Palace says gov’t closely watching impact of VAT on poor

Malacañang said yesterday it will closely monitor the impact of the expanded value-added tax (VAT) law on poor families and ensure that enough safety nets are in place to protect them.

Press Secretary Ignacio Bunye said the VAT law, while it may be burdensome to taxpayers, will lessen the country’s dependence on foreign loans and would create a better investment climate that will generate more jobs and allow the government to have more money for social services.

"But the government is also keeping a keen eye on the impact of the VAT on the most vulnerable sectors, to ensure that lifeline benefits and basic services are extended to families in direst need," he said in a statement. "No Filipino will be left behind in the march to prosperity."

The new VAT law will take effect on July 1. President Arroyo said she will increase the VAT rate from 10 percent to 12 percent in January next year, but not after improving revenue collection.

The Bureau of Internal Revenue is rushing to draft the implementing rules and regulations and publish them on June 15.

While the increase in the VAT rate will not be implemented until early next year, the impact of the new law will still be felt since previously exempted sectors — professionals as well as oil and power firms — will now have to pay VAT.

Oil and power companies are also allowed to pass on their additional expenses to consumers.

Bunye said raw food and agriculture materials remain VAT-exempt while basic processed foods will only be slapped a six-percent VAT.

The government is working on increasing lifeline rates on electricity for poor households while also taking measures to maintain the prices of other basic goods such as school supplies, he said.

"The law’s implementation will play a key role in the government’s economic reform agenda, help build the infrastructure worthy of our economic potential, and shake off the yoke of poverty by breaching the lines of the unemployed through more local and foreign investments," Bunye said.

The other day, Bunye said Malacañang officials no longer have any doubt that the VAT law is "legal and constitutional" and government lawyers stand ready to defend it before the Supreme Court.

Minority bloc senators are set to formally question before the Supreme Court this week whether the standby authority given by Congress to Mrs. Arroyo, allowing her to increase the VAT rate, is constitutional.

Party-list group Abakada Guro has already petitioned the Supreme Court, saying the new tax law meant Congress has abandoned its exclusive authority to impose taxes.

Senate Minority Leader Aquilino Pimentel Jr. will lead Senators Sergio Osmeña III, Jamby Madrigal, Jinggoy Estrada, Luisa Ejercito, Alfredo Lim, and Panfilo Lacson in filing the petition.

Under the VAT law, Mrs. Arroyo may raise the VAT rate by two percentage points by January next year if two conditions are met — if the VAT collection, as a percentage of the gross domestic product, exceeds 2.8 percent and if the national government deficit exceeds 1.5 percent of GDP.

GDP is the total value of goods and services produced within a country in a year, minus net income from investments in other countries.

Critics of this provision said the increase will definitely take place next year since both conditions have already been met at this time.