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.

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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.

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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.

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