Across-the-board tariff hike eyed to boost revenues

Finance Secretary Cesar V. Purisima is seriously eyeing an across-the-board increase in the country’s tariff rates to raise additional revenues for the government in view of a possible watered-down version of the value-added tax (VAT) measure.

Sources said Purisima has identified the ongoing review of the country’s tariff program as another revenue generator for the government, which has been struggling to source more funds to plug its budget deficit.

Aware of its repercussions on international trade, the government has reportedly validated that in raising tariffs, the Philippines would not be in violation of its trade agreements under the World Trade Organization (WTO).

Sources explained that the WTO allows member-countries to increase their tariffs in the event of a balance of payments problem.

However, the increase should not exceed the country’s bound rates, or the upper limit on tariff that can be set.

A study by the Tariff Commission has shown that the Philippines, relative to its Association of Southeast Asian Nations (Asean) neighbors, still has the lowest tariff structure.

Last February, the country’s Permanent Trade Representative to Geneva Amb. Manuel Teehankee admitted that the ongoing tariff review is being done with the intent of raising additional revenues for the government.

Teehankee said the review is clearly a regular government exercise "to study the various lines of our tariffs and assist in the analysis of what our domestic trade needs are, as well as to also check on the ability of enhancing our revenue from tariff."

In conducting the review, however, the government also wants to ensure increased efficiency and enhance revenues without causing any distortions, he pointed out.

"It’s a regular procedure to increase efficiency and also whether revenue can be enhanced without causing distortions," Teehankee said.

Raising tariffs could be a possible revenue generator as government would be able to collect additional duties on imported goods entering the country.

However, the government has to keep in mind that raising tariffs would not cause distortions in so far as making imported inputs more costly than finished products.

The Arroyo administration has been creatively looking for other revenue alternatives following the dilution of revenue measures such as the "sin taxes" and the VAT in Congress.

The sin tax bill – which imposes taxes on liquor and cigarettes – has been significantly watered down, while the VAT rate hike is still being deliberated by the Senate.