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VAT Restructuring bill approved on 3rd reading
House provides safety nets on basic goods
27 January 2005 04:19:28 PM
Writer: Noel Albano/Diony Tubianosa, PRID

Amid dire warnings of an economic collapse if the government failed to address the huge budget deficit, a majority of the House of Representatives early Thursday morning approved on third and final reading legislation raising from 10 to 12 percent the Value Added Tax that could give the government some P35-billion to P60-Billion in new revenues.

The final vote was 126 in favor and only 11 against with no abstention, giving a boost to the government’s strong program to pursue fiscal stability and fresh domestic funds for the country’s developmental projects, Speaker Jose de Venecia said.

“We kept our word to the Filipino people and to the international community, that we are moving rapidly to put our house in order,” de Venecia said after the grueling 14-hour marathon session.

The proposed Value-Added Tax (VAT) Restructuring Act, or House Bill No. 3555, is the sixth revenue measure approved by the House in three months and by far the one with the highest revenue yield that could boost new revenues to P110-billion, well in excess of P800billion government target to turn around the economy.

Earlier the House approved the bills raising excise taxes on sin products, lateral attrition, tax amnesty, fiscal incentives, and a bill extending the Pagcor franchise by 25 years.

De Venecia stressed that “increasing the VAT rate now could be the most crucial act needed by our country in preventing the financial crisis.”

He said the House provided major safety nets for the poorest of the poor and the middle class by exempting basic consumption commodities such as rice, corn, fish (bangus, tilapia, galunggong), eggs, noodles, fruits, beef, pork, and chicken from the coverage of the VAT system.

More exemptions are being contemplated and could be taken up in the bicameral conference with the Senate, de Venecia said.

The Speaker has instructed House Secretary General Roberto Nazareno to promptly transmit the House-approved measure to the Senate. “Its passage by the Senate will definitely put an end to the national apprehension about civil crisis, substantially reduce foreign and internal borrowings, and lead to a balanced budget by 2008,” de Venecia said.

He commended Ways and Means Committee Chairman, Rep. Jesli Lapus, Deputy Speakers Raul del Mar and Benigno Aquino III, Majority Leader Prospero Nograles, Appropriations Chair Rolando Andaya Jr., Harlin Abayon, and the bill’s sponsors, Reps. Exequiel Javier, Herminio Teves, Eric Singson, Junie Cua, Antonino Roman, Del de Guzman, Mikey Macapagal-Arroyo, Iggy Arroyo, Luis Villafuerte, Arthur Defensor, among others for the urgent passage of the measure.

The House leaders hailed the Speaker for “marshalling political will to gain the measure’s approval, while mitigating the effects of the VAT system on the masses and the middle class.”

Lawmakers crossed party lines in support of the VAT measure during a long and emotional session presided over by Deputy Speaker del Mar lasting until nearly 3:45 in the morning. A few members of the minority walked out, but the House maintained a quorum needed to approve the vital measure certified by Malacanang as urgent.

Rep. Villafuerte of Kampi said that of 121 countries that have imposed value-added taxes, a total of 98 have VAT rates of 12 percent or more. Only the Philippines and Ecuador have pegged their VAT rates at 12 percent, he said.

Those who voted in favor of the bill cited the national interest above partisan and parochial concerns, arguing that Filipinos, especially the poor, could suffer more if the government failed to address the burgeoning budget deficit and fiscal crisis.

“Our people have to share the burden—we must swallow the bitter pill now,” said Rep. Juan Miguel Zubiri. Rep. Federico Sandoval said “deciding the future of the nation’s economy is not about making popular choices” but about making the right decisions.

Rep. Roilo Golez, who voted against the original VAT legislation twelve years ago, said experience has now revealed the wisdom behind the VAT system and voted yes.

Rep. Monico Puentevella said those who walked out earlier in the night after failing in their bid to have the bill recommitted to the committee don’t have the monopoly of pro-poor sentiments. He questioned their motives, which he said could be to see the collapse of the national economy and the fall of the Arroyo government.

Other solons said those who walked out committed a “breach of parliamentary courtesy” and as elected officials should have stayed on until the final vote was taken.

Party-list solons representing the peasant and urban poor sectors all voted in favor of the bill, arguing that fresh revenues will mean more services, livelihood opportunities and infrastructure projects. They are party-list Reps. Leonila V. Chavez of Butil. Guillermo Cua of Coop Natco, Mujiv Hataman of Anak Mindanao, Eulogio Magsaysay of Ave, Rodante Marcoleta of Alagad, Edgar Valdez of Apec, and Rene Velarde Velarde of Buhay.

Three prominent solons that had earlier opposed the measure--Reps. Teodoro Locsin Jr.. Rozzanno Biazon, and Rodolfo Plaza—voted in favor.

The VAT measure is contained in House Bill 3555 entitled: “An Act Restructuring the Value-Added Tax, amending for the purpose Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code of 1997, as Amended, and for other purposes.”

President Macapagal-Arroyo, in a January 7 message to Speaker de Venecia and Senate President Franklin Drilon, certified HB 3555 to necessitate the immediate passage of the measure on final reading.

Approval of the measure, the President said is intended to frontally “meet the public emergency arising from the urgent need to introduce appropriate revisions in the VAT system in line with the government’s pursuit of fiscal stability and to generate fresh domestic funds for the country’s development programs and projects.”

Singson noted that since 1988, VAT collections have been on a consistent rise, reaching a high of P82.63-B in 2003, up by more than P16-B from the 2002 collections.

“From the paltry P5.74-B collected in 1988, VAT collections have increased by an average of 20.64% for the period 1988 to 2003,” Singson noted.

HB 3555 “does not introduce any exemption from the VAT” but the transactions already exempted from VAT under existing laws remain exempted and, therefore, not affected by the 2 percent VAT increase.

Furthermore, to mitigate the impact of the increase in the VAT rate, the 1.5 percent presumptive input tax credit allowed on agro-processors (Sec. 11 (a); 1997 NIRC) is proposed to be increased to 3.5 percent of the value of primary agricultural purchases. This will cover the processing of sardines, mackerel and milk, and the manufacture of refined sugar and cooking oil.

The list of agro-processors was expanded in plenary to cover manufacturers of instant noodles and makers of home-based processed food products like tocino, longanisa, hotdog, corned beef and embutido.

The sponsors argued that the progressive adjustment of the VAT system makes it comparable to the rates of other economies, some of which have increased theirs one time or another.

Singson noted that China, Bangladesh, France, Germany, Greece, Italy, Mexico and Pakistan are among 98 countries whose VAT rates are more than 10%. Iceland has the highest rate of 24.5%.