Philippine Supreme Court Allows VAT Ruling To Be Appealed

by Mary Swire, Tax-News.com, Hong Kong

21 September 2005

A motion was filed in the Philippine Supreme Court this week appealing the decision to allow a controversial new VAT law, which is seen as central to President Gloria Macapagal Arroyo's plans to increase tax revenues and reduce the country's reliance on debt.

The motion, filed by opposition lawmakers on Monday, means that the temporary freeze on the new VAT law will remain in place for several weeks whilst the court considers the appeal. The motion is seeking to overturn a ruling by the court earlier in the month, when judges voted 15-0 in support of the new tax law, passed in May.

Under the legislation in question, certain industries previously exempt from the 10% VAT levy, such as petroleum, power generation, airlines and shipping companies, would be required to charge tax. In addition, the new law entitles the president to raise the rate of VAT from 10% to 12% from January 2006 onward, as long as the government's budget deficit exceeds 1.5% of gross domestic product.

According to Francis Escudero, opposition leader in the lower house of Congress, the motion argues that the power given to the president to raise VAT was an illegal delegation of the legislature's duties.

The VAT measure is a key component of President Arroyo's eight-point tax reform, which seeks to improve tax collection and raise revenues to help pay down the country's escalating level of debt. At present, one third of the government's revenue is spent making debt interest payments, leaving little for investment in vital infrastructure.

However, the continued freeze on the new law may come as a blessing in disguise to some of Mrs Macapagal's allies, who are pushing for a deferment in the VAT hike on petrol and electricity until 2006 in an attempt to ease the impact of high energy prices caused by the escalating price of crude oil.

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