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By Chino S. Leyco, Reporter
Lifting the value-added tax (VAT) on oil would
double the projected budget deficit for 2008, the Department of
Finance said Tuesday.
Finance Secretary Margarito Teves said
suspending the 12-percent VAT on oil would result in a foregone
revenue of P73.1 billion. The projected budget deficit for this year
is P75 billion.
On Monday, the country’s Roman Catholic
bishops proposed the freezing of the oil tax and a review of the Oil
Deregulation Law.
Teves said the lifting of the tax is up to
Congress, not the Finance department.
“Such proposal, however, would mean P73.1
billion in foregone revenue, which the government could otherwise
use to fund programs to help the poor cope with rising oil and food
prices,” he told reporters in a text message.
The government has put off a plan to balance the
national budget this year in light of rising inflation and a
slowdown in its largest export market, the United States.
According to Teves, the suspension of the
12-percent VAT on oil also will favor only those with high incomes.
Finance department “studies also show that
lifting the VAT on oil will largely benefit the rich, because they
are the biggest consumers of oil while most of the consumption of
poor families are VAT-exempt such as agricultural food products,”
he said.
The national government is seen to end the year
with a budget deficit of P40 billion to P75 billion, or not more
than 1 percent of the country’s Gross Domestic Product (GDP).
The International Monetary Fund earlier said the
government can afford a small budget gap, but not more than P75
billion to help protect the poor from the consequences of rising
fuel and food prices.
Ratings firm Standard & Poor’s said a
budget deficit equivalent to 1 percent of GDP is manageable. GDP
refers to the total value of goods and services produced in a
country in a year.
Fitch Ratings said it expects the shortfall of
the national government to reach P157.5 billion resulting from a
wide-ranging subsidy program being rolled out to compensate for
higher inflation.
“Fitch does not include privatization receipts
as revenue, so our deficit [projection] is going to be higher than
that of the authorities [in the Philippines],” said James
McCormack, Fitch Asia-Pacific Sovereign Ratings head.
The IMF had warned that lifting the 12-percent
VAT on oil would give investors a negative impression of the
Philippines.
Reza Baqir, IMF resident representative in the
Philippines, said the suspension is likely to go the way of the rich
and hurt the poor, who benefit from social programs funded by the
oil tax.
“The investor community has rewarded the
Philippines for raising the tax effort, in large part by reforming
the VAT,” Baqir added. “A reversal of these reforms could
threaten to erode recent gains, which would also hurt the poor.”
IMF studies show the poor are better protected
by increasing social spending rather than by reducing energy taxes,
Baqir said. “This is so because the benefits of social spending
are better targeted to the poor than those of reducing gasoline
taxes.”
Reducing fuel taxes largely benefit wealthier
households, which account for the bulk of consumption of fuel
products, Baqir said.
He added that the government should allocate a
greater share of its revenue to education and health to combat
poverty.
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