I made a purchase at Commons the other day with fellow TP-er, Jeff Okita. As I juggled my chicken pesto, napkins, and wallet, I managed to whip out my USC ID to avoid the big bad sales tax implemented on all Californians (and those who go to Commons hungry and ID-less). The lady who beamed at my black Styrofoam box asked me to pay up my $6.25, and I did so with a smile because I saved an estimated 50 cents. If one day I am interviewed on how I made my first million, I will attribute it to my being practical like this (“I brought my student ID with me everyday to school and look at me now!”).
By virtue of the CIA World Factbook, the 2005 estimate of Philippine GDP growth has been proclaimed 4.8%, well above the rest of the pack of the international community. Upon my most recent return to the homeland over Christmas break, I found that hard to believe. Until I encountered the VAT (value-added tax). The Philippine Department of Finance (DoF) implemented the VAT last November, and its effects have been quite mixed. Usually, economic growth alludes to bigger and better things for a country, but in this case, the DoF has single-handedly raised the GDP growth of the entire nation without changing the development of the economy as a whole.
I had my first taste of the VAT when I made a trip to Powerplant Mall in the upscale area of Rockwell in Makati. I thumbed through the clothes in one of my favorite apparel stores, and began purchasing things on impulse (my excuse to my dad later on: I just wanted to make sure my international credit card worked). I noticed a whopping 12% tax on the bottom of my receipt. I asked the saleslady what the hell it was and why it was on my receipt. She explained that the reasonable(?) PhP 2,450 for one of my items qualified for PhP 300 worth of VAT.
I was surprised, mostly because in all my years of living in the Philippines, I had never paid tax for things that I had purchased. I remembered the positive report on the GDP growth later on, and almost smiled at myself for contributing to my country’s economic growth. However, taking the estimated minimum wage into consideration, PhP 275 per day, there are probably a considerable number of people in the Philippines feeling the negative effects of the new VAT regime. Although the VAT has been solely responsible for pushing the peso down to about PhP 48 to the dollar (the lowest in six years), I couldn’t help but notice that nothing in the country has changed outside the low exchange rate…
I was not expecting a significant change upon my arrival. The inherently Pinoy attitude of “bahala na” (a longer way of saying “whatever”) will not make its exit soon. But, I was expecting some sort of change to manifest itself in the economy, what with the rosy depictions of growth that several government officials profess. In recent years, several people close to me have made their way into public office, and as I watch their lives improve (how they do this, I do not even want to know) I cannot help but think about those whose lives are getting worse.
So for those of you traveling to the Philippines over the summer, consider this a travel advisory. Pack on the extra peso to offset the raised prices on… well, almost everything. Although, yes, some items are cheaper in the Philippines compared to U.S. prices, you will find that your vacation money cannot hold as much as it used to. The VAT policy is likely to stay until a) the budget deficit is cured or b) people get so poor that violent unrest starts plaguing the nation, whichever comes first. Until then, I’m going to contemplate on innovative ways to budget my precious peso.
edit by celeste-
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More information on the VAT:
- It was implemented in 1988
- The rate was raised from 10% to 12% in February 2006
To put this into perspective:
- CA's tax rate is between 7.25% to 8.75% (the highest in the USA)
- NJ's tax rate is 3.5% to 7%
- Hawaii has no sales tax, but excise taxes of up to 4%
Thanks Isabelle!
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