Arroyo advised: Defer VAT
Michael Lim Ubac Christine O. Avendaño
Inquirer News Service
AMID SURGING oil prices, an economic adviser has urged President Gloria Macapagal-Arroyo to defer the implementation of the 10-percent expanded valued-added tax should the Supreme Court lift the freeze order on the VAT law.
The tribunal is expected to lift the temporary restraining order this month.
Albay Representative Joey Salceda yesterday said that once the freeze order was lifted, "the administration will exhaust means to legally postpone the effects of the VAT reform law until global oil prices ease to $50 (per barrel) where we reckon it would be tolerable."
Implementing the VAT law will further raise the prices of fuel, electricity and a host of other products and services.
Salceda, one of the President's economic advisers, warned that at $67 per barrel of crude, the pump price of unleaded gasoline could easily exceed P40 a liter "even with mitigating measures."
Crude prices rose to $67.10 a barrel in New York Friday, up at least 60 percent since August 2004, prompting the Arroyo administration to urge the public to conserve energy.
But Rigoberto Tiglao, Presidential Management Staff chief, said last night that Salceda's proposal covered only fuel because of the oil crisis.
"No move on the executive('s) part," Tiglao said in a text message to the Inquirer, as he noted that the subject was still "moot and academic at this point since there's a temporary restraining order."
The Supreme Court suspended the implementation of the VAT law, the centerpiece of the President's economic reform agenda, on July 1 just hours after it took effect because of petitions seeking its nullification.
Tiglao said Salceda had offered his proposal only to Energy Secretary Raphael Lotilla. It was "very, very preliminary," the PMS chief said.
But Salceda, the House of Representatives' economic expert, said he had already briefed the President on the consequences of pushing through with the VAT. "She has not yet texted me back. My personal guess? She would be open to it."
He said the administration should not be cowed by the threat of another downgrade from credit rating agencies. "We just have to make a case. Let's not be too afraid (of them)."
Three international rating agencies -- Standard & Poor's, Fitch Ratings and Moody's Investors Service -- downgraded their credit outlook on the Philippines to negative from stable partly because of the freeze order on the VAT law.
A credit downgrade raises the cost of borrowing funds abroad.
Salceda said that while economic managers were "keenly sensitive to the market signals of a suspension" of the VAT law, "it would be fiscal folly, nay suicidal, to insist on its implementation at this point even if there were no political crisis."
The President is facing a widespread clamor for her removal from office over allegations of poll fraud. Impeachment complaints have been filed against her in the House of Representatives.
A top investment analyst in a foreign bank operating in the country last week said that record crude prices were a bigger threat to Ms Arroyo's survival than the political scandals she was facing.
The VAT law covers previously exempted products and services such as petroleum products, electricity, coal, natural gas and other indigenous fuels, sea and air travel, and medical and legal services.
It also covers cotton, cotton seeds and non-food agricultural products, works of art, literary works and musical compositions, and increases the corporate income tax from 32 percent to 35 percent.
"Even for one who is the most rabid fiscal hawk in government, I can't be oblivious to the oil price spike and its impact on consumer welfare and the general economy," Salceda said.
The lawmaker said that at $67 (per barrel of crude oil) plus VAT, "the inherent contractionary impulses would be so magnified as to overwhelm most of its beneficial impact."
Salceda explained that doing away with the VAT this year was feasible.
He explained that the projected deficit for the first half of the year was P97 billion, but the government had trimmed it down to P67 billion.
"A P30 billion baon (buffer from the) first half deficit (in lieu of) the P28 billion proceeds from VAT law in 2005, this would allow us to meet targets," said Salceda.
He was referring to the projected P28 billion in revenue to be generated this year alone with the inclusion of the power and oil sectors in the VAT net.
"Imposing the oil and power VAT at this point would do more harm than good and even upset our fiscal goals as it would stoke consumer pessimism," he said.
Even if the VAT law were imposed, the government would not get the projected revenue because of its contractionary effect on the economy, Salceda said. "At a certain point, consumers do cope (with rising prices). So there will be less spending."
To lessen borrowings, Salceda said the administration was selling assets like the Philippine National Bank and postponing projects with no automatic loan backing.
"We would focus on overseas development assistance utilization to afford support to aggregate demand. It's also a good time to rebuild the Malampaya stake and award exploration contracts," he said.