President Gloria Macapagal Arroyo's tax reforms were dealt a blow last week when the country's Supreme Court ruled that an increase in value added tax was illegal.
Little more than a few hours after the VAT measure went into effect, the Supreme Court moved to freeze its implementation, after opposition lawmakers petitioned the court arguing that it was unconstitutional for the president to increase the tax without their approval.
Under the new measures, certain industries previously exempt from the 10% VAT, such as petroleum, power generation, airlines and shipping companies, were required to charge VAT as part of a package of tax measures designed to rein in the country's growing budget deficit and reliance on debt.
The court's decision sent jitters through the local financial markets as the benchmark Philippine Stock Exchange fell by 2% in early trading on Monday.
The ruling was described by Finance Secretary Cesar Purisima as a "serious setback" which will deprive the government of up to 5 billion pesos ($54 million) in revenues for every month that the temporary suspension of the VAT measure is in place.
Government lawyers have indicated that they intend to file a motion challenging the Supreme Court's action.
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