-midfielder's claims of an ability to pay the overdue tax bills not come good, he could consider entering into an individual voluntary agreement (IVA) in order to pay back the money owed.
Earlier this year, Barnes made clear his aversion to bills when he said: "I don't like dealing with taxes, of course. I just hate not having enough money. Apart from that, I don't like dealing with bills and never have done."
The former Jamaica national team boss was sacked as manager of Tranmere Rovers earlier this month.
Source
Saturday, November 28, 2009
Ailing Disability Insurance Hopes For Tax Boost
The campaign over a proposed tax increase to prop up the state-run disability insurance scheme is slowly gathering pace ahead of a nationwide vote.
Most political parties, the government as well as various organisations and pressure groups have come out in favour of a 0.4 per cent hike in value added tax (VAT). The rightwing Swiss People's Party is up against an overwhelming alliance on September 27.
Over the past two weeks several small political parties, the farmers' association and organisations for the disabled all issued statements recommending voters approve the proposal.
On Friday a group of mainly retired politicians of the People's Party became the latest committee to outline its reasons against the increase.
In line with their party they slammed the planned temporary fiscal charge as a "false and dangerous compromise" which jeopardised the financial future of the state old age pension scheme – another tenet of the Swiss social security system.
The reason being that the proposal includes an injection worth several billion francs from the pension scheme into the disability insurance.
The rightwing party earlier warned that raising taxes would slow private consumption and put a financial strain on families.
"An increase is poison for the purchasing power of consumers," parliamentarian and businessmen Peter Spuhler argued at a news conference in June when his People's Party launched its campaign.
VAT is currently 7.6 per cent, with reduced rates for the hotel industry and for essential consumer goods.
Opponents also claim money could be saved by cracking down on fraudsters, notably beneficiaries of Turkish and East European origin, who allegedly cheat the Swiss authorities by faking mental illness.
« We are no longer able to help those in need if the disability insurance is in trouble. » Christophe Darbellay, Christian Democratic Party
Source
Sunday, November 15, 2009
Tax Exemption Eyed to Help Contain Influenza A
Individuals concerned about the rapidly spreading influenza A here will be able to receive either anti-viral vaccine or treatment at a cheaper cost later this month.
This follows government steps to lift taxes on both imported and locally manufactured anti-influenza medical goods.
The Ministry of Strategy and Finance said Sunday that it would temporarily exempt foreign and domestic flu vaccines and treatments from value-added tax (VAT) and tariffs until the end of 2010 to help more concerned people obtain medical treatment at lower costs and prevent the spread of the deadly epidemic.
Currently, importers of H1N1 vaccines from abroad are subject to an 8-percent rate and have to pay an additional 10-percent VAT, making flu-related medical costs substantially higher.
The ministry plans to submit the changes in tax-related ordinances to a Cabinet meeting on Sept. 15. If approved, they will go into effective immediately.
The government is scrambling to secure as many influenza A vaccine doses as possible in preparation for a possible flu pandemic this fall and winter. It has ordered 10 million doses, with additional purchases planned next year.
It aims to vaccinate 13 million people or 27 percent of the population by February 2010.
Since the first case of the disease was confirmed in early May, four H1N1 infected patients have died, with more than 4,000 falling ill from the disease.
Additionally, patients suffering from seven illnesses, including AIDS and Wilson's disease, will be able to receive treatment at cheaper costs as tariffs levied on imported medicines and other medical treatments will be abolished.
The government expects the tariff exemption to help about 6,000 patients across the nation save an average 500,000 won per person annually.
This follows government steps to lift taxes on both imported and locally manufactured anti-influenza medical goods.
The Ministry of Strategy and Finance said Sunday that it would temporarily exempt foreign and domestic flu vaccines and treatments from value-added tax (VAT) and tariffs until the end of 2010 to help more concerned people obtain medical treatment at lower costs and prevent the spread of the deadly epidemic.
Currently, importers of H1N1 vaccines from abroad are subject to an 8-percent rate and have to pay an additional 10-percent VAT, making flu-related medical costs substantially higher.
The ministry plans to submit the changes in tax-related ordinances to a Cabinet meeting on Sept. 15. If approved, they will go into effective immediately.
The government is scrambling to secure as many influenza A vaccine doses as possible in preparation for a possible flu pandemic this fall and winter. It has ordered 10 million doses, with additional purchases planned next year.
It aims to vaccinate 13 million people or 27 percent of the population by February 2010.
Since the first case of the disease was confirmed in early May, four H1N1 infected patients have died, with more than 4,000 falling ill from the disease.
Additionally, patients suffering from seven illnesses, including AIDS and Wilson's disease, will be able to receive treatment at cheaper costs as tariffs levied on imported medicines and other medical treatments will be abolished.
The government expects the tariff exemption to help about 6,000 patients across the nation save an average 500,000 won per person annually.
Wednesday, October 28, 2009
Are Governments Really Empowered to Outsource Tax Collection?
Outsourcing the corporate tax compliance function, thereby enabling organisational focus on core growth drivers, is increasingly popular, given the efficiency and strategic business benefits. This column examines its more controversial cousin - the outsourcing of tax administration. The propriety of this (particularly tax assessment and collection) had been brought into bold relief by divergent practices of consultants variously engaged to help shore up internally generated revenues (IGRs) from taxes, rates and levies.
This trend seemed to have started in early 1990s: as a result of low revenues, Governments were attracted by proposals from consultants to help actualise accelerated IGR potential collections. Indeed, prior to return of civilian administration in 1999, almost all the Governments (including Federal) had signed on tax consultants to boost their revenues.
Allegations of high handedness, especially sealing of offices whilst tax liabilities were still being disputed by tax payers, were common. There were also issues on the typical compensation model: consultant take was a percentage of the IGR collected.
The Debate: Proponents and Naysayers
If Government can engage consultants to work for them in other areas and thereby enhance their governance capacity, why not in tax, absent any specific prohibition? A responsible government would be interested in boosting its IGR within the confines of the law, in order to meet developmental goals and deliver ‘democracy dividends’. Why shouldn’t consultants enjoy the benefits of their ideas and value added – in identifying and implementing IGR optimisation opportunities? On an overall basis, tax administration reportedly benefits from the involvement of consultants: what is important is to design a workable and fair system.
Naysayers opine that involvement of consultants should be limited to contributing intellectual capital towards enhancing systems and processes of the Revenue for optimal tax administration, e.g. training and IT systems support. Outsourcing assessment and collection is inconsistent with the ‘coercive’ nature of taxing rights, are meant to be strictly construed. Further, giving consultants a percentage of taxes paid to Government is offensive: ‘reasonable’ lump sum with fee caps represents a better proposition; conflicts of interest may inhibit the negotiating ability of government officials when engaging consultants, especially where, there was no competitive bidding process. Space constrains discussing other practical issues that have also been raised.
The Law
Section 12(4) of the FIRS Establishment Act 2007 provides that the FIRS “may appoint and employ such consultants including Tax consultants or accountants and agents to transact any business or to do any act required to be transacted or done in the execution of its functions under the Act: provided that such consultants shall not carry out duties of assessing and collecting tax or routine responsibilities of tax officials.”
It is arguable that such restriction on outsourcing applies to State Boards of Internal Revenue (SBIRs) but not so much to Local Government (LG) Councils. Thus section 102 Personal Income Tax Act (PITA) defines ‘tax collector’ as “a duly authorised official” of the SBIR or the FIRS. Effectively, this means that agents or tax consultants are not “tax collectors” for the purpose of enjoying the “Powers of tax collectors” in Part XII of PITA. But section 24(2) and (3) PITL Rivers State suggests that ‘consultants’ may be regarded as ‘staff’ of the SBIR to “enjoy such terms … of services as the Board may… determine.”
Section 88(3) PITA provides that subject to 88(4), the SBIR may delegate the performance of any function, duty or power conferred on the Board, to any person by notice in writing or in the Gazette. However, section 88(4) PITA precludes the Board from delegating all critical functions such as assessment or exercise of discretion vested in the Board for the determination of tax liability, etc.
Further, a typical PITL provision (exemplified by section 4(4) PITL, Lagos) is that the Governor may by notice in the Gazette or in writing authorise any person to perform or exercise on behalf of the Board, any power or duty conferred on the Board by the enabling Law. Surely, where such function is of the nature that has been reserved as non-delegable by PITA, the delegation would be null and void. In practice, many SBIRS engage consultants to conduct audits, whilst assessment is done by the SBIR.
Section 90 & 91(1) PITA establishes the LG Revenue Committee, with mandate to “be responsible for the assessment and collection of all taxes, fines and rates … and shall account for all amounts so collected in a manner to be prescribed by the Chairman of the LG.” Furthermore, by section 91(2), “the Revenue Committee shall be autonomous of the LG treasury and shall be responsible for the day to day administration of the Department which forms its operational arm.”
Does the provision for “a manner to be prescribed by the Chairman of the LG” permit delegation to tax consultants? Arguably, section 91(2) contemplates that “the Department” would perform, and not delegate the functions of “assessment and collection of all taxes, fines and rates under” the Committee’s “jurisdiction”. However, the absence of express provision against delegation (unlike with SBIR under section 88), strengthens the argument that delegation by LG is not prohibited.
LG ‘tax consultants’ are perceived negatively as ‘irritants’ to businesses, issuing questionable assessments for levies and rates, inconsistently with constitutional provisions (see 2nd Schedule, Item 7, Concurrent Legislative List, 1999 Constitution) and of the Approved List of Taxes Act. The consultant typically attaches an introductory letter from the LG together with their assessment. In practice, change of administration at the LG results in change of consultants - it is common for both current and erstwhile consultants to demand the same levies, from taxpayers. Also, some LG consultants request that cheques for payment of assessments be raised in their name. Undoubtedly, the prudent approach (where applicable) is to issue cheques in favour of the LGC and taxpayers can insist that any other arrangement is impermissible under their governance rules: assessments can only be paid to the (ultimate) issuing authority.
Some of these issues also arise in non-Nigerian context. A recent study on the performance of privatised tax collection in seven LGCs in Tanzania with respect to revenue generation, administration, and accountability concluded that “outsourcing offers no ‘quick-fix’ neither to increasing local government revenues nor to reducing tax administrative problems. While collection has increased and become more predictable in some councils…, others have experienced substantial problems with corruption and exceptionally high profit margins for the private agents at the expense of accomplishing a reasonable return to the respective LGCs. However, when appropriately managed and monitored, outsourced revenue collection may establish a foundation for more effective and efficient local government revenue administration.”
Source
This trend seemed to have started in early 1990s: as a result of low revenues, Governments were attracted by proposals from consultants to help actualise accelerated IGR potential collections. Indeed, prior to return of civilian administration in 1999, almost all the Governments (including Federal) had signed on tax consultants to boost their revenues.
Allegations of high handedness, especially sealing of offices whilst tax liabilities were still being disputed by tax payers, were common. There were also issues on the typical compensation model: consultant take was a percentage of the IGR collected.
The Debate: Proponents and Naysayers
If Government can engage consultants to work for them in other areas and thereby enhance their governance capacity, why not in tax, absent any specific prohibition? A responsible government would be interested in boosting its IGR within the confines of the law, in order to meet developmental goals and deliver ‘democracy dividends’. Why shouldn’t consultants enjoy the benefits of their ideas and value added – in identifying and implementing IGR optimisation opportunities? On an overall basis, tax administration reportedly benefits from the involvement of consultants: what is important is to design a workable and fair system.
Naysayers opine that involvement of consultants should be limited to contributing intellectual capital towards enhancing systems and processes of the Revenue for optimal tax administration, e.g. training and IT systems support. Outsourcing assessment and collection is inconsistent with the ‘coercive’ nature of taxing rights, are meant to be strictly construed. Further, giving consultants a percentage of taxes paid to Government is offensive: ‘reasonable’ lump sum with fee caps represents a better proposition; conflicts of interest may inhibit the negotiating ability of government officials when engaging consultants, especially where, there was no competitive bidding process. Space constrains discussing other practical issues that have also been raised.
The Law
Section 12(4) of the FIRS Establishment Act 2007 provides that the FIRS “may appoint and employ such consultants including Tax consultants or accountants and agents to transact any business or to do any act required to be transacted or done in the execution of its functions under the Act: provided that such consultants shall not carry out duties of assessing and collecting tax or routine responsibilities of tax officials.”
It is arguable that such restriction on outsourcing applies to State Boards of Internal Revenue (SBIRs) but not so much to Local Government (LG) Councils. Thus section 102 Personal Income Tax Act (PITA) defines ‘tax collector’ as “a duly authorised official” of the SBIR or the FIRS. Effectively, this means that agents or tax consultants are not “tax collectors” for the purpose of enjoying the “Powers of tax collectors” in Part XII of PITA. But section 24(2) and (3) PITL Rivers State suggests that ‘consultants’ may be regarded as ‘staff’ of the SBIR to “enjoy such terms … of services as the Board may… determine.”
Section 88(3) PITA provides that subject to 88(4), the SBIR may delegate the performance of any function, duty or power conferred on the Board, to any person by notice in writing or in the Gazette. However, section 88(4) PITA precludes the Board from delegating all critical functions such as assessment or exercise of discretion vested in the Board for the determination of tax liability, etc.
Further, a typical PITL provision (exemplified by section 4(4) PITL, Lagos) is that the Governor may by notice in the Gazette or in writing authorise any person to perform or exercise on behalf of the Board, any power or duty conferred on the Board by the enabling Law. Surely, where such function is of the nature that has been reserved as non-delegable by PITA, the delegation would be null and void. In practice, many SBIRS engage consultants to conduct audits, whilst assessment is done by the SBIR.
Section 90 & 91(1) PITA establishes the LG Revenue Committee, with mandate to “be responsible for the assessment and collection of all taxes, fines and rates … and shall account for all amounts so collected in a manner to be prescribed by the Chairman of the LG.” Furthermore, by section 91(2), “the Revenue Committee shall be autonomous of the LG treasury and shall be responsible for the day to day administration of the Department which forms its operational arm.”
Does the provision for “a manner to be prescribed by the Chairman of the LG” permit delegation to tax consultants? Arguably, section 91(2) contemplates that “the Department” would perform, and not delegate the functions of “assessment and collection of all taxes, fines and rates under” the Committee’s “jurisdiction”. However, the absence of express provision against delegation (unlike with SBIR under section 88), strengthens the argument that delegation by LG is not prohibited.
LG ‘tax consultants’ are perceived negatively as ‘irritants’ to businesses, issuing questionable assessments for levies and rates, inconsistently with constitutional provisions (see 2nd Schedule, Item 7, Concurrent Legislative List, 1999 Constitution) and of the Approved List of Taxes Act. The consultant typically attaches an introductory letter from the LG together with their assessment. In practice, change of administration at the LG results in change of consultants - it is common for both current and erstwhile consultants to demand the same levies, from taxpayers. Also, some LG consultants request that cheques for payment of assessments be raised in their name. Undoubtedly, the prudent approach (where applicable) is to issue cheques in favour of the LGC and taxpayers can insist that any other arrangement is impermissible under their governance rules: assessments can only be paid to the (ultimate) issuing authority.
Some of these issues also arise in non-Nigerian context. A recent study on the performance of privatised tax collection in seven LGCs in Tanzania with respect to revenue generation, administration, and accountability concluded that “outsourcing offers no ‘quick-fix’ neither to increasing local government revenues nor to reducing tax administrative problems. While collection has increased and become more predictable in some councils…, others have experienced substantial problems with corruption and exceptionally high profit margins for the private agents at the expense of accomplishing a reasonable return to the respective LGCs. However, when appropriately managed and monitored, outsourced revenue collection may establish a foundation for more effective and efficient local government revenue administration.”
Source
Thursday, October 15, 2009
DoF bucks move to grant tax perks
MANILA, Philippines - The Department of Finance has opposed populist proposals in Congress that seek to exempt from taxes utilities, calamity victims and senior citizens as this would further erode government revenues by P13.7 billion a year.
The House of Representatives has passed on third reading and recommended for Senate action House Bill No. 5210, which wants to change five sections of the Tax Code.
Substituting for 15 other separate bills, HB 5210 provides income tax exemption to local water districts and electric cooperatives, exemption from donor’s tax of donations to calamity victims and value-added tax exemption of purchases made by senior citizens and of electricity services.
In the Senate, the committee on ways and means is deliberating on Senate Bill No. 3152 sponsored by Sen. Panfilo Lacson, who wants to exempt water utilities from income tax.
According to the DOF, the proposed perk for local water districts is not attuned with the policy of self-sufficiency and financial independence for the government corporate sector and might set a bad precedent.
“It is not aligned with the overall objectives of government to safeguard revenues and strengthen its fiscal position,” it added, saying that this would result in foregone revenues of P15 million yearly.
The DOF said the proposal to exempt electric cooperatives from corporate income tax was also deemed unnecessary because the Cooperative Code of 2008 already provides that all cooperatives, including electric cooperatives, are exempted from income tax and other taxes.
Even then, such exemption would cost the government P166 million a year in earnings.
Similarly, the proposal to include donations or contributions to victims of natural calamities as a deductible expense from gross income of the donor is already in the Tax Code.
The proposal to exempt senior citizens from VAT, on the other hand, is “inconsistent with the policy of a broad-based VAT with limited exemptions.”
Aside from posing “administrative difficulties” for the Bureau of Internal Revenue, VAT exemptions for senior people would reduce government revenues by P130 million a year for medicine purchases alone.
Finally, the DOF said more affluent households that use more electricity, instead of the poor, would benefit from the proposal to remove VAT on power.
“The poor whose consumption is less than 100 kilowatt-hours [a month] would have very little benefits and is already subsidized through the lifeline rates,” it said.
“Likewise, the proposed VAT exemption of lifeline subsidy charges and system loss charge goes against the principle of limiting exemption from VAT,” it added. “This could be an avenue for tax leakages and abuses.”
Source
The House of Representatives has passed on third reading and recommended for Senate action House Bill No. 5210, which wants to change five sections of the Tax Code.
Substituting for 15 other separate bills, HB 5210 provides income tax exemption to local water districts and electric cooperatives, exemption from donor’s tax of donations to calamity victims and value-added tax exemption of purchases made by senior citizens and of electricity services.
In the Senate, the committee on ways and means is deliberating on Senate Bill No. 3152 sponsored by Sen. Panfilo Lacson, who wants to exempt water utilities from income tax.
According to the DOF, the proposed perk for local water districts is not attuned with the policy of self-sufficiency and financial independence for the government corporate sector and might set a bad precedent.
“It is not aligned with the overall objectives of government to safeguard revenues and strengthen its fiscal position,” it added, saying that this would result in foregone revenues of P15 million yearly.
The DOF said the proposal to exempt electric cooperatives from corporate income tax was also deemed unnecessary because the Cooperative Code of 2008 already provides that all cooperatives, including electric cooperatives, are exempted from income tax and other taxes.
Even then, such exemption would cost the government P166 million a year in earnings.
Similarly, the proposal to include donations or contributions to victims of natural calamities as a deductible expense from gross income of the donor is already in the Tax Code.
The proposal to exempt senior citizens from VAT, on the other hand, is “inconsistent with the policy of a broad-based VAT with limited exemptions.”
Aside from posing “administrative difficulties” for the Bureau of Internal Revenue, VAT exemptions for senior people would reduce government revenues by P130 million a year for medicine purchases alone.
Finally, the DOF said more affluent households that use more electricity, instead of the poor, would benefit from the proposal to remove VAT on power.
“The poor whose consumption is less than 100 kilowatt-hours [a month] would have very little benefits and is already subsidized through the lifeline rates,” it said.
“Likewise, the proposed VAT exemption of lifeline subsidy charges and system loss charge goes against the principle of limiting exemption from VAT,” it added. “This could be an avenue for tax leakages and abuses.”
Source
Monday, September 28, 2009
Tax relief for PLDT telecoms group
Rarely have I gone half-cocked on a public issue but, sad to say, my last piece was a glaring example of that rarity. Now feeling sheepish and chastised, it is my duty to correct the inaccuracies in fairness to those who may have been wrongly put in a bad light as a result.
That column, however, was essentially correct in suggesting that some special-interest group is trying to pull a fast one in the matter of telecommunications-related taxes. My mistake was to assume that all five mobile-phone companies were involved in a plot to railroad a tax-relief measure for their own benefit.
Party-list Rep. Jonathan de la Cruz said, “As far as I know, it’s only the Philippine Long Distance Telephone [PLDT] telecoms group—including PLDT, Smart Information Technologies [Smart], Pilipino Telephone Corp.
[Piltel] and Meridian Telekoms Inc.—that is involved here.”
Representative de la Cruz said in no uncertain terms the group that would benefit from the controversial measures is the PLDT telecoms group, headed by Manuel Pangilinan. “We don’t know yet the exact impact of these measures, but that’s what I want the proponents of the measure to explain to the plenary body and the public,” the congressman said.
I had also wrongly assumed that the questionable tax-relief measure was endorsed to the floor by the ways and means committee. It was actually the House Committee on Legislative Franchises that reported out the measures, even if these did not pass through ways and means.
My mistake was that I couldn’t imagine that a tax measure would be disguised as “amendments” to the provisions of the respective legislative franchises of the companies in the PLDT telecoms group. And that’s exactly what those amendments are.
Now, what exactly are these controversial measures about and why is de la Cruz in such a snit? Interviewed on the dwIZ radio program Business is our Business, de la Cruz did not mince words or pull any punches. He said it was not yet clear how big a tax relief the four telecommunications companies would be getting as a result of the franchise amendments. “But it is my duty to demand to know exactly how much tax benefits they would be getting as a result of these measures,” de la Cruz said.
De la Cruz said had he not raised a howl, the proposed amendments would have breezed through plenary until it was too late to do anything to stop it. The PLDT telecoms group, for all we know may be getting a tremendous tax relief if these amendments are passed without question.
“All four proposed amendments are jointly sponsored by Rep. Ferjenel Biron and Rep. Joseph Santiago. These uniformly worded proposals are contained in House Bills 6682 to 6685, which were simultaneously reported out by the Committee on Legislative Franchises, headed by Biron himself.
The Biron committee had only a cryptic justification that the amendments sought to “rationalize and put in parity the tax regimes under which the telecom firms are operating,” de la Cruz said.
As if he smelled a dead rat somewhere in the premises, de la Cruz has demanded to know what the exact impact of these amendments would have on the revenue-raising efforts of the national government. He pointed out that the public would have no way of knowing what exactly is meant by “rationalizing,” or putting the tax regimes applicable on these companies in some sort of “parity” with one another. “Let’s see how much more, or how much less, taxes the PLDT group has to pay the government when these amendments are in place.”
Indeed, there is a need for a more detailed explanation of these proposed amendments. In the case of PLDT, its 25-year franchise is up for renewal for another 25 years. The committee’s proposal is to amend Section 12 of the renewed franchise (Republic Act [RA] 7082) on the basis of the following:
“[to]…rationalize the taxes levied or collected from the grantee by either local or national government, by requiring them to pay the value-added tax [VAT] under RA 7116, as amended, on all gross receipts transacted under its franchise, in lieu of all taxes, duties and charges levied or collected therefrom….”
“The amendment also provides that any rights, privileges, benefits and tax or other exemptions granted to or accorded under existing and future telecommunications franchises shall ipso facto be extended, granted and accorded to the grantee and become part of its franchise.”
The amendment, in other words, requires PLDT to pay the VAT all gross earnings, and that’s it. It also expressly exempts PLDT from paying all other duties and taxes that may be imposed on it by any agency of the government, local or national.
The proposed amendment in the individual franchises of Meridian Telekoms, Piltel and Smart are pretty much the same as the one proposed for the PLDT franchise. After paying the VAT, they will all be exempt from paying all other taxes to be exacted on them by any local or national government agency.
What de la Cruz wants is a clear and detailed explanation. He wants to know how much, more or less, in taxes would be lost by the government as a result of these vague but all-embracing amendments. Will the government’s tax take be reduced or increased by these amendments; in either case, by how much?
In the course of his parliamentary tantrum (if I may call it that), de la Cruz lamented that while the ways and means committee seemed committed to increase the so-called sin taxes which could put tobacco growers in the north out of business, here is a proposal that aims to lighten the tax burden of the cash-rich PLDT telecoms group.
I say since the proposed amendments pertain to telecoms-related taxes—these should be tossed to the ways and means committee. That is the committee that has the mandate—and the competence—to process all proposed tax measures.
Source
That column, however, was essentially correct in suggesting that some special-interest group is trying to pull a fast one in the matter of telecommunications-related taxes. My mistake was to assume that all five mobile-phone companies were involved in a plot to railroad a tax-relief measure for their own benefit.
Party-list Rep. Jonathan de la Cruz said, “As far as I know, it’s only the Philippine Long Distance Telephone [PLDT] telecoms group—including PLDT, Smart Information Technologies [Smart], Pilipino Telephone Corp.
[Piltel] and Meridian Telekoms Inc.—that is involved here.”
Representative de la Cruz said in no uncertain terms the group that would benefit from the controversial measures is the PLDT telecoms group, headed by Manuel Pangilinan. “We don’t know yet the exact impact of these measures, but that’s what I want the proponents of the measure to explain to the plenary body and the public,” the congressman said.
I had also wrongly assumed that the questionable tax-relief measure was endorsed to the floor by the ways and means committee. It was actually the House Committee on Legislative Franchises that reported out the measures, even if these did not pass through ways and means.
My mistake was that I couldn’t imagine that a tax measure would be disguised as “amendments” to the provisions of the respective legislative franchises of the companies in the PLDT telecoms group. And that’s exactly what those amendments are.
Now, what exactly are these controversial measures about and why is de la Cruz in such a snit? Interviewed on the dwIZ radio program Business is our Business, de la Cruz did not mince words or pull any punches. He said it was not yet clear how big a tax relief the four telecommunications companies would be getting as a result of the franchise amendments. “But it is my duty to demand to know exactly how much tax benefits they would be getting as a result of these measures,” de la Cruz said.
De la Cruz said had he not raised a howl, the proposed amendments would have breezed through plenary until it was too late to do anything to stop it. The PLDT telecoms group, for all we know may be getting a tremendous tax relief if these amendments are passed without question.
“All four proposed amendments are jointly sponsored by Rep. Ferjenel Biron and Rep. Joseph Santiago. These uniformly worded proposals are contained in House Bills 6682 to 6685, which were simultaneously reported out by the Committee on Legislative Franchises, headed by Biron himself.
The Biron committee had only a cryptic justification that the amendments sought to “rationalize and put in parity the tax regimes under which the telecom firms are operating,” de la Cruz said.
As if he smelled a dead rat somewhere in the premises, de la Cruz has demanded to know what the exact impact of these amendments would have on the revenue-raising efforts of the national government. He pointed out that the public would have no way of knowing what exactly is meant by “rationalizing,” or putting the tax regimes applicable on these companies in some sort of “parity” with one another. “Let’s see how much more, or how much less, taxes the PLDT group has to pay the government when these amendments are in place.”
Indeed, there is a need for a more detailed explanation of these proposed amendments. In the case of PLDT, its 25-year franchise is up for renewal for another 25 years. The committee’s proposal is to amend Section 12 of the renewed franchise (Republic Act [RA] 7082) on the basis of the following:
“[to]…rationalize the taxes levied or collected from the grantee by either local or national government, by requiring them to pay the value-added tax [VAT] under RA 7116, as amended, on all gross receipts transacted under its franchise, in lieu of all taxes, duties and charges levied or collected therefrom….”
“The amendment also provides that any rights, privileges, benefits and tax or other exemptions granted to or accorded under existing and future telecommunications franchises shall ipso facto be extended, granted and accorded to the grantee and become part of its franchise.”
The amendment, in other words, requires PLDT to pay the VAT all gross earnings, and that’s it. It also expressly exempts PLDT from paying all other duties and taxes that may be imposed on it by any agency of the government, local or national.
The proposed amendment in the individual franchises of Meridian Telekoms, Piltel and Smart are pretty much the same as the one proposed for the PLDT franchise. After paying the VAT, they will all be exempt from paying all other taxes to be exacted on them by any local or national government agency.
What de la Cruz wants is a clear and detailed explanation. He wants to know how much, more or less, in taxes would be lost by the government as a result of these vague but all-embracing amendments. Will the government’s tax take be reduced or increased by these amendments; in either case, by how much?
In the course of his parliamentary tantrum (if I may call it that), de la Cruz lamented that while the ways and means committee seemed committed to increase the so-called sin taxes which could put tobacco growers in the north out of business, here is a proposal that aims to lighten the tax burden of the cash-rich PLDT telecoms group.
I say since the proposed amendments pertain to telecoms-related taxes—these should be tossed to the ways and means committee. That is the committee that has the mandate—and the competence—to process all proposed tax measures.
Source
Monday, July 20, 2009
Is a value-added tax around the corner?
The biggest question facing all of us right now - not to mention our children, their children and all those yet unborn - is how in the world we're going to get out from under the mountains of debt that we have piled up over the years. We owe, as a nation, somewhere in the neighborhood of $11 trillion, and that is a conservative figure. Using generally accepted accounting standards that consider our gigantic unfunded liabilities, the national debt is several times that. We can no longer count on the people of other nations to lend us money that they now know will never be repaid in other than nominal ways, i.e., with vastly cheapened dollars.
Central bankers are flooding the world with new paper currency. Even the famously frugal Swiss have increased their money supply by 30 percent in the last few months. The idea, of course, is to prevent deflation. The conceit, born out of desperation, is that Federal Reserve Chairman Ben Bernanke and his counterparts in other nations can inflate (cheapen their currencies) in a controlled manner, preventing hyperinflation (the total ruination of their currencies). My strong suspicion is that massive increases in the money supply make ruinous inflation unavoidable in the long term, though so far in the current credit meltdown, price deflation is the overwhelming reality. Oh, excepting government, that is.
Since it's difficult to believe that the federal government can actually operate with a $3.6 trillion budget and a $2 trillion deficit, we see our nervous political class entertaining something so drastic, it has been off the table in this country for many years - even though more than a hundred other governments use it to pay for their ever-growing spending. I'm talking about a value-added tax, commonly referred to as a VAT. The Washington Post reported Wednesday that tax experts at a White House meeting on budget problems "pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT."
A VAT taxes the transfer of goods and services every step of the way, from their manufacture or initiation to their final purchase. From a government's point of view, a VAT is a wonderful tax because, as the Post story reports, "producers, wholesalers and retailers are each required to record their transactions and pay a portion of the VAT." So, it's hard to dodge. It punishes spending rather than saving, which would represent a U-turn for the American economy, which has been rewarding spending and penalizing saving for many years.
Source
Central bankers are flooding the world with new paper currency. Even the famously frugal Swiss have increased their money supply by 30 percent in the last few months. The idea, of course, is to prevent deflation. The conceit, born out of desperation, is that Federal Reserve Chairman Ben Bernanke and his counterparts in other nations can inflate (cheapen their currencies) in a controlled manner, preventing hyperinflation (the total ruination of their currencies). My strong suspicion is that massive increases in the money supply make ruinous inflation unavoidable in the long term, though so far in the current credit meltdown, price deflation is the overwhelming reality. Oh, excepting government, that is.
Since it's difficult to believe that the federal government can actually operate with a $3.6 trillion budget and a $2 trillion deficit, we see our nervous political class entertaining something so drastic, it has been off the table in this country for many years - even though more than a hundred other governments use it to pay for their ever-growing spending. I'm talking about a value-added tax, commonly referred to as a VAT. The Washington Post reported Wednesday that tax experts at a White House meeting on budget problems "pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT."
A VAT taxes the transfer of goods and services every step of the way, from their manufacture or initiation to their final purchase. From a government's point of view, a VAT is a wonderful tax because, as the Post story reports, "producers, wholesalers and retailers are each required to record their transactions and pay a portion of the VAT." So, it's hard to dodge. It punishes spending rather than saving, which would represent a U-turn for the American economy, which has been rewarding spending and penalizing saving for many years.
Source
Monday, July 13, 2009
House panel chief: It’s a telco tax, not just a fee
SUSTAINING an earlier position of mobile-phone firms, the chairman of the House ways and means committee said on Tuesday the 5-centavo regulatory fee proposed to be imposed on industry players is a tax and not a form of a fee, virtually junking a House resolution seeking the “broad spectrum fee.”
And since this is a form of taxation, Lakas Rep. Exequiel Javier of Antique said Congress will have to pass a law and not just relegate to the National Telecommunications Commission (NTC) the task of imposing the fee, as embodied in House Resolution 282, authored by Kabalikat ng Malayang Pilipino (Kampi) Rep. Danilo Suarez of Quezon.
Javier issued his observation at Tuesday’s deliberations on Suarez’s resolution, where he compared the revenues of mobile-phone firms with the projected income that will be generated if the proposed regulatory fee were implemented.
Answering the query of Javier, Lourdes Recente of the finance department said that total income tax of telecommunications companies for 2008 is P34 billion; while the total value-added tax (VAT) is P11 billion or a total of P45 billion.
“It will be higher than the income tax. It will be higher than the VAT and you call it a fee? That’s not a fee, that’s a tax. Congress must act on it to pass a law not through NTC. That’s a too much for a fee,” Javier said.
Prior to this, Globe Telecom’s chief legal adviser Rodolfo Salalima told the panel the Suarez resolution creates an obligation to telcos to submit themselves to metering.
He said that under Article 1157 of the Civil Code, obligations “arise from law, by contracts, by quasi contracts.”
“[Therefore] I am of the position that a resolution merely expresses the intent, the sentiment of the House under [Article] 1157. With due respect, a resolution cannot create an obligation on the part of the telcos,” Salalima said.
He said that in using the fee to fund the metering and computerize all public schools nationwide as stated in the resolution, the government will in effect tax all telcos 5 centavos per text.
“This tax is uncleverly disguised as a fee. The tax, no matter what you call it, is a tax and this tax is in fact confirmed by committee report of Congressman Suarez. We need a tax law, a tax law which must originate from the House, a tax law which must also be approved by the Senate,” Salalima said.
He also informed the panel that if the metering device are outside the control of the telcos, their vulnerability to wiretapping is further enhanced. Salalima said that at present, mobile-phone firms are encountering a problem on trying to avoid wiretapping by installing a number of firewalls.
He also said that on the part of Globe, it is ready to open its books for accounting, referring to an earlier threat of Suarez.
Suarez also told Salalima not to deceive the public by claiming that the telcos are giving away free text, as even what is called free text actually has a price.
In the same hearing, Gerardo Florendo, Revenue District Officer of the Bureau of Internal Revenue (BIR), admitted that the agency cannot monitor the real income of mobile-phone firms, especially now that electronic load or “e-load” is now the “bulk of the business of the telcos” because this transaction has no receipt.
Monday, July 6, 2009
Value added tax: One trial balloon worth deflating
A trial balloon rose over the nation's capital last week when the Washington Post reported advisers within the Obama administration and members of Congress are discussing the merits of a national value-added tax to pay for health care and cover ever-expanding budget deficits.
Value-added taxes are levied on the transfer of goods and services, and are paid by the consumer. They are, essentially, a tax on every commercial transaction. As such, the final user will find the cost of any particular item will increase at least by the amount of the tax. Unlike a retail sales tax, which is charged only at the final point of sale, a VAT is collected as goods move through the production and distribution system.
Recently approved increases in government spending have pushed next year's budget deficit to more than $3 trillion, and the administration projects regularly spending $1 trillion more than it takes in over the next 10 years. At the same time, the president has promised to extend health care to millions of Americans. Proposed hikes on taxes paid by the wealthy won't come close to covering the costs.
Though once rejected as politically unpalatable, Democratic policy-makers have a new interest in a VAT. It would raise huge amounts of money off the hundreds of millions of individual commercial transactions the federal government now does tax.
Governments have legitimate and essential functions that require one or more revenue streams. So when discussed only as theory, no tax scheme is either good or bad. The problems arise in their application. Under the current circumstances, we see great opportunity for mischief if this idea becomes law.
Proponents of the VAT point out the United States is one of the few modern industrial countries that doesn't have such a tax. The VAT had its origins in France in the 1950s, and the rest of Europe has adopted it in one fashion or another. It has funded the generous social service network in those liberal democracies.
As popular as those benefits might be, the VAT is not universally loved by its beneficiaries. In Canada, the VAT is known as the Goods and Services Tax, or GST. Wags there say GST stands for "gouge and screw tax."
In most countries, the VAT has augmented, but not replaced, the income tax system. To one degree or another, the VAT combined with an income tax would allow the feds to collect not only on every dollar you make, but also on every dollar you spend - a truly comprehensive system of taxation.
Critical issues that would determine the VAT's impact on the treasury and on consumers include the tax rate and the possible exemption of some vital goods to lessen the effect on the poor. Both would be tricky issues rife with opportunities for political manipulation.
Proponents cited by the Post said a 10-14 percent VAT would raise enough money to exempt those earning less than $100,000 from the income tax. A VAT of 25 percent would allow the income tax rates of the remaining taxpayers to be reduced, but not eliminated.
Both statements are probably optimistic, if for no other reason because once Congress taps into such a rich source of funding it will find additional needs to fill and spend more and more. An initial rate of 10 percent could quickly become 15 percent, 25 percent or more. We would be surprised if many saw their income tax burden decline.
A VAT would add more than just a financial burden on those who sell products or provide services. It would make every seller a tax collector. The farmer selling hay would have to record the transaction and collect the tax for the Internal Revenue Service. We can't imagine the bureaucracy that would be required.
On its face, a VAT would hit farmers particularly hard. The already hefty cost of inputs would be increased by the cost of the tax. Farmers, who have fewer opportunities than manufacturers and retailers to increase the price of their products, would be unable to pass these additional costs on to their customers.
We think a re-evaluation of the country's finance system is probably overdue. Such a review, however, shouldn't begin with a premise that spending must be unlimited in scope and purpose. If spending could be brought under control, perhaps a VAT could be used to offset other taxes in a new, comprehensive system.
Until then, a value-added tax is too dangerous a weapon to be wielded by the current administration and Congress.
Source
Value-added taxes are levied on the transfer of goods and services, and are paid by the consumer. They are, essentially, a tax on every commercial transaction. As such, the final user will find the cost of any particular item will increase at least by the amount of the tax. Unlike a retail sales tax, which is charged only at the final point of sale, a VAT is collected as goods move through the production and distribution system.
Recently approved increases in government spending have pushed next year's budget deficit to more than $3 trillion, and the administration projects regularly spending $1 trillion more than it takes in over the next 10 years. At the same time, the president has promised to extend health care to millions of Americans. Proposed hikes on taxes paid by the wealthy won't come close to covering the costs.
Though once rejected as politically unpalatable, Democratic policy-makers have a new interest in a VAT. It would raise huge amounts of money off the hundreds of millions of individual commercial transactions the federal government now does tax.
Governments have legitimate and essential functions that require one or more revenue streams. So when discussed only as theory, no tax scheme is either good or bad. The problems arise in their application. Under the current circumstances, we see great opportunity for mischief if this idea becomes law.
Proponents of the VAT point out the United States is one of the few modern industrial countries that doesn't have such a tax. The VAT had its origins in France in the 1950s, and the rest of Europe has adopted it in one fashion or another. It has funded the generous social service network in those liberal democracies.
As popular as those benefits might be, the VAT is not universally loved by its beneficiaries. In Canada, the VAT is known as the Goods and Services Tax, or GST. Wags there say GST stands for "gouge and screw tax."
In most countries, the VAT has augmented, but not replaced, the income tax system. To one degree or another, the VAT combined with an income tax would allow the feds to collect not only on every dollar you make, but also on every dollar you spend - a truly comprehensive system of taxation.
Critical issues that would determine the VAT's impact on the treasury and on consumers include the tax rate and the possible exemption of some vital goods to lessen the effect on the poor. Both would be tricky issues rife with opportunities for political manipulation.
Proponents cited by the Post said a 10-14 percent VAT would raise enough money to exempt those earning less than $100,000 from the income tax. A VAT of 25 percent would allow the income tax rates of the remaining taxpayers to be reduced, but not eliminated.
Both statements are probably optimistic, if for no other reason because once Congress taps into such a rich source of funding it will find additional needs to fill and spend more and more. An initial rate of 10 percent could quickly become 15 percent, 25 percent or more. We would be surprised if many saw their income tax burden decline.
A VAT would add more than just a financial burden on those who sell products or provide services. It would make every seller a tax collector. The farmer selling hay would have to record the transaction and collect the tax for the Internal Revenue Service. We can't imagine the bureaucracy that would be required.
On its face, a VAT would hit farmers particularly hard. The already hefty cost of inputs would be increased by the cost of the tax. Farmers, who have fewer opportunities than manufacturers and retailers to increase the price of their products, would be unable to pass these additional costs on to their customers.
We think a re-evaluation of the country's finance system is probably overdue. Such a review, however, shouldn't begin with a premise that spending must be unlimited in scope and purpose. If spending could be brought under control, perhaps a VAT could be used to offset other taxes in a new, comprehensive system.
Until then, a value-added tax is too dangerous a weapon to be wielded by the current administration and Congress.
Source
Monday, June 29, 2009
Cato Scholar Urges US Tax Reformers To Resist VAT
A value-added tax system will not be the magic bullet that simplifies the US tax system while increasing revenues, as proponents of a federal consumption tax have suggested, according to a critique of the idea by Dan Mitchell of the Cato Institute.
Writing in the Wall Street Journal in response to renewed interest in consumption taxes in Washington as part of the wider debate on US tax reform, Mitchell argues that the evidence from Europe, where VAT systems have been in place for many decades, is not encouraging from the point of view of reducing both tax complexity and the overall tax burden.
“The classical argument in favor of a VAT says that it's desirable because it has a single rate and is based on consumption,” Mitchell writes. “It is true that single-rate systems (assuming a reasonable rate) are less harmful than discriminatory regimes with "progressive" rates. It's also true that a consumption-based tax would not inflict as much damage as our internal revenue code, with its multiple layers of tax on income that is saved and invested. But these arguments only apply if a VAT replaces the current tax system -- which is not the case here. And the evidence from Europe suggests it's not a good idea to add a somewhat-bad tax like the VAT on top of a really bad tax system.”
Mitchell notes that prior to the mid 1960s, before the advent of VAT in Europe, the average tax burden for the advanced European economies (commonly referred to as the ‘EU 15’) was just under 28% of gross domestic product (GDP) – a similar level to the US tax burden at the same time. By 2006, with VAT firmly entrenched across the European Union at rates of 15% or more (the legal minimum rate set down by the EU VAT Directive) the tax burden of the EU 15 had grown to a little under 40% of GDP. By contrast, the US tax burden had remained fairly static at 28%.
Mitchell also rejected the notion that VAT can increase the tax take without higher taxes on personal or corporate income, again pointing to Europe where taxes on income and profits consumed 8.8% of GDP in Europe in 1965 and 13.8% in 2006.
“The income tax system we have today is a nightmarish combination of class warfare and corrupt loopholes,” Mitchell writes. “Adding a VAT does not undo any of the damage it imposes. All that happens is that politicians get more money to spend and a chance to auction off a new set of tax breaks to interest groups. That's good for Washington, but bad for America."
The idea of a national consumption tax briefly formed part of the debate when President George W. Bush was putting together his bipartisan panel to study options for fundamental tax reform, but did not emerge as one of the final proposals.
The Bush panel came up with two broad plans for tax reform which would have reduced the number of income tax brackets, somewhat simplified corporate and investment taxes and abolished the alternative minimum tax, although the panel’s report was quietly shelved after the Democrats gained a majority in Congress in 2006. However, for many tax reform advocates, the proposals did not go nearly far enough.
The last major round of tax reforms in the US was the Tax Reform Act of 1986 under President Ronald Reagan. But this work seems to have been largely undone by successive administrations and Congresses; there have been more than 3,250 changes to the tax code since 2001 alone - an average of more than one a day.
President Barack Obama has established his own tax reform panel which is due to report back by the end of 2009. Led by former Federal Reserve Chairman Paul Volcker, the only restriction placed on this panel’s remit is to ensure that its proposals do not increase taxes on those earning less than USD250,000 per year. However, it is expected that the Obama panel’s focus will be as much on efforts to close the ‘tax gap’ as on simplifying the tax code, although one of the President's pre-election pledges was to dramatically simplify the act of filing a tax return for the vast majority of individual taxpayers.
It is likely that a national consumption tax will be re-examined during the Obama panel’s deliberations. Indeed Senate Budget Committee Chairman Kent Conrad recently told the Washington Post that VAT must be “on the table” as part of the latest tax reform debate.
.
Writing in the Wall Street Journal in response to renewed interest in consumption taxes in Washington as part of the wider debate on US tax reform, Mitchell argues that the evidence from Europe, where VAT systems have been in place for many decades, is not encouraging from the point of view of reducing both tax complexity and the overall tax burden.
“The classical argument in favor of a VAT says that it's desirable because it has a single rate and is based on consumption,” Mitchell writes. “It is true that single-rate systems (assuming a reasonable rate) are less harmful than discriminatory regimes with "progressive" rates. It's also true that a consumption-based tax would not inflict as much damage as our internal revenue code, with its multiple layers of tax on income that is saved and invested. But these arguments only apply if a VAT replaces the current tax system -- which is not the case here. And the evidence from Europe suggests it's not a good idea to add a somewhat-bad tax like the VAT on top of a really bad tax system.”
Mitchell notes that prior to the mid 1960s, before the advent of VAT in Europe, the average tax burden for the advanced European economies (commonly referred to as the ‘EU 15’) was just under 28% of gross domestic product (GDP) – a similar level to the US tax burden at the same time. By 2006, with VAT firmly entrenched across the European Union at rates of 15% or more (the legal minimum rate set down by the EU VAT Directive) the tax burden of the EU 15 had grown to a little under 40% of GDP. By contrast, the US tax burden had remained fairly static at 28%.
Mitchell also rejected the notion that VAT can increase the tax take without higher taxes on personal or corporate income, again pointing to Europe where taxes on income and profits consumed 8.8% of GDP in Europe in 1965 and 13.8% in 2006.
“The income tax system we have today is a nightmarish combination of class warfare and corrupt loopholes,” Mitchell writes. “Adding a VAT does not undo any of the damage it imposes. All that happens is that politicians get more money to spend and a chance to auction off a new set of tax breaks to interest groups. That's good for Washington, but bad for America."
The idea of a national consumption tax briefly formed part of the debate when President George W. Bush was putting together his bipartisan panel to study options for fundamental tax reform, but did not emerge as one of the final proposals.
The Bush panel came up with two broad plans for tax reform which would have reduced the number of income tax brackets, somewhat simplified corporate and investment taxes and abolished the alternative minimum tax, although the panel’s report was quietly shelved after the Democrats gained a majority in Congress in 2006. However, for many tax reform advocates, the proposals did not go nearly far enough.
The last major round of tax reforms in the US was the Tax Reform Act of 1986 under President Ronald Reagan. But this work seems to have been largely undone by successive administrations and Congresses; there have been more than 3,250 changes to the tax code since 2001 alone - an average of more than one a day.
President Barack Obama has established his own tax reform panel which is due to report back by the end of 2009. Led by former Federal Reserve Chairman Paul Volcker, the only restriction placed on this panel’s remit is to ensure that its proposals do not increase taxes on those earning less than USD250,000 per year. However, it is expected that the Obama panel’s focus will be as much on efforts to close the ‘tax gap’ as on simplifying the tax code, although one of the President's pre-election pledges was to dramatically simplify the act of filing a tax return for the vast majority of individual taxpayers.
It is likely that a national consumption tax will be re-examined during the Obama panel’s deliberations. Indeed Senate Budget Committee Chairman Kent Conrad recently told the Washington Post that VAT must be “on the table” as part of the latest tax reform debate.
.
Monday, June 8, 2009
The Bolivian Sales Tax (IVA)
Whether or not you pay a Bolivian sales tax when you go shopping will depend on where you are shopping, what you are buying, and who you are buying it from.
The Bolivian tax on transactions is called the IVA (Impuesto al Valor Agregado – or Value Added Tax, in English). Basically, it all boils down to this: anyone who sells anything should pay taxes to the government on the income they earn from the sale. However, as you’ll soon learn, the IVA is a far more complex matter in Bolivia. I’ll try to explain in the most uncomplicated manner possible.
For all practical purposes, what you need to know is that there are two types of commerce: what we typically call formal commerce and informal commerce.
Formal commerce includes all businesses that have registered with the government, have a Tax I.D. number and pay taxes on each sale made. In order to show how much they’ve earned, ideally they are supposed to issue an invoice (sales receipt) each time they make a sale. The Bolivian sales tax they charge you is then paid once a month to the government. Many of these businesses import the products they’re selling you – they pay import taxes on those products as well, prior to selling them to you and me.
Informal commerce includes all businesses that have not registered with the government, do not have a Tax I.D. number and do not pay taxes on each sale made. Technically this is not legal, right? Let me explain:
Many businesses “import” products without paying import taxes. This means they’ve found a way to obtain the product without taking it through customs. You would think these products (frequently called “black market” products) would be sold only in outdoor markets and in a clandestine manner, but you’d be surprised how many formal businesses actually acquire their products this way too. Stores or vendors who sell this type of product are part of the “informal” commerce that exists in Bolivia.
But, in addition to these, many stores, vendors, outdoor market vendors, and sidewalk vendors sell products that are not imported – they are manufactured in Bolivia. Nothing illegal about that. However, they have not registered with the government to sell anything (ideally everyone should) and therefore, do not pay taxes to the government.
Because both types of “informal” vendors have not paid taxes to the government (either in the form of an import tax or a sales tax) they cannot charge you a Bolivian sales tax either. And, because they are not registered with the government, they are unable to provide an invoice (sales receipt) to their customers. Once in a while the government will send out inspectors to randomly close down informal businesses. But this happens infrequently.
Why has the government turned a blind eye to informal business for so long? Probably because without informal commerce thousands of people and families would have no income at all, and without other viable income and job opportunities to offer them, the government has been slack about making these vendors pay the Bolivian sales tax.
Source
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