Senate retains VAT at 10%

The Senate stuck by its decision to keep the value-added tax (VAT) at the current 10 percent rate, thereby leaving the bicameral conference committee hearings on the contentious measure in a stalemate.

Although Malacañang is seeking a two-percent increase in the VAT, President Arroyo will not intervene to break the impasse, Press Secretary Ignacio Bunye said.

"Let’s just say that we’re still hoping (that Congress will pass a 12-percent VAT)," he said. "We think the President has already stated her position enough… But if it is necessary, we will reiterate that we clearly want a 12-percent VAT."

Last week, the bicameral committee failed to make much progress on the issue because the Senate contingent was still undecided on its position on the VAT.

Senators in the bicameral committee, led by Ralph Recto, held a caucus yesterday because they could not agree among themselves whether to raise the VAT rate.

Their counterparts in the House of Representatives, on the other hand, solidly backed the 12-percent rate being sought by the Arroyo administration.

Recto said there will be no more bicameral committee hearings this week on the measure because of the resulting deadlock with the House contingent.

"At the moment, I suppose there is no need to go back to the bicam because we cannot agree anyway. So allow for political consolidation to take place first," he said.

The Senate is exploring possibilities to break the stalemate, Recto said.

One such possibility is to peg the VAT at the current 10 percent and grant the President authority to raise it on her own. "We had a long discussion on the granting of the standby authority. That was the lengthiest topic of discussion," Recto said.

The administration could first test the efficiency of the Senate version of the VAT bill. Mrs. Arroyo could then raise the VAT rate herself after a year and only under certain conditions, Recto said. "Let us test this first. Expand the tax base and if this is insufficient, then we consider raising the rate to 12 percent," he said.

However, senators in the bicameral committee have yet to agree on that option.

Recto said he would start working on the language of the proposed provision, including under what conditions the President would have authority to raise the VAT rate. He did not give details.

Senators will have to reach a consensus among themselves before bicameral committee hearings on the VAT measure can continue, he added.

"I suppose there must be some form of political consolidation. This is the right time for the executive (branch of government) to consult with members of the majority senators in the bicam panel. I suppose the minority members will discuss (it) also among themselves," Recto said.

Tarlac Rep. Jesli Lapus, head of the House contingent in the bicameral committee, has urged his Senate counterparts to get their act together so that work could resume.

Defending his colleagues, Recto said the Senate was only being careful and diligent in putting together the legislation.

"The Senate has got its act together to put (the rate) at 10 percent. It’s not just about looking at numbers but the policy issues involved," he said.

The Arroyo administration is struggling to bridge the chronic budget deficit and stave off a possible fiscal crisis that could derail the President’s anti-poverty agenda.

Mrs. Arroyo is imposing eight new tax measures, including the expanded VAT, to close the budget gap. She hopes these measures will bring in P80 billion in additional annual revenues.

Major international credit rating firms earlier this year downgraded the Philippines’ credit rating, citing high government debt and weak finances.

Most senators, noting the continued rise of fuel prices, favor maintaining the current 10-percent VAT rate to spare the public further burden.

But they want almost all products and services to be covered by VAT, including fuel and electricity. The Senate’s list of VAT-covered sectors is wider than that of the House.

In the case of petroleum products such as gasoline and diesel, and electricity, both chambers propose they be covered by VAT, but differ on the rates.

The House wants graduated rates spread over four years, starting at four percent in the first year, increasing to six percent in the following, then eight percent, and finally 12 percent.

In the Senate version, the rate would remain at 10 percent, but it would be imposed on other products and services that are currently VAT-exempt such as domestic plane and ship tickets, plane and aircraft parts purchase and lease. These transactions are exempted in the House version.

Senators also want to raise the corporate income tax to spread out the additional tax burden.

Tighten Your Belts

Aside from the prospect of more taxes, rising fuel prices and higher electricity rates have put the Arroyo administration under more public pressure.

Last week, Malacañang drew more flak after the Energy Regulatory Commission granted the state-run National Power Corp. (Napocor)’s petition to raise its rates by 42 percent to lessen its debt burden.

That prompted Bunye yesterday to ask the public for understanding as he admitted the government could do little to prevent rising fuel prices and electricity rates.

"The only way we can respond to this is to call on the people to conserve energy and make this a way of life," he said, explaining that world market prices of crude oil are beyond Malacañang’s control.

Long-term solutions such as developing alternative energy sources such as natural gas to lessen the country’s dependence on crude oil will take time, Bunye said.

"We’re facing quite some problems. So we really need to make some adjustments in our consumption patterns, like buying only what is essential," he said.

"Maybe we should check our shopping and grocery lists and see whether there are some things we really don’t need."

He said the government, while implementing "painful yet curative measures," also has a number of short- and long-term programs that people, especially the poor, can avail of to help cope with the times.

These include "lifeline" or discounted power rates for poor households, tax exemptions on raw food materials and other basic goods, and fuel price discounts for public transportation.

Bunye assured that the things will improve once Mrs. Arroyo’s tax measures and other reforms begin to take effect in the next few months.

Meanwhile, Budget Secretary Emilia Boncodin doubts there would be enough money for a salary increase for government employees either this year or in 2006 even with Mrs. Arroyo’s tax measures bringing in additional revenue.

"Let’s not talk about it because it may give some false hope," she told reporters, adding that the government is operating under an austerity program imposed by Mrs. Arroyo to help bridge the budget deficit.

Salary raises were completely ruled out in finalizing this year’s budget but discussions on the 2006 budget are still ongoing, Boncodin said.

This year’s budget only provides retirement benefits for government employees who opt for early retirement, which is one of Mrs. Arroyo’s cost-cutting measures.

The additional P80 billion that Mrs. Arroyo’s tax measures aim to raise are only enough to reduce pressure on the government to resort to more borrowing. — With Aurea Calica, Paolo Romero, Des Ferriols