By LEE C. CHIPONGIAN
Finance Secretary Cesar V. Purisima said his office and the Bureau of Internal Revenue will strictly apply the amended Value-Added Tax Law signed by President Arroyo yesterday and to make sure the government will get its expected P30 billion to P40 billion in additional revenues this year.
The amended tax law keeps the rate at 10 percent but it has given Malacanang standby authority to adjust it to 12 percent starting January 2006, but under certain conditions.
Purisima said Malacañang would raise the VAT if the National Government deficit hits 1.5 percent of gross domestic product and VAT collections is 2.8 percent of GDP. For this year, DoF earlier announced it is possible to bring down deficit to 2.5 percent of GDP.
The Senate version, which is 10 percent VAT rate, would be implemented starting July 1. In the meantime, Congress 12 percent VAT will be enforced January 1, 2006.
Enactment of the new VAT bill will help broaden the government’s revenue base, which in turn will reduce fiscal deficit and borrowing levels, Purisima said.
The DoF assures proper implementation and enforcement of the law and we commit to the improvement of tax collection efficiency, he said yesterday. The updated VAT bill removed exemptions on the fuel and power sectors while the corporate income tax was raised to 35 percent from 32 percent.
Purisima added that the signing of the amended VAT bill into law two weeks after Congress approved it caps the first phase of the Arroyo administrations economic reform agenda. He said, it is a piece of legislation that will significantly broaden our tax base this year and the next.
For 2006, the new VAT is expected to cough up
P105 billion to P150 billion more in tax collection.
We can now focus on the countrys fundamentals and begin to attract new investors. We have done the VAT and the numbers (investments) will now come, Purisima said.
Officials of credit rating agency Standard & Poors are scheduled to arrive next Wednesday until June 4 to re-asses the Philippine fiscal and economic condition. S&P will meet with Purisima and Bangko Sentral ng Pilipinas Deputy Governor Amando M. Tetangco Jr.
According to Purisima, he expects credit rating agencies will improve their assessment on Philippine sovereign bonds. They will do this because of the overall investment confidence in the country. With the new VAT, we will communicate this well with the creditors.
Tasked with balancing revenues and budget, Purisima said it is important to implement the simplest VAT system to ensure the correct tax will be collected.
The International Monetary Fund said the countrys VAT collection is still in a sorry state and much is to be done to improve the VAT system. They also criticized the government for indulging in too many exemptions when it comes to VAT.
The Philippines has an average VAT rate of 10 percent, which is below the 12-percent average in Asia. This is why the countrys VAT rate is considered the lowest in Asia.
Purisima again reiterated that VAT is the key to fiscal consolidation. He said the DoF would be applying all the proceeds of VAT this year to deficit reduction.
