CSOs and State 8: Gawad Kalinga, Health NGOs and Taxes

There was a good article two months ago at the Inquirer on the dramatic growth of Gawad Kalinga (GK) in the Philippines. Now there are 2,300+ GK villages in 400 towns in the Philippines according to prime GK advocate. The news report also narrated how some local politicians ride on the GK bandwagon, whether for serious or opportunist reason.

http://newsinfo. inquirer. net/inquirerhead lines/nation/ view/20090719- 216139/Local- execs-into- politics- of-caring- GK-way

I am not sure if those local and national politicians that hitch with the GK bandwagon understand that there is something in GK that is not present in government service: instant accountability.

GK lives off on pure donation, voluntary contribution. Once the donations are gone, GK is gone.

Government on the other hand, lives off on taxation, mandatory and forcibly collected taxation. Such revenues can never go dry, so the bureaucracies can never fade away.

GK people are driven by pure customer satisfaction. Their "customers" are the thousands of private donors who have extra money to give away if they are assured that their donations are well spent and not stolen or wasted. If those donors sense something is wrong, there is the instant result of donation reduction or evaporation. Whereas in government, there is rigid and looongg process of finding out accountability and wrong-doing, if ever.

I know a Pinoy friend from LA, who has been helping GK for the past 6 to 10 years now. He's on the lookout how the projects that he's supporting is going. A single news that he can confirm that the money is wasted in a par ticular GK project, he stops donating to that community, rechannels his contributions to other GK communities or other humanitarian projects. He even tells his other friends who give the same donation, so the news of wrong-doing can easily spread. Although so far, instances of wasteful GK projects are very few and isolated.

It's like Rotary, Lions, Masons, other private charity and civic groups, other civil society organizations (CSOs). They live off on pure voluntary support, membership and contributions. The moment a club or a district misbehaves, the "punishment" in the form of reduced membership may not be instant but can build a momentum.

More serious politicians who strongly believe in the GK spirit should consider drastically cutting the taxes and fees (local or national) that they impose, encourage investor confidence that results in more investments, more entrepreneurship, more job creation in the local community or the country as a whole.
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Civil Society Leaders Embracing High Taxes

In relation to my earlier discussion on taxes on medicines, I posted in our CHAT googlegroups that our think tank, Minimal Government Thinkers, does not solicit or receive any government money (local, national, foreign aid). A think tank or NGO that does not receive any tax money can be a tax activist anytime.

When the WB Philippines proposed -- and reported in the newspapers -- that the excise tax on gasoline (currently around P4.50/liter) should be hiked in order to help reduce the budget deficit, I posted a commentary in this blog and sent it to my various ygroups, cc'd my friends working or used to work in WB Manila. I said that the WB is a parasite for proposing such measure to further raise gasoline prices when many sectors are already debating or fighting each other how to bring down gasoline prices, how to bring down the fares in public transpo, etc. I think the Department of Finance (DOF) also did not entertain their proposal. 

If MG Thinkers receive funding from the WB, IMF, ADB, UN, USAID, AusAid, etc., it's difficult to become a tax activist because ALL of those institutions live off on tax money. Or difficult to attack international bureaucrats because ALL of them are international bureaucracies. 

One NGO leader narrated their experience. Early this decade, they campaigned for the removal of the tax for one anti-cancer (leukemia) drug. They succeeded, but he added that it did not result in price reduction, rather the prices of such drug kept rising. So he concluded that only the pharma company, not the patients, benefited from the removal of taxes on medicines.

I narrated my other observation. One of my Filipino friends in California (Monchit Arellano) is helping the Books for the Barrios (BftB, www.booksforthebarriors.com). He, his family, some Filipino officemates and friends, solicit and collect hundreds, thousands, of books, even toys, for elementary-level students in the US, pack them in boxes, which are later loaded in shipping containers, transport to the Philippines. BftB Manila receives those containers, and here's the catch:

Those books from America were donated FREE.
Those books will be distributed to public elementary schools in rural areas of the Philippines for FREE.

But when those containers of books from the US reach the Philippine ports, BftB Manila pays for the following:
1. Customs duties around P65,000 -- yes there are taxes for donated and used books!
2. Customs broker around P60,000 -- an agency that deals everything with the Bureau of Customs (BOC).

The BftB Manila staff who narrated me that story last year, said that what's worse, donated medicines and vaccines by volunteer medical missions from abroad, many of them are parked at the Customs area and allowed to deteriorate. Why? Those medical missions and volunteers have money for the airfare of the volunteers and shipment of free drugs and vaccines. But they never expected there are high taxes and Customs brokerage to pay for those donated medicines, so they did not bring money for such. Those vaccines are on refrigerated containers that run on electricity, of course. Since they cannot pay the taxes, and the medicines require continued electricity while the papers and payment are being processed, the BOC personnel disconnect the electricity as electricity charges are being borne by the Bureau. Within hours, those useful, essential, life-saving medicines become useless as they need to be kept at a particular temperature (say 0 or 10 Celsius). When the temperature goes up or down significantly, the medicines become ineffective for their intended patients.

For the imported anti-cancer drugs that the NGO leader above was talking, I think only the import tax (5%) was waived. This tax is collected by the BOC. On top of the import tax, there is the 12% VAT, also collected by the BOC in behalf of the BIR. This bigger tax has to be paid to the BIR even if the import tax or customs duties is waived.

For the pricing of whoever is the pharma company that sold that medicine, when it is the single seller or distributor of that medicine in any country, that is tantamount to a monopoly. A monopolist would tend to abuse its position and price its product at any level it wants to, considering demand elasticity (or responsiveness of consumers to changes in prices), size of the market, and purchasing power of that market. Government is an example of a monopoly. It can set its price at any level (personal income tax at 32%, corporate income tax at 35, down to 30%, travel tax at P1,620, with or without any service to the Pinoy traveler, etc.).

The solution to a monopolistic industry structure is more competition. Allow other players and producers to come in. As I have posted before here, there are hundreds of other multinational innovator pharmas, and tens of thousands of generic pharmas, that are not in the Philippines yet. India alone has more than 22,000 pharma companies. Its biggest pharma company, Ranbaxy -- like Unilab, the biggest pharma co. in the Philippines -- is not even here when Ranbaxy can put up stiff competition to anybody here, both local or multinational pharma.

I opined that the posting by said NGO leader was not to discourage the pursuance of abolishing taxes -- both import tax and VAT -- on medicines. This government hypocrisy need to be stopped. We all want cheaper medicines, so taxes that hike medicine prices, and regulations that kill competition, should be scrapped.

The guy replied, that even if the 5 percent import tax was waived, the anti-cancer drug price did not go down by a corresponding 5 percent. So he reasoned out that if the 12 percent VAT will be removed, then the profit of the pharma company/ies will become even bigger. 

He further argued that when government tax revenues fall, it's the public who will suffer because the government will have lesser money to develop the country.

Typical statist, if not socialist, argument. This logic says that government should tax and tax as much as possible on everything. Anyway the money will be used by the government for the public.

This is actually one perspective being embraced by many civil society leaders who hate free markets and competitive capitalism, they want more government intervention, regulation and taxation. More government responsibility to assume a big Nanny role. So those civil society leaders come to the defense of the State for ever higher taxes, including high taxes on medicines even if the same NGO leaders are supposedly campaigning for "cheaper medicines".

It will not be far that these NGOs receive lots of funding from the government -- national or foreign aid. As I posted earlier in this blog, such NGOs are NOT exactly "non-government". They are more of government-funded organizations (GFOs) although the funding is not direct. Usually through an international NGO that gets foreign aid funding, then channeled to national NGOs.


* See also:
CSOs and State 4: Local Government and Civil Society, August 12, 2008
CSOs and State 5: Subsidiarity, Decentralization and Privatization, September 04, 2008
CSOs and State 6: Stichting Kapatiran and Books for the Barrios, December 07, 2008
CSOs and State 7: Public School Library with Minimal Government, BftB, June 29, 2009