AMID calls to scrap the value-added tax (VAT) on oil and electricity, President Gloria Macapagal-Arroyo has stuck to her guns, insisting in her eighth State of the Nation Address (Sona) Monday that such a move would weaken, instead of strengthen, the country’s capability to ride out the current food and energy crisis.
Republic Act 9337 or the Expanded Value-Added Tax Act (E-VAT) of 2005 expanded the VAT coverage to include electricity, fuel and transport, among other previously exempt sectors.
RA 9337 was enacted in a bid to help the government raise revenues so that it could control the budget deficit, which occurred with alarming frequency with the government spending more than it earned.
Deficit
Budget deficits force the government to keep borrowing money in order to fund its spending, putting pressure on interest rates as government competes with the private sector for meager funds in the financial system.
As a consequence of RA 9337, non-food agricultural products, and services rendered by doctors and lawyers also became subject to the VAT.
For the sectors that were already previously subject to the 10 percent VAT, the effect of the E-VAT law was merely to increase the VAT rate on such transactions to 12 percent—this new rate was applied to all items subject to VAT—after President Arroyo exercised her option, provided in the law, to increase the rate in 2006.
The government estimated then that the E-VAT law would bring an additional P97 billion to P105 billion in 2006, or a 60 percent improvement in VAT collections, from the increase in VAT rate alone to 12 percent.
The law also raised the corporate income tax from 32 to 35 percent, which was seen to generate an additional P28 billion to P31 billion.
Those already subject to VAT prior to RA 9337 included the following:
* Services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except those who qualify for the three percent franchise tax
* Transportation contractors on their transport of goods or cargoes, including other domestic common carriers by land relative to their transport of goods or cargoes;
* Services by proprietors, operators or keepers of hotels, motels, rest-houses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers;
* Sales or services performed by construction and service contractors; stock, real estate, commercial, customs and immigration brokers;
* Lessors of property, whether personal or real;
* Lessors or distributors of cinematographic films;
* Persons engaged in milling, processing, manufacturing or repacking goods for others;
* Dealers in securities; lending investors;
* Warehousing services;
* Non-life insurance firms (except their crop insurances), including surety, fidelity, indemnity and bonding firms.
When the E-VAT law first took effect, it was already met by opposition from groups dreading its impact on already high fuel prices.
But the International Monetary Fund gave its nod to the unpopular move, hailing the Arroyo administration for its efforts to put its fiscal house in order.
The administration said then that it would earmark about a third of the E-VAT collections for social services and infrastructure projects, with the rest to be used to balance the budget.
With oil prices in the world market reaching record highs this year, some senators and various groups like the Freedom from Debt Coalition, Alliance of Progressive Labor and Trade Union Congress of the Philippines have called for either the suspension or complete scrapping of the expanded value-added tax.
