World Bank hails VAT law, offers $2-B credit

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World Bank hails VAT law, offers $2-B credit
Posted: 2:24 AM | May 26, 2005
Michelle V. Remo and Gil C. Cabacunga
Inquirer News Service

THE WORLD Bank, is one of the Philippines' biggest creditors country, has hailed the signing of the value-added tax law and offered $2 billion worth of credit over the next three years as an expression of appreciation.

"With this law, the Philippines has moved its fiscal reform program from plans and announcements into the implementation phase," said Joachim von Amsberg, the World Bank country director for the Philippines. "This will make a big contribution to the fiscal turnaround if it is fully and effectively implemented."

The expanded VAT law is the Gloria Macapagal-Arroyo administration's key revenue-raising measure to ease the budget deficit.

The revenues will come from removal of VAT exemptions of several sectors, such as oil and power, and the raising of the corporate income tax rate to 35 percent from 32 percent.

Revenues are also to be expected from a standby authority given by Congress to President Arroyo to raise the VAT rate from 10 percent to 12 percent next year.

Economic policy officials expect the implementation of the VAT law to improve the country's credit image, as it would allow the government to access loans more easily and with lower interest rates.

"Like any other borrower, the Philippines should be able to access more credit if it improves its fiscal situation because creditors will be more confident in lending to the country," said Socio-Economic Planning Secretary Romulo Neri.

Von Amsbert said the $2 billion the World Bank was willing to lend to the Philippines would finance development programs until 2008. He noted that the amount was much bigger than the average annual assistance of $100 million it had given the Philippines, and said the reason was that the government was likely to achieve its budget deficit targets with the passage of the VAT law.

Vipul Bhagat, country manager of International Finance Corp., the World Bank's financing arm, said the financial assistance would focus on four areas: the financial sector, infrastructure, small and medium-scale enterprises, and mining.

The government's target is to wipe out the budget deficit by 2010, the end of Arroyo's term.

The deficit amounted to P187 billion last year. Some expect it to go down to P151 billion this year because of new revenue-raising legislation.

Malacañang on Wednesday pleaded with protesters and critics of the new VAT law to give it at least two months to prove its beneficial effects.

"We have to find out and give it a test period of two months to determine whether the issues and concerns of demonstrators are valid,'' said Executive Secretary Eduardo Ermita.

Activist groups and nongovernmental organizations have threatened to hold protest rallies against increasing the VAT on goods and services.

The expanded VAT law, which will take effect on July 1, is expected to generate P28.75 billion for the remainder of 2005. Its full impact -- revenue of between P105.23 billion and P190.11 billion -- will be felt starting next year when Arroyo can exercise her standby authority to raise the VAT rate to 12 percent. With INQ7.net

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