Friday, 27 March 2009

UP group proposes 15% VAT to shore up budget

By Roderick T. dela Cruz
With Joyce Pangco Pañares
Manila Standard

THREE economists from the University of the Philippines yesterday made major economic proposals to the next president, including one that would raise the value-added tax to 15 percent from 12 percent to strengthen the government’s fiscal position.

In the third Ricardo Romulo lecture series at the Dusit Hotel in Makati City, former Cabinet ministers under the Estrada administration and now UP economics professors Dante Canlas, Felipe Medalla and Benjamin Diokno listed several proposals for a new economic roadmap that would help the next administration address the global and domestic challenges ahead.

The lecture series was organized by the Makati Business Club in cooperation with the Bankers Association of the Philippines, the American Chamber of Commerce of the Philippines, and the European Chamber of Commerce of the Philippines.

Canlas, a former director general of the National Economic and Development Authority, said the challenge for the next president, who will be elected in 2010, was to achieve sustained economic growth and employment and macroeconomic and consumer price stability.

Diokno, a former budget secretary, said the success of the next administration would depend on the availability of financial resources, citing the need to raise the country’s tax effort by expanding the revenue base.

He predicted that the Bureau of Internal Revenue would face a revenue shortfall of P100 billion in the face of the global financial downturn this year, while the government’s fiscal deficit would exceed P200 billion.

“The first order of business for the next administration is to broaden the tax base,” Diokno said as he cited the need to rationalize the fiscal incentives given to companies, reform excise taxes, and make self-employed professionals like doctors and lawyers pay the correct taxes.

While the UP economists pushed for an increase in the VAT rate, they said the corporate income tax rate should be brought down to 25 percent from 30 percent.

“We should impose higher taxes on consumption and reduce taxes on income,” Diokno said. “Hard work should be rewarded.”

Diokno also proposed a national tax on property to be collected by municipalities. He said many local government units did not collect real estate taxes.

Medalla said the next administration should spend tax collections on infrastructure development and on doles to the poorest of the poor. Giving the poor cash was acceptable as long as they used the money to keep their children in school, he said.

Diokno said it would take P25 billion a year to give cash to the poor all over the country to help them survive the hard times.

The UP economists said that money should come from the savings to be had from the abolition of the National Food Authority, which lost P75 billion last year.

President Arroyo said it was possible that new taxes would be imposed during the remainder of her term, including a tax on text messages.

She said the government needed all the revenue it could generate to keep the deficit at bay.

“We have to compare our deficit with other countries,” she said.

“We have to make sure our deficit as a percentage of our gross domestic product is within the standards... because we have to be fiscally prudent.”

She declined to comment on a proposal in the House to impose a fee on every text message sent, saying she would wait for the results of the committee hearings.

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