Policy makers, businessmen split on VAT hike next year

The country’s economic managers and the business sector are at odds over the looming two percentage point increase in the expanded value-added tax (EVAT) next year.

One side argues that government must go ahead and raise the tax rate to 12 percent. Among these proponents are Trade and Industry Secretary Peter B. Favila, Philippine Chamber of Commerce and Industry (PCCI) president Donald Dee and former Central Bank Governor Jose L. Cuisia Jr.

On the other hand, Budget Secretary Romulo Neri and Federation of Filipino-Chinese Chamber of Commerce Inc. (FFCCCI) president Francis Chua are proposing a studied approach to the issue.

Favila said government must go ahead and increase the EVAT rate to 12 percent in January from the current 10 percent in order to maintain the economic momentum that its implementation has started.

Favila cited the improved economic outlook for the country upon the lifting of the Supreme Court temporary restraining order on the EVAT law.

These include the appreciation of the peso, improvement in the stock market, better revenue figures and improved credit rating for the country which would lead to lower borrowing costs.

Favila warned that backing down on the EVAT this early would send the wrong economic signal to the foreign investing community anew. Dee supports Favila’s argument that government must implement an additional two percentage point increase in the EVAT rate to be able to solidify the revenue and economic gain.

Dee said the raise should be given at least six months to show that it is working and allow the economy to take off.

The additional revenues, Dee said, should go to expenditures for social services and infrastructure. Cuisia, who is now with the American Insurance Group (AIG) and is a member of the Makati Business Club, agrees with Dee that the EVAT proceeds should go towards increased spending for infrastructure, education and health.

He warned that the EVAT proceeds should not be "wasted on non-productive programs."

"I hope they implement it properly, unlike the sin taxes which instead of increasing was dropped pa," Cuisia said.

The former central bank head also bats for a six to 12 month implementation of the EVAT before attempts are made to modify it.

"Let us see if it works first before trying to modify it," Cuisia advised.

Neri, for his part, is still open to suggestions to study the impact of the implementation of the revised EVAT before going ahead with the two percentage point increase.

Neri clarified that he supports the Government position to proceed with the increase but acknowledges that "nothing is certain until it is in place." Chua, for his part, echoed the earlier call of industrialist and consumer advocate Raul T. Concepcion to make a six month assessment of the current EVAT implementation and its impact on prices, and even on wages, before proceeding with an increase in the rate.