Government all set to raise VAT to 12%

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Government all set to raise VAT to 12%
Posted: 3:25 AM Jan. 03, 2006
Michelle V. Remo
Inquirer

Published on page B6 of the January 3, 2006 issue of the Philippine Daily Inquirer

THE national government has already met the two requirements stated under the Value Added Tax Reform Law, allowing authorities to raise the value added tax rate from 10 to 12 percent this year, according to the Department of Finance.

Under the new VAT law, the government could raise the VAT rate by two percentage points if it met either of the two conditions: a VAT collection-to-GDP (gross domestic product) ratio of at least 2.9 percent, and a budget deficit-to-GDP ratio of at least 1.5 percent. Finance Secretary Margarito Teves told reporters that, based on preliminary data, the two conditions had been met. "Assuming that the deficit hits P160 billion and GDP is P5.3 trillion, then that already translates to a deficit-to-GDP ratio of 3 percent," Teves said. Official figures on the VAT-to-GDP and deficit-to-GDP ratios will be available by the end of January. Once the figures are in, the increase in the VAT rate may be implemented on Feb. 1 as scheduled, Teves said.

The VAT Reform Law aims to improve the national government's fiscal standing by generating additional revenues. The law basically expanded the coverage of the tax to include oil and electricity, among others, starting last Nov. 1. The law also provided for the increase in the VAT rate this year. The DOF estimated that the tax measure, the centerpiece of the Arroyo administration's fiscal reform agenda, would generate P81.4 billion in additional revenues every year starting 2006.



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