Philippines gets boost with VAT law ruling
The Philippine high court on Tuesday upheld the constitutionality of the country’s new value-added tax law, the centrepiece of president Gloria Macapagal Arroyo’s fiscal reform programme, in a move that should boost investor confidence.
The ruling paves the way for the implementation of a key element of Mrs Macapagal’s effort to cut budget deficits and curb heavy government borrowing that holders of Philippine sovereign bonds fear could lead to an Argentine-style debt default. The tax is set to take effect on November 1.
The supreme court decision “will help reduce the fiscal deficit and allow more resources for job-creating infrastructure and the delivery of key services,” said Gary Teves, finance secretary.
The law, which expands VAT to include petrol and power, raises the tax rate from 10 per cent to 12 per cent from 2006 and boosts the corporate income tax rate from 32 per cent to 35 per cent. The tax is estimated to boost government revenue by 80bn pesos a year.
Mrs Macapagal wants the budget deficit, which was 187bn pesos last year and expected to be 180bn pesos this year, to be eliminated by 2009 or 2010.