Texting to cost more with Senate VAT bill

The Senate proposal to raise P23 billion for government’s coffers from a five-year crediting of input value-added tax (VAT) on capital equipment would mean a 12-centavo increase in the price of the highly popular text messaging or short messaging system (SMS).


The proposed measure would also turn off prospective investors, who are counting on investment incentives like zero tariff on importation of capital equipment.


Albay Rep. Joey Sarte Salceda warned that the Senate proposal is nothing more than a tax on text as its principal burden would be borne by the telecom industry.


He said that since the earlier proposed tax on text was shot down due to public outcry, the Senate is “surreptitiously resurrecting the tax on text through this new scheme.”


“Another version under the guise of telecom franchise tax was similarly shelved by the House Committee on Ways and Means as it would primarily result in additional burden on text which accounts for 80 percent of the revenues of the telecom industry,” said Salceda in a statement.


He said that the full offset of the input VAT on its massive capital investments has essentially allowed cellular firms to keep the price of text constant at P1 per text since 1995.


For example, in 2003, the output VAT of the telecom industry was P15 billion, but its input VAT was P12 billion resulting in a net VAT payable of P3 billion to the Bureau of Internal Revenue (BIR) since they have essentially paid VAT to the Bureau of Customs.


“In its suspicious fixation to target the telecom industry, the Senate had to come up with a tax policy that is even much worse than a tax on text as it would impact on all firms that invest. So, let us catch the mouse by burning the whole house,” Salceda said.


He explained that the five-year crediting of input VAT on capital equipment will penalize firms that invest. Between two firms with the same sales, the firm that invests would pay higher taxes.


“That is simply a bad tax policy as it would undo spirited efforts of the country to attract investments to spur economic growth which would then expand the tax base. It kills the goose even before it could lay a golden egg,” Salceda said.


He explained that this is not really a tax as the government is essentially proposing a borrowing measure. In effect, government gets cash flows from the “uncredited input VAT” of the investing firms for five years at zero interest rate but that would eventually be offset by future tax liabilities.


“While other countries are falling all over just to compete for investments, with the five-year crediting of input VAT, the Philippines is telling investors to invest in the Philippines and lend the government for five years at zero interest.”