Tuesday, July 05, 2005
Gov't to SC: Lift stop order v. expanded VAT
MANILA -- Claiming that government stands to lose millions in revenues each day that the expanded value-added tax (VAT) goes uncollected, the Department of Finance (DOF) asked the Supreme Court Monday to lift the temporary restraining order (TRO) it issued on the tax law's implementation.
The tax--expanded to include fuel, power and other products and services previously exempted--is seen as crucial to cutting the budget deficit and attracting investors.
In a 50-page urgent motion, Finance Secretary Cesar Purisima, through Solicitor General Alfredo Benipayo, also asked the SC to require anti-expanded VAT petitioners to file a bond equivalent to P130 million per day until the case is resolved.
The amount, according to Purisima, represents the revenues that government would have earned with the implementation of Republic Act 9337 or the expanded VAT law.
The economy took a beating Monday as jumpy investors sold their pesos and dumped their stocks in reaction to the Supreme Court decision to suspend the expanded VAT law.
The peso closed at 56.09 to the US dollar, while the stock market index slumped as much as 4.2 percent.
Major credit rating agencies, meanwhile, expressed alarm at the Supreme Court decision, saying it heightened the perception of the Philippines as a risky place for investments.
Voting 13-2, Supreme Court justices earlier issued an indefinite injunction on the expanded VAT law, just hours after it took effect.
The petition for prohibition was filed by the House minority bloc led by Sorsogon Representative Francis Escudero, petroleum dealers associations from Petron, Caltex and Shell, and party-list group Abakada-Guro. Named respondents were Executive Secretary Eduardo Ermita, Finance Secretary Cesar Purisima, and Bureau of Internal Revenue Commissioner Guillermo Parayno Jr.
Government lawyers said the suspension of the implementation of the tax law, albeit temporary, endangers the country's fiscal capability such that government would not be able to bring down the country's budget deficit from P187 billion to P160 billion at the end of the year.
They said from July 1 to December 30, 2005, government would have earned incremental revenues amounting to P25 billion to 28 billion from the expanded VAT's implementation.
With the E-VAT law in place, government hoped to wipe out the entire budget shortfall to zero by 2008 if it could earn P130 million in revenues per day.
The peso dropped as far as 56.10 to the US dollar, within striking distance of last week's 5-1/2 month low of 56.25.
Currency dealers said the peso was saved from a heavier fall by sustained dollar buying by the central bank at 56.10.
Philippine dollar bonds held steady Monday after falling on Friday over the news of the tax freeze.
International credit ratings agency Standard & Poor's (S&P) said the suspension of E-VAT would have no immediate impact on the country's credit rating but would make the country more vulnerable in a global environment where interest rates are rising.
"This is a major disappointment to have come through a very long legislative process and then have legislators undermine it through the court systems," said James McCormack, head of Asia sovereign ratings for Fitch.
Added S&P: "The incident again highlights the difficulty of implementing fundamental reforms in the Philippines, where policy-making is prone to derailment by a highly politicized and fragmented legislature and the pervasive influence of vested interests."
The suspension of E-VAT, the credit ratings agency added, would further erode confidence in the administration's ability to address the fiscal deficit.
Purisima, in government's motion, quoted the dissenting opinion of Chief Justice Hilario Davide Jr. and Associate Justice Reynaldo Puno who said that "the collection of taxes cannot be enjoined, being the lifeblood of the nation" in voting against a restraining order.
He cited various SC rulings affirming the validity of a statute prohibiting the injunction of tax collection.
Other than Section 9 of RA 9282, expanding the jurisdiction of the Court of Tax Appeals (CTA), government said there is no statute that allows an injunction to be issued against the collection of taxes and that when CTA exercises this power, the taxpayer is required to file a deposit or surety bond for not more than double the amount.
"Laws are presumed to be valid unless and until the courts declare the contrary in clear and unequivocal terms," Purisima said.
Allegations of the law's unconstitutionality do not warrant the issuance of a TRO, Purisima said, noting that the law should enjoy the presumption of constitutionality.
Moreover, he argued, the amount of damage the petitioners said they would suffer as a result of the implementation of the E-VAT Law would be far less than what the government and the public would bear as a result of the TRO.
"What is worse, the country has no way of recovering the revenues lost during the effectivity of the TRO," Purisima said.
Purisima said that at P4 billion to P5 billion estimated collection monthly, government stands to lose P150 million to P160 million each day that the e-VAT is not imposed.
The petitioners against the e-VAT Law say it is unconstitutional because it gives the President the standby authority to raise the tax rate to 12 percent next year, a power that they say belongs exclusively to Congress.
The petroleum dealers, on the other hand, question the provision in the law that limits their ability to offset VAT paid on their purchases (input VAT) against VAT charged on sales (output VAT).
Newly-installed Bangko Sentral ng Pilipines (BSP) Governor Amado Tetangco Jr. said the market is monitoring what's going to happen with restraining order on the tax law's implementation.
Tetangco said the passage of the VAT has been a source of optimism as it showed that the Philippines is on its way to addressing the fiscal deficit problem in a decisive way.
Tetangco, who took his oath before President Arroyo in Malacañang Monday as new BSP governor and Monetary Board chairman, turned over a P1.6 billion check to the National Treasury as BSP's contribution to the fiscal consolidation program. (ECV/JMR/Manila Standard Today/Sunnex)
(July 5, 2005 issue)
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