Friday, February 23, 2007 Business sector hopes for reduction of RVAT
A BUSINESSMAN believes that the value-added tax (VAT) will be reduced to 10 percent as the country’s economy recovers.
“Because the country’s fiscal deficit has declined, we can also expect the VAT to go down from 12 percent to only 10 percent,” said Robert Go, former president of the Cebu Chamber of Commerce and Industry.
The National Government implemented the revised VAT (RVAT), which increased the tax rate to 12 percent from 10 percent, last year to solve the country’s fiscal deficit and improve business environment.
But Go said “it is (now) time” to bring the rate down by two percent.
“The government has promised it will do so once the economy has recovered,” he said.
“And it is not far from reality because the country’s fiscal deficit has already declined,” he said.
Go told Sun.Star Cebu last Monday that the local business community “rejoiced” over the removal of the 70-percent creditable input VAT cap.
He said the business sector is also hopeful that the National Government will reinstate the 32-percent business income tax rate.
Businesses in the country had opposed the 70-percent creditable input tax cap, which, according to them, hurt merchants and prevented them from maintaining high inventories.
The House of Representatives approved the repeal of the RVAT law on Sept. 26, 2006, and the Senate followed suit on Oct. 9, 2006.
According to Go, many small and medium companies have decided to close shop due to the negative effects of the expanded VAT that resulted in low profitability of small players.
With the removal of the input tax cap, Go said he expects several business establishments to return to business while more foreign direct investments (FDIs) will come into the country.
“The way I look at it, if nothing will happen, FDIs will continue to pour in because our economy has started to get better,” he said.
He said, though, that the May election is a critical factor in the Philippine economic landscape.
However, economist Nicholas Kwan of Standard Chartered Bank earlier said there is “more to gain than lose” during the coming elections.
He said he believes that while the foreign market generally perceives the Philippine elections to be critical, it will be different this year since times have “been relatively smooth.”
According to Kwan, the election is bound to generate more spending as well as investments and FDIs will not be the major investment driver.
Government infrastructure is seen to attract private sector participation and construction and communications sectors will be given a boost, he said. (MMM)
