Purisima open to VAT increase, income tax cut


Posted at Jan 21 2011 09:29 PM | Updated as of Jan 22 2011 05:45 AM

MANILA, Philippines - Finance Secretary Cesar V. Purisima is amenable to the proposal of his predecessor to raise value added tax (VAT) rate if this is paired with reduction in income taxes.

However, since President Aquino has promised not to raise taxes, Purisima said the government will not make a call for an increase in VAT within the next 18 months.

"Down the road, I would like us to go to Congress, but after we have done our homework then we will have the moral ascendancy to ask for increases," Purisima said.

During the presidential campaign in 2010, President Aquino said his government will run after tax evaders to boost state revenue and cut the budget deficit.

It is expected that the 2010 budget gap has widened to P320 billion. While this amount could still be around P5 billion less than the target P325 billion for the year, it is still a record high.

This despite the almost weekly charges against allegedly erring tax payers and smugglers.

Teves proposal

To arrest the widening budget gap, former Finance Secretary Margarito B. Teves had proposed to the Aquino administration to raise the VAT, a consumption tax, gradually to 15% from 12%.

Initial estimates from the Department of Finance (DoF) showed the increase in VAT would generate an ultimate windfall of about P73.92 billion yearly if VAT rate is increased gradually to 15% in the next 5 years.

The increased revenues are expected to be realized even if the corporate income tax of 30% is reduced to 25%.

Other fiscal measures being considered include the rationalization of fiscal incentives and raising the excise tax on sin products like cigarette and alcohol.