Editor’s note: This article appeared on Sanggu’s Bantay Presidente 100 last August 30, 2010 and was co-authored by Anthony Sabarillo (AB EC-H ’12), AVP for AcaRnDs and Mikolo Ilas (AB EC ’12), Finance Deputy.
There has been a lot of noise about the proposed Value Added Tax (VAT) on toll. The Bureau of Internal Revenue (BIR) and the Toll Regulatory Board (TRB) plan to implement the adjusted rates starting August 16 as authorized under revenue memorandum circular issued by BIR commissioner Kim Henares. This measure aims to increase the already depleted government coffers by collecting a projected amount of P1 billion a year from toll gate collections around the country, which will cover North Luzon Expressway (NLEx), Subic-Clark-Tarlac Expressway (SCTEx), Coastal Road, Skyway (the elevated and ground levels), South Luzon Expressway (SLEx) and Southern Tagalog Arterial Road (STAR).
In addition, Manila Toll Expressway Systems Inc., operator of the South Luzon Expressway (SLEx) is about to implement a 250-percent increase in the aforementioned expressway’s fees. This is after the South Luzon Tollways Corporation (SLTC), a unit of Malaysia-based MTD Capital Berhad, has complied with their obligations of widening and maintaining the expressway. The regulator granted the investors the right to collect the new tolls after fulfilling the said road improvements, which cost P12 billion. According to the periodical Business Mirror, “Motorists currently pay the following toll along SLEX: P22, P43, and P65 for Class 1, 2 and 3 vehicles respectively. …on August 16 the new rates are: P77 for Class 1, P155 for Class 2 and P232 for Class 3.” The said toll hike was supposed to be implemented during the last days of the Aquino Administration, but was postponed at the last minute to “instil goodwill” with the incoming administration, not knowing that the president would actually permit such exorbitant toll hikes.
As Expected, the Cons
As expected, scores of sectors denounced these controversial measures. Considering that the memorandum is based on the BIR’s interpretation of the existing Reformed Value Added Tax Law (RVAT) of 2005, lawmakers dismissed the measure as lapse of judgment on BIR’s part. Senator Ralph Recto, the author of the RVAT Law, said that while VAT on land transportation could be found in the 1995 VAT law, it was removed in the amendatory law passed in 2005. Former Representative Rene Diaz and Senate President Juan Ponce Enrile further explained that to impose a tax on toll is double taxation for the simple reason that the toll is essentially a user’s tax. Lastly, the common Filipino, being subject to numerous price hikes of this kind to the transportation sector, knows that the consequences of big increase to factors of transportation (like fuel, spare parts, toll, and other things the transportation sector invoke when petitioning for higher fares) are most likely bad. Toll increases of this magnitude will make it more expensive to transport people, goods and services, therefore creating a chain effect on the prices of goods and services dependent to transportation. Inflations and restrictions of this kind will end up causing less economic activity, and less income.
Immediate problems aside, these toll increases (especially the one on South Luzon Expressway) have the markings of the public-private partnership measures that the present administration is trying to implement to jumpstart the economy. Alvin Padilla of the Ibon Foundation argues that “SLTC’s supposed ‘entitlement’ to a rate increase of such magnitude stems from the flawed policy of privatization of infrastructure development. …privatized infrastructure narrowly measures the viability of a project in terms of how much and how fast the contractor will profit from his investment.” This is the downside of the P3s, as expounded in the Bantay Presidente 100 entitled “Government, Incorporated”.
The Government’s Back Against the Wall
Detractors and broken campaign promises notwithstanding, the government should not be subjected to the villain status (yet again) for pursuing an unpopular measure to try to raise the coffers of a debt-stricken government. The toll hike and “toll tax” (again, this is quite redundant) were proposed to “recover” the 12 billion pesos the SLTC spent to improve the toll way, and to increase government revenues, respectively. In other words, the government is simply looking for ways to fulfil its promise to pay the Malaysian investor, and to make more money ideally for other public works and services. The money could be used in a way that we decrease the possibility of ending up in another public-private partnership deal that will drive prices way up again for the sake of fulfilling a certain “return of investment” for the private partner.
Perhaps the government made a mistake in its cost-benefit analysis before striking the deal, and it might have been no stupid mistake—subjecting a highway to cost-benefit analysis is a lot harder than it seems. The problem with a highway, in itself, is that it is a public good (if there’s light traffic), or a common resource (if there’s heavy traffic, because an additional driver who uses it prevents another car from making “full use” of the highway). Without toll fees, no one can keep any car from using the road. No one would care to maintain that road either. If millions of cars are travelling everyday on a road that’s in poor condition, we all know what might happen. So the government asks people to pay for the maintenance of the highway through the toll. But here’s where the difficulty comes in: how much should the government improve the highway? Will the improvement and the benefits outweigh the costs imposed on the highway users? It’s a different case for a private good (let’s say a car): the price people are willing to pay shows how much benefit they think the car gives them, and the price the producers are willing to sell shows how much making the car cost them. It doesn’t work this way for a highway because people might pay more (or less) than they’re willing to, and the government can only estimate the toll that will take care of both the expenses of maintenance and of the welfare of the highway users. In this light, maybe we can forgive the previous administration for leaving us with so much to pay for the improvement of SLEx. No one can really say if this road rehabilitation will do most of us good in the long run.
The (Temporary Restraining) Verdict
(Random thought. A random Google search on “Toll Tax” yields mainly articles from Philippine newspapers about the topic. Only in the Philippines do we find it grammatically convenient and un-wrong to tax a tax. So the Supreme Court had to do something about this, right? Then…)
Exactly a day before the targeted implementation of both measures, the Supreme Court issued a temporary restraining order (TRO) on the implementation of both expansion of RVAT on toll rates and the 250% toll hike on the South Luzon Expressway. Court Administrator and Supreme Court spokesperson Midas Marquez said Chief Justice Renato Corona issued the two restraining orders because of the urgency of the situation that could cause “irreparable damage” to the public using the highways. They reasoned out that if they let the administration carry out the memorandum on toll hikes and then find out that this was done unconstitutionally or wasn’t properly imposed, it would be very hard to reimburse the motorists affected. (Not to mention the chain effect it could have caused even before the Supreme Court that is not well known for speedy decisions could have a final say on the case.) In contrast, if the magistrates decide that the VAT was properly imposed, “then we are more or less losing only a total of 10 days,” Marquez said.
In light of this (temporary) resolution of the issue, Senator Joker Arroyo pointed out that the current administration’s lawyers should be more careful next time in issuing such Executive Orders and memorandum circulars. The reason why these attorneys were unprepared for the argument that a VAT on toll is double taxation is still unknown. It is indeed economically inefficient (a waste of time and effort) to have such “rush jobs” to be subject to Temporary Restraining Orders from the Supreme Court, or to a public suit. The senator argues that if only the lawyers did not hurry too much, the problem could have been settled between the Executive branch and the Senate, and could have allowed the Supreme Court to handle other important cases. The cliché is true: haste makes waste. And making waste is one of the mortal sins against economics, especially for an administration claiming lack of resources and with a leader who is supposedly an economist by profession.