Philippine VAT Hike Proposal Backed By Economists

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

30 March 2005

A proposal to increase the rate of value added tax levied on businesses and consumers in the Philippines by 2% has won the support of a group of prominent Manila economists, the Financial Times has reported.

A bill hiking the rate of VAT from 10% to 12%, one of eight revenue-raising measures intended to stave off a debt default and maintain the confidence of foreign investors, has already been approved by the House of Representatives.

An alternative plan favoured by the majority of the Senate has called for a freeze in the current rate and a reduction in the number of items exempt from the tax.

However, in a paper released by the Philippine School of Economics, eleven economists, including two former finance ministers, have backed the lower house’s proposal, which they calculate will raise 63 billion pesos (US$1.15 billion) in additional revenues, against the 29 billion pesos that would be raised under the Senate’s proposal.

According to the economists, the idea that VAT revenues can be significantly boosted without an increase in the rate is “misleading”, the FT reported.

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