GMA signs value-added tax law

Sardines, instant noodles and pan de sal will be exempt from an increase in the value-added tax (VAT) — for now.

Energy and oil companies, however, will be allowed to pass on to consumers a new 10-percent VAT on power rates and fuel prices effective July 1.

President Arroyo has also been empowered by Congress to increase the current 10-percent VAT on processed food products to 12 percent by January 2006.

Mrs. Arroyo signed into law with little fanfare yesterday the controversial expanded VAT measure or Republic Act 9337, which Malacañang had strongly pushed to nurse back the country’s fiscal health.

In explaining why the additional 10 percent VAT on the energy sector is likely to be absorbed by consumers, Presidential Adviser on Political Affairs Gabriel Claudio said the new VAT "is by nature a pass-through tax" based on consumption, and therefore must be shouldered by end-users.

The VAT measure, which was approved by Congress earlier this month, retains the 10-percent VAT rate but increases corporate income tax from 32 percent to 35 percent.

The new law also lifts the VAT exemptions previously enjoyed by several industries, including power and electricity and air and sea transport.

In signing the tax measure into law, Mrs. Arroyo declined to make a speech but thanked legislators for passing the measure, which formed a crucial part of the tax reform package she had sent to Congress last year amid warnings of a possible fiscal crisis.

Without the usual ceremony, Mrs. Arroyo signed RA 9337 before a closed door high-level meeting with Cabinet officials and members of Congress.

Only photographers were allowed to witness the signing which was attended by Congress leaders and other lawmakers.

Opposition lawmakers, for their part, noted the "silent" signing of the VAT measure.

They said the low-key ceremonies were a sign that Malacañang wished to downplay the impact of the controversial tax measure on the public.

"The signing of the amended (expanded VAT) bill into law caps the first phase of the Arroyo administration’s economic reform agenda," Finance Secretary Cesar Purisima told reporters after the signing.

"It is a milestone piece of legislation that will significantly broaden our tax base this year and the next," he said.

Purisima said 70 percent of the proceeds from the new tax measure will be used to address the deficit while 30 percent will go to budgetary support for social services and infrastructure.

Purisima said the government is expected to collect an additional P28 billion to P31 billion from the lifting of VAT exemptions this year. He said the proceeds would be used to reduce the budget deficit.

The government incurred a budget deficit of P63.5 billion in the first three months of the year, well within the target of P77.8 billion for the period.

The government is aiming to limit the deficit to P177 billion to P180 billion for the whole year after running a deficit of P187 billion in 2004.

The deficit problem and the failure of lawmakers to quickly pass the VAT bill earlier this year led to successive downgrades of the country’s sovereign credit ratings.

Based on the presentation made by the Department of Finance (DOF), the incremental VAT collection is only expected to reach P28.75 billion this year.

By next year, it is expected to reach P104.23 billion; P121.82 billion in 2007; P141.04 billion in 2008; P163.75 billion in 2009; and P190.11 billion in 2010.

"It shows that the impact of the VAT law will really come in 2006 when there is a rate increase, the impact of the VAT law will not really be felt that much this year because we’re staying at 10 percent and it’s just the removal of exemptions that it implements,

basically," Bureau of Internal Revenue (BIR) Deputy Commissioner Kim Henarez later explained.

Henarez said the implementing rules and regulations of the law would have to be completed by June following a public hearing and a review by the DOF.

Officials said the bill was signed in its entirety without the President exercising her veto power over any of its revenue-generating measures.

The new VAT law amends several provisions of the National Internal Revenue Code of 1997.

It is among eight tax proposals submitted by Malacañang for approval by Congress to generate much-needed funds for the government’s development and pro-poor programs and projects as outlined in Mrs. Arroyo’s 10-point legacy agenda.

The new law is the third to be approved by Congress, including the earlier "sin taxes" and the Lateral Attrition Law.

Officials said the three tax measures completed the first phase of the President’s economic reform agenda to improve the country’s fiscal position.

With the passage of the three vital revenue-generating measures, Mrs. Arroyo said she is now fully prepared to embark on the second phase of her economic reforms to include a cohesive social agenda to end violence, promote health and nutrition, strengthen and expand micro-finance and entrepreneurship and promote new investments that would fulfill her promise to create six to 10 million jobs during her term.

Purisima said the new VAT law would also allow the Arroyo administration to accelerate its fiscal program and balance the budget earlier than 2010.

Purisima said it would be possible to accelerate the fiscal consolidation program since the Arroyo administration had made some headway as early as 2004.

"As early as last year, we were already ahead of the fiscal program by a year," Purisima said. "I believe in front-ending our fiscal position so I think we can move up the 2009 schedule for a balanced budget."

Ho-Hum Coverage

Presidential Spokesman Ignacio Bunye brushed aside claims that Malacañang wanted to downplay the VAT signing by scheduling it prior to the Legislative-Executive Development Advisory Council meeting.

Bunye claimed that high-end consumers would feel the greatest impact of the new VAT law since the additional levies were based on consumption.

Mrs. Arroyo’s spokesman said he did not "attach too much significance" to the lack of media coverage for the event.

"The important thing is there is a signing, the important personages who are supposed to be there were there and the President actually signed and there was photo coverage," Bunye said.

Among those who witnessed the signing were Senate President Franklin Drilon, Speaker Jose de Venecia Jr., Executive Secretary Eduardo Ermita and Senators Juan Flavier, Miriam Defensor-Santiago and Mar Roxas.

Among the congressmen who witnessed the signing were Tarlac Rep. Benigno Aquino III, Majority Leader Prospero Nograles (Davao City) and Deputy Minority Leader Agapito Aquino (Makati City), representing the opposition.

But the chief architects of the bill, Sen. Ralph Recto and Tarlac Rep. Jesli Lapus, were conspicuously absent.

Claudio, on the other hand, called on the departments of finance, energy and trade to work on measures to mitigate the impact of the new tax measure on the poor.

He said Mrs. Arroyo signed the unpopular tax measure in the face of a "political onus."

On the bright side, Claudio pointed out additional revenues could now be generated along with a "new wave of confidence and credibility" before the international community.

What’s Next

With three weeks left before Congress takes a break, the remaining vital tax proposals endorsed by Malacañang for approval may not see the light of day.

Sen. Francis Pangilinan, the Senate majority leader, said they have already identified the remaining targets for their legislative agenda in the next three weeks following a caucus Monday evening.

"Some measures that we will try to complete and pass in the next three weeks (were) identified as the UP (University of the Philippines) charter, the rent control bill, and the credit information bureau. The commitment is to best efforts (on our part) to complete and pass these bills in third reading," he said.

Pangilinan said the Fiscal Incentives measure proposed by Malacañang is a complicated issue that needs to be discussed.

He said three weeks would not be enough time to deliberate over its provisions. The Senate is set to go on recess starting June 10 and will resume regular session by July 27.

The Fiscal Incentives Bill "will be tackled in the next regular session," Pangilinan said.

The Senate has not conducted a single hearing on the rationalization of fiscal incentives measure since lawmakers were caught in a frenzy of deliberations over the VAT bill.

Sen. Aquilino Pimentel Jr. raised some concerns on what effect passing the bill would have on credit information bureaus as the ratings bureau may be open to "abuse from forces unfriendly to the government."

Senators are also preoccupied with the controversial jueteng issue. Most of them are already gearing up for the initial hearing on the issue scheduled for May 30.

There are also a number of committee hearings set before June 10 such as the confirmation hearings of Interior secretary nominee Angelo Reyes by the Commission on Appointments. - With Des Ferriols, Marichu Villanueva, Christina Mendez, AFP