VAT Rate Hike Benefits Creditors, Not the Public

Contrary to government claims that revenues from the EVAT would go back to the people in the form of enhanced services, IBON executive director Rosario Bella Guzman said that the underlying purpose of the EVAT implementation is to maintain the country’s creditworthiness by appeasing international credit rating agencies and commercial banks, and to be able to continue servicing the country’s debt.

By IBON Foundation
Posted by Bulatlat

Contrary to government claims, the additional two percent increase of the Value-Added Tax (VAT) rate is for the benefit of the country’s creditors and not the Filipino people, according to independent think-tank IBON Foundation.

Government economic managers implemented the expanded value-added tax (EVAT) in the context of the country’s growing budget deficit, or its inability to raise sufficient revenues to meet growing expenses. To recall, the EVAT was the most significant of President Gloria Arroyo’s package of revenue measures that she asked legislators to pass into law in the wake of her declaration of a “fiscal crisis”.

The EVAT law will be implemented in two phases: in November 2005 it removed VAT exemptions on many products and services, most notably the petroleum and electricity sectors; then, starting in February, the VAT rate will be raised to 12 percent from the present 10 percent. The EVAT is estimated to raise P97-P105 billion in additional revenues in 2006.

Government has claimed that revenues from the EVAT would go back to the people through enhanced health services, quality education, adequate food, agri-infrastructure and low-cost housing.

 But says IBON executive director Rosario Bella Guzman, the underlying purpose of the EVAT implementation is to maintain the country’s creditworthiness by appeasing international credit rating agencies and commercial banks, and to be able to continue servicing the country’s debt.

 Moody’s and other international credit ratings firms are scheduled to assess the country’s credit rates and release their conclusions within the first quarter of the year. Their ratings will determine the cost of the country’s borrowing in international financial markets, adds Guzman.

 It also should be noted that nearly 85 percent of the country’s 2005 revenues go to servicing public debt, which means government had to keep on borrowing in order to meet its current expenses. Although the cost of servicing the debt has been ameliorated somewhat by the strengthening of the peso against the dollar, debt payments still remain substantial. Some P720 billion has been allocated for total debt servicing of the principal and interest of the public debt, or around 68 percent of the proposed 2006 budget.

 Meanwhile, spending on social services has been falling. Government spending on education in the 2005 budget has fallen five percent since 2001, and that for health by almost 18 percent. Thus Guzman says, the increased revenue from the EVAT ultimately means drastic cuts in the budget for services and people’s welfare. This does not include yet the impact of the increased VAT rate on the prices of oil and basic goods and services. Posted by Bulatlat

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