The government will today begin collecting 12 percent expanded value-added tax (EVAT) on goods and services, including fuel and power, to generate more revenues to partially solve the huge budget deficit.

President Arroyo yesterday approved raising the VAT rate by two percentage points effective Feb. 1, 2006 on the recommendation of her economic managers.

The President’s go-signal was contained in a one-page memorandum signed yesterday by Executive Secretary Eduardo Ermita and addressed to the heads of the Department of Finance, the Bureau of Customs, and the Bureau of Internal Revenue.

In a news briefing at the Palace, Press Secretary Ignacio Bunye said the two conditions set by Republic Act No. 9337 to allow the increase in VAT have been met.

The expanded VAT law which took effect last Nov. 1 gave the President standby authority to raise the VAT rate to 12 percent if the VAT take exceeds 2.8 percent of Philippine economic output and if the budget deficit surpasses 1.5 percent of output.

Bunye said the new revenues would be used to reduce the budget deficit and finance social services and other development projects.

He appealed anew to the public to bear with the additional pain for long-term benefits, mainly improved fiscal condition and better social services.

The government hopes to raise about P85 billion from the expanded and higher VAT rate this year to narrow the budget deficit to P125 billion, or 2.1 percent of gross domestic product.

Meanwhile, the President has ordered the Department of Trade and Industry to monitor the prices of basic commodities to help prevent unscrupulous traders from taking advantage of the 12 percent VAT.

"We have to make sure there is no profiteering and that nobody takes advantage of the lack of information," she said during a visit to Fort Magsaysay in Nueva Ecija.

Mrs. Arroyo reminded the public that the two percent increase in the VAT rate is a "very small increase if you have to be arithmetical about it." "

"If there are sudden, unusual increases in prices, they are not justified," she said.

Teves downplays effect of VAT hike on prices of goods

By JUN RAMIREZ

The Bureau of Internal Revenue will spearhead starting today the nationwide implementation of the 12-percent expanded value-added tax.

BIR Commissioner Jose Mario Buñag said the government expects to raise at least R35-billion more from the EVAT as a result of the rate hike.

He disclosed that the additional revenues will be used to finance pro-poor projects, including education and health care services, farm-to-market roads and new irrigation facilities.

The EVAT law first took effect last Nov. 1 and it should have been raised to 12 percent last Jan. 1 but was deferred pending the release of revenue computations used as basis for the rate increase.

Finance Secretary Margarito Teves downplayed the effect of the rate increase on prices of goods and services, saying the government has implemented several measures to cushion its impact on consumers.

Teves also said that measures have been taken to monitor the activities of unscrupulous traders who might take advantage of the situation to raise prices unreasonably.

He said that the Department of Trade and Industry has been closely monitoring prices through close coordination with market and supermarket vendors’ associations.

Another measure introduced is the exemption of minimum wage earners from withholding of income taxes.

Meanwhile, basic commodities such as vegetables, meat, fish, eggs, and low-cost housing and education expenses remain VAT-exempt.

Excise taxes on diesel, kerosenes and fuel oil have also been removed since these are used mainly by low-income earners and the poor.