Tax plan advances in Manila: printer friendly version

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Tax plan advances in Manila
By Francisco Alcuaz Jr. Bloomberg News
TUESDAY, MAY 10, 2005

MANILA Members of a House-Senate tax conference committee broke a two-week deadlock on Monday by agreeing to increase value-added and corporate tax rates in the Philippines. Higher taxes are needed to pare a budget deficit and cap debt payments.

The compromise legislation allows the value-added tax to be raised to 12 percent from 10 percent, beginning in January 2006, and increases the corporate tax rate to 35 percent from 32 percent for three years, said Jesli Lapus, chairman of the House Ways and Means Committee. The Senate majority leader, Francis Pangilinan, said that "we have the votes to ratify it."

The full House of Representatives and Senate are expected to approve the bill Tuesday or Wednesday, they said.

The bill is the centerpiece of President Gloria Macapagal Arroyo's revenue package aimed at paring a near-record budget deficit and capping debt payments that now consume a third of government spending.

"It's the best compromise we could come up with after six months of debate," Lapus said in a phone interview. "It has a lot of creative input."

Raising the value-added tax was one of the eight proposals Arroyo sent to Congress in July. The package, most of which was shelved, was supposed to increase annual revenue by 80 billion pesos, or about $1.48 billion. The budget has been in deficit since 1998, piling up 4.08 trillion pesos of debt by February.

The bill also removes most exemptions from the value-added tax, including those enjoyed by power companies and fuel companies and by professionals like doctors and lawyers. It will also restrict how businesses use tax credits.

Finance Under Secretary Emmanuel Bonoan said the department was still estimating how much the measures would raise this year and in the future.

Arroyo's government estimates that the budget gap will narrow to 180 billion pesos this year from a record 211 billion pesos in 2002. Congress raised cigarette and liquor taxes by 15 billion pesos last December, the only other major portion of the original revenue packaged that was approved.

Arroyo's administration has been under pressure from ratings companies to increase taxes. In January, S&P lowered the nation's debt rating one level to BB minus, three levels below investment grade and back to where it was when the company first started assessing the nation's creditworthiness in 1993.

In February, Moody's Investors Service cut the rating two levels to B1, four levels below investment grade and the nation's lowest-ever rating.