Manila's new tax law sparks inflation fears
Manila's new tax law sparks inflation fears
MANILA (Reuter): Inflation is expected to rear its ugly head in the Philippines following the introduction of a 10 percent expanded value added tax (E-VAT) and a rise in domestic oil product prices, analysts and economists said yesterday.
"The consumers have been hit with a double whammy," Senator Gloria Macapagal-Arroyo, an economist, said in a statement.
"There's the E-VAT (whose) effect or ill-effect we still have to fully appreciate. And now we are dealt with another blow in the form of an oil price increase."
The Energy Regulatory Board (ERB), a state price-setting agency, announced late on Tuesday an average rise of three centavos (about one-tenth of a U.S. cent) in prices of domestic petroleum products effective immediately to cover the additional costs of oil firms, haulers and dealers under the E-VAT.
The rise came a day after the government introduced the new tax measure, which replaced more than 80 indirect percentage taxes on a wide range of goods and services.
Consumer groups, fearing a domino effect, have threatened to wage protests nationwide to force the government to suspend the controversial tax law.
Arroyo, who has been asking for a deferment of the E-VAT, said the tax and oil price hike would put additional pressure on inflation.
"Coming as we are from the rice crisis which until now has remained unresolved and with a double digit inflation of 11 percent (in November), the government will now have a difficult time stabilizing the economy given additional pressures on it," she said.
Joven Babaan, analyst at SBC Warburg Manila, said the E-VAT will cause temporary price instabilities because of "misinterpretation and misconception" about the measure.
He said the government has so far failed to explain in detail how the new tax will be applied or how it will be collected.
"But over the long term, price imbalances should start to normalize and everyone should start to realize the long-term positive effect of the E-VAT on the fiscal well-being of the government," he said.
The E-VAT is expected to generate between nine billion and 15 billion pesos (US$$343 million and $572 million).
But other economists said Manila should further refine the E- VAT.
University of the Philippines economist Benjamin Diokno said the expansion of the original VAT system, introduced during the time of former president Corazon Aquino in 1988, has many flaws.
"The E-VAT contained many features that should not be there, like additional tax that will be imposed on banks and financial intermediaries," he said.
Diokno said the expansion of the original tax measure was "giving the VAT system a bad name".
In the meantime, businesspeople have asked the government to intensify its information campaign to counter the confusion.
Industrialist Raul Concepcion said consumers should be made aware of items that already have been covered or exempted from VAT since 1988 or those with percentage taxes now replaced by VAT.