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Friday, July 08, 2005
Biz chamber pushes selective implementation of e-VAT
THE Philippine Chamber of Commerce and Industry (PCCI) bats for the lifting of the temporary restraining order (TRO) issued by the Supreme Court (SC) against the implementation of Republic Act (RA) 9337 or the Expanded Value-Added Tax (e-VAT) Law except on provisions on the restoration of the Corporate Income Tax (CIT), the 70 percent cap on input VAT; and increasing the VAT rate from 10 percent to 12 percent under certain conditions.
The PCCI opposed the restoration of the CIT because it is not investor-friendly. A comparative summary of the Asian CIT rates show that the Philippines has the highest CIT rate and further increasing it will certainly result in either divestments or withdrawal of current foreign investors or a decrease in the influx of new investments.
"At worst, it can repel foreign investments and cause national savings to flee to other countries," said PCCI president Donald G. Dee.
The PCCI believed that the increase in CIT may cause existing legitimate business enterprises to disappear from the Bureau of Internal Revenues's view and go underground just to escape the tax burden or drive them to resort to outright tax evasion. "And if there are no more taxpayers, even if you increase the CIT rates by 50 percent, there is still no assurance that it will jump-start the increase in tax collections," Dee said.
On the 70 percent cap on input tax, the PCCI objects to such provision in the e-VAT law because it will deter economic and business development and bring an additional burden to the consumers. The organization said the provision disregards the cost neutrality nature of the VAT and results in adverse financial implications because input taxes that are unlikely to be recovered have to be written off to their recoverable value in accordance with generally accepted accounting principles thereby reducing their profit (or increasing their loss) even more.
"The limit on creditable input VAT will increase the tax burden and reduce the profit margins of businesses, especially small and medium enterprises, whose growth is being encouraged by the government as well as large enterprises with minimal profit margins," Dee said.
A limit in the amount of creditable input VAT will also discourage new investments in industries where historically the input VAT exceeds 70 percent of the output VAT, especially if those industries are capital-intensive or low-margin businesses. The inability of investors to recoup the input VAT paid on purchases of capital goods effectively increases the total cost of a project. The undesirable result is magnified even more by the provision of Section 8 of RA 9337 which mandates the amortization of input VAT on purchases of capital goods over a period of 60 months or their estimated useful life, whichever is shorter.
"We sincerely believe that a tax law must not be enacted to destroy businesses, but to encourage business activity and economic growth. The limitation on creditable input VAT will do the opposite," Dee said.
Dee also said PCCI's support on the increase in the VAT rate was premised on the belief that apart from helping government address the country's fiscal problems, "the revenues generated from the VAT increase will be channeled to productive activities such as infrastructure, health and other basic social services to improve the quality of life of Filipinos."
"While we have reservations on some of the law's provisions, it is imperative that, in the meantime, the law has to take its course and address these issues by amending the law at the start of the session of Congress," Dee added. (PR)
(July 8, 2005 issue)
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